2 Marketing Strategy of Starbucks Coffee

Executive Summary

Starbucks is the world leader in the premium coffee market and has an amazing success story. In this study the key factors for the successes of Starbucks are analyzed. The distribution strategy of Starbucks, e.g. through coffee stores, grocery markets, and new retail channels, is investigated. Additionally, problems of the rapid expansion of Starbucks in national and international markets and their solutions are discussed.

Starbucks sells not only its coffee; it sells the “Starbucks’ experience”. The company is successful to convey its vision to the customers. It can convince customers paying more for high-quality products and a new life style. Starbucks reached its goal to establish and leverage its powerhouse premium brand through rapid expansion of retail operations, introduction of new products and store concepts, as well as development of new distribution channels.

Starbucks has revolutionized the coffee business. The main marketing strategy is to represent Starbucks’ store as a “third place” between work and home. The company could increase the market share in existing markets and open stores in new markets rapidly. Additionally, Starbucks always tries to expand its products portfolio. The company cooperates and takes alliances with other companies to develop and distribute new products. As the result, Starbucks has developed from a local coffee bean roaster and retailer in the US to a multinational coffee and coffeehouse chain with more than 14,000 stores in 42 countries.

The rapid expansion of Starbucks leads unfortunately to some serious problems. The company has to fight with the commoditization of Starbucks’ brand because of a series of decisions which are necessary for the rapid business growth. Getting back to the score, being smarter in efforts of time, money, and resources, pushing innovation, and doing things necessary to once again differentiate Starbucks from all others are the keys for business success in the future.

Marketing  Strategy of Starbucks Coffee  3

Table of Contents

Executive  Summary.  2

Table of  Contents  3

List  of Abbreviations  4

List  of Tables and Figures  5

1  Introduction.  6

2  Main Part  8

2.1  The effect of Starbucks’ entry into the grocery market  8

2.2  The “Starbucks’ experience and new retail channels  10

2.3  Key factors for Starbucks’ success.  11

2.3.1  New definition of coffee store  12

2.3.2  Strategy for store expansion.  14

2.3.3  Innovation in products and store concepts  16

2.4  Problems of the rapid expansion and their solutions  17

3  Conclusion.  19

4  ITM Checklist  21

4 Marketing Strategy of Starbucks Coffee

List of Abbreviations

ITM Integral Total Management US United State BRIC Brazil, Russia, India and China

5 Marketing Strategy of Starbucks Coffee

List of Figures

Figure 1 - Store expansion of Starbucks in the last 20 years. .......................................... 15 (Self created from data of Starbucks Corporation)

6 Marketing Strategy of Starbucks Coffee

1 Introduction

In a sunny day in May 2002, people lined up on the Pariser Plaza in Berlin and waited for the opening of the first Starbucks coffeehouse in Germany. Howard Schultz, the founder and chairman of Starbucks Corporation, told customers about his wonderful vision and success story. ¹ In 1983 he visited Italy and drank his first espresso in a coffee bar in Milan. He was immediately impressed and deeply inspired with the Italian coffee culture. He lauded: “There was nothing like this in America. It was an extension of people’s front porch. It was an emotional experience”. ² He applied successfully the concept of Italian espresso bar to the United States. He built Starbucks from a local coffee bean roaster and retailer in Seattle to a famous international corporation with 7.8 billion USD sales and 894 million USD earning. The “Espresso bar idea” combined with the “American way of business” brought Howard Schultz a private property of 700 million USD, and Starbucks became a strong brand worldwide. 3

The fact, that not every coffee bar gets success automatically, could be shown in a counter-example of Jacobs’s coffeehouse “J-Cups” at rail station Zoo in Berlin. In a bar with modern design, coffee with milk and sugar comes in a flash from the coffee maker by pushing a button and can be served quickly to the customer. However, the most customers want to enjoy the moment, as their coffee is brewed. They love relaxing by drinking a cup of coffee in a convenient atmosphere. The Jacobs’s coffee bar with its modern silver metallic cyber look should be closed because of a low number of customers. 4

These examples demonstrate the reality in the hard-fought coffee market and the changing needs of customers. Coffee drinking is not only a demand and a habit; it is also a part of quality of life and a life style nowadays. Only companies, which can

¹ Steinborn, D. (2003). Der Kaffe-König. Available from http://www.zeit.de/2003/17/Starbucks?page=all (accessed on 08.01.2008).

² Kotler et. al (2006), p. 691.

³ Dowideit, M. (2007). Starbucks trauert Kaffehaus-Romantik nach. Available from http://www.welt.de/wirtschaft/article736978/Starbucks_trauert_Kaffeehaus-Romantik_nach.html (accessed on 08.01.2008).

⁴ Huhn (2001). Expansion mit Espresso. Available from

http://www.zeit.de/2001/47/200147_coffeeshop.xml?page=all (accessed on 08.01.2008).