Starbucks

9-801-361REV:SEPTEMBER30,2005________________________________________________________________________________________________________________ProfessorNancyF.Koehnpreparedthiscase.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.ThecaseisbasedonherbookBrandNew:HowEnterpreneursEarnedConsumers’TrustfromWedgwoodtoDell(Boston:HarvardBusinessSchoolPress,2001).Copyright©2001PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.NANCYF.KOEHNHowardSchultzandStarbucksCoffeeCompanyPrologue:InternationalExpansionOnAugust2,1996,StarbucksCoffeeCompanyopeneditsfirststoreoutsideNorthAmerica.LikemanyofitsU.S.andCanadianoutlets,thenewstorewaslocatedinabusydistrictofaprominentcity—Tokyo.Starbucksmanagershaddevotedmuchtimetoselectingthesite,designingthestore’slayoutandfixtures,trainingitsstaff,andpublicizingitsintroduction.Aseriesofevents,includingreceptionsandpublicsamplings,attractedconsumerinterestinthenewstore’sspecialtycoffeedrinks,whole(unground)coffeebeans,andpastries.Forexample,amanwithacontaineroficedcoffeeinhisbackpackandalonghosepouredshotsofthecoldbeverageforpassersbyonthesidewalk.1ChiefExecutiveOfficerHowardSchultzflewinfromthecompany’sSeattleheadquarterstocelebratetheopeningandobserveconsumers’reactions.ThenewstorewassituatedataprimecornerinTokyo’sswankGinzadistrict.Surroundedbycommercialactivity,theestablishmentwasboundtoattractattentionfromthousandsofpedestrianseachday.Inkeepingwithestablishedpractice,thecompanyintendedtorelyonconsumerwordofmouthratherthanontraditionaladvertising.TheStarbucksbrandhaddevelopedquicklyintheUnitedStatesandCanada,gainingwidespreadrecognitionandinterestamongconsumersinthesecountries.InenteringAsia,Schultzandhisseniormanagementteamwerebettingthatthecompany’sreputationwouldhavebroaderappeal.Asthestoreopeningapproached,however,theCEOcouldnotavoidsomelast-minuteworriesaboutTokyocustomers’response.“What,”heaskedhimself,“couldthenameStarbuckspossiblymeantotheJapanese?”2August2inTokyowasahotday—95degreesFahrenheitwithalmost100%humidity.“IhadnoideaTokyocouldbesohot,”Schultzremembered.ButJapanesecustomers,hecouldsee,werenotdeterred.Customersfilledthestorefromopeningtoclosing,liningup40to50peopledeeptotryStarbuckscoffee.Businessmeninsuitscame,asdidelegantlydressedwomenandstudentswithbooksandbackpacks.SomecustomersboughtFrappuccino®blendedcoffeedrinks,whichStarbuckshadinventedayearearlier.“Wehadbeenwarnedthat,culturally,theJapaneserefusetocarryto-gofoodorbeveragesonthestreet,”Schultzrecalled.“YetmanycustomerswerewalkingoutthedoorproudlycarryingtheirStarbuckscups—withthelogoshowing.”3Overthefollowingdaysandweeks,consumersofallagescontinuedtocrowdintothenewstoreand,atlunchtime,overflowedontothesidewalk.Somecametobuycoffeebeans.Somecametosampletheambienceinthecity’snewestcoffeebar.Others,whohadheardofStarbucks,wantedto801-361HowardSchultzandStarbucksCoffeeCompany2learnmoreaboutthebrandanditsofferings.Mostpeoplestandinginlineintendedtobuyacaffelatte,cappuccino,orotherspecialtycoffeedrinkthattheyassociatedwiththeyoungcompany.Schultzwasimpressedbythecustomers’enthusiasm.TheStarbucksbrand,herealized,“hadthesamepowerinTokyothatithadinNewYorkandSeattle.Ithadtakenonalifeofitsown.”4Schultzhadboughtthecompanyin1987,whenitwasstillasmallSeattleretailer,mainlysellingcoffeebeans.Intheensuingnineyears,ithadbecomethenation’slargestpurveyorofspecialtycoffee,sellingthebeverageservedinvariousways,alongwithcoffeebeansandrelatedfoodandmerchandise.Between1992and1996,annualrevenueshadincreasedmorethan650%,climbingtoalmost$700million(Exhibit5).5Mostofthisincreasehadbeendrivenbytheswiftproliferationofcompany-ownedstores,withtherestofitcomingfromtwothrivingdivisions—mailorder,andspecialtysales,whichsoldcoffeetorestaurantsandotherinstitutionalpurchasers.In1987,Starbuckshad11outlets;nineyearslater,over900.Infiscal1996alone,thecompanyopened330outlets,anaverageofalmostoneaday.6AsthebusinessmovedintonewU.S.andCanadianurbanmarkets,consumerawarenessofspecialtycoffeeandtheStarbucksbrandwidenedconsiderably.Bythemid-1990s,millionsofNorthAmericansassociatedthecompany’snamewithsuperiordark-roastcoffee,customizedespressodrinks,responsivecustomerservice,andanappealingstoreexperience.AllianceswithDreyer’sGrandIceCream,Pepsi-ColaCompany,CapitolRecords,Barnes&Noble,UnitedAirlines,andotherorganizationspromisedtobroadentheStarbucksproductline,distributionchannels,andnamerecognition.Marketingexpertsandfinancialanalysts,impressedwiththecompany’sgrowthandimpactonthelargercoffeeindustry,regardedStarbucksasoneofthestrongestyoungconsumerbrandsinNorthAmerica.7Itwasanidentitythatco