Starbucks Company Market Analysis

0105.363.01 Marketing 20062

RIT Professor Marty Lawlor
Team 5: Stacy Di Mora, Karyn Lewis, Sarah Lind
Executive Summary

Starbucks Company
Our team of external consultants has been queried to assess the gourmet coffee market for
Starbucks Co. in order to develop a marketing strategy with recommendations for the
company.

We’ve crafted a strategy to improve the sales of existing products and justify the launch
of a new product offering, detailed in this document. We did this through completing a
market analysis, determining the current strengths, weaknesses, opportunities, and threats
facing the company, defining the market segmentation, target market, and product
positioning for the company, and outlining the company’s current and opportune
marketing mix.

As standing, Starbucks is the world’s number one specialty coffee retailer, currently with
more 12,000 coffee shops in more than 35 countries. The outlets offer hot and cold coffee
drinks and few food items, as well as beans, some coffee accessories, and teas. The
company owns about 7,100 of its shops, which are located in about 10 countries—though
mostly in the U.S.—while licenses and franchises operate more than 5,300 units
worldwide. In addition, Starbucks markets it coffee through grocery stores and licenses
its brand for other food and beverage products.

We’ve found the popular coffee company underscores a simple truism: a good idea is not
enough; its execution is critical (Forbes). The company adds hundreds of outlets each
year, yet quality and service rarely suffer. Furthermore, the success of the company
underscores the fact that America can successfully compete even in non-high-tech
products and services as long as there is an environment that encourages innovation in
product and marketing creativity.

If coffee behaves like pizza, hamburgers, any many other retail segments, it will mature
from a fragmented collection of players into a segment dominated by a few large chains.
In addition, customers will be expecting more from their coffee providers. Many local
and regional operators are doomed. The bigger picture for Starbucks is building a brand
that transcends java to include an array of other items, like custom-made food items, that
can compete with the fast-food market. It’s on its way to becoming the “Nike or Coca-
Cola” of the market segment.

However, the tables can turn. Starbucks has occasionally suffered the big chain’s
burden—the same kind of anti-corporate backlash that big businesses like McDonald’s
and Wal-Mart have faced.

In the face of this competition, we recommend Starbucks enhance and expand the drive-
thru experience for the majority of their stores, open up and experiment with new venues
of advertising, and make exclusive their development of made-to-order food products
such as gourmet sandwiches to their product line, as tested in few outlets.

0105.363.01 Marketing Analysis—Starbucks Co. 2

Market Analysis

Market Snapshot
Right now the gourmet coffee business is hot. It is the ultimate commodity—anyone can
now grind coffee beans in their kitchen, and virtually every food outlet sells the stuff
(Forbes). From multi-national fast food chains and service stations to street-corner coffee
carts, a lot of new players want in on the boom. Big companies are moving in on the
supply of specialty branded coffees and the battle is heating up.

The current market is certainly sustainable for the number there is now, but it is yet
unknown how it will hold up to more. Growth in the coffee industry is expected to peak
around year 2010, and between now and then a slow but steady increase in the number of
mergers is predicted (The Gale Group). The biggest competition the market faces is from
overseas companies that are coming in and buying business—using special discounts and
perks despite the questionable quality of the coffee itself to increase its market share
(Forbes).

Specialty coffee is one of the fastest growing food service markets globally, with a net
income of approximately $9.6 billion in 2004 in the U.S. alone, due to the explosion of
cafes and gourmet retailers in the 1990s (The Gale Group). The industry trade group
Specialty Coffee Association of America (SCAA), in its Retail in the USA 2005 report,
stated that at the end of 2005, coffee sales had reached $11.05 billion. In 2005,
Americans drank more than 300 million cups of coffee, with 75% of those being home
brewed. 15% of all Americans drank a cup or more of specialty coffee daily, an increase
of 6% from 2000.

An early 1990s study by the SCAA noted above-average consumption in the Pacific,
Middle Atlantic, and New England states and found gourmet coffee drinkers tended to be
slightly more affluent than average and that they lived or worked in big cities (The Gale
Group). Gourmet coffee consumption also rose with the drinker’s educational level.
Those who finished college bought 49% more gourmet coffee on average and those with
some postgraduate education bought 71% more. Furthermore, households with children
and two working parents bought 28% more gourmet coffee.

Trends
Within the gourmet coffee market, there have been more and more similarities to the
sophistication of the wine industry. Once people drank simple wines, but now they are
extremely brand conscious and have strong preferences. The same is being seen with
coffee. With this, there is often a significant increase in sales every time a café starts
using branded consumables. The consensus is that these coffee drinks are a long-term
trend, not just a flash in the pan, with the goal of elevating people’s taste for something
they’re already quite familiar with and leading them to coffee houses to get it (Scarpa).

Many companies are tinkering with expanded food menus as well. An in-store display of
fresh baked goods and sandwiches and Ceaser salads has been shown to increase sales

0105.363.01 Marketing Analysis—Starbucks Co. 3

about 30% or more (Scarpa). Some feel that as the segment matures, customers will want
more than just coffee. One of the newest trends in the domestic market is drive-thru
coffee stores (The Gale Group). Starbucks had 540 drive-thru stores in early 2004, all of
which were seeing continual growth and long lines.

Another trend includes consumer requests for organic coffees, which provokes more
emphasis by retailers on the beans’ growing environment (The Gale Group). The array of
products was never wider as retailers added more flavors to whole beans and variations to
the basics of espresso and steamed milk. The more clever retailers have added coffee
shakes and iced tea concoctions such as chai to their menus to outdo competitors who
offer mere iced lattes. Since most specialty retailers also retail whole beans, many stores
have added home espresso machines, coffee grinders, and other brewing supplies for add-
on sales. To further increase market shares, many gourmet coffee companies have also
ran catalog sales departments and competed for new wholesale clients such as restaurant
chains and supermarkets.

Many industry firms today, as well as Starbucks, sell whole beans in addition to their
individual drinks at their stores. They serve coffee drinks to consumers in two forms: the
filtered drip coffee familiar to most Americans, and European-style espresso—a more
concentrated form of the brew—which is harder for consumers to make at home (The
Gale Group). Despite efforts to expand coffee’s daypart, we’ve found that most coffee is
consumed in the mornings (Scarpa). The following chart shows coffee consumption
throughout the day.

Share of Coffee
Consumption
Evening 7%
Lunch 8%
Afternoon 8%
Dinner 8%
Morning 16%
Breakfast 54%

Primary Strategies
The key to economic growth is not just the low cost of production, it’s the value-added—
the innovation, design or architecture, or the sheer intangible or exciting fashion of a
brand (Forbes). It’s more than just the product itself. Success in the gourmet coffee
market requires a strong name, a good training program, and excellent customer service.

Success is listening to the customers’ needs, devoting business and research means to
come up with solutions, then creating products that serve each the customers, the
environment, and corporate business objectives (Pigott). Businesses that have committed
themselves to standing for something beyond their product in an authentic, meaningful
way aren’t just connecting with their customers—but changing the way their employees
feel about their place of work.

0105.363.01 Marketing Analysis—Starbucks Co. 4

With the evolution of the coffee shop from mere fueling stations to away-from-home
gathering places, entertainment spots, and an alternative to bars serving alcohol, success
is also making an effort to make branches all the more café-like for a more friendly,
casual atmosphere (Scarpa). The welcoming atmosphere has enabled Starbucks to sell an
array of tempting and expensive extras such as pastries and CDs. Starbucks’ principle
marketing strategy is inventing a new way to do something that people have been doing
for years, and focusing their business around their customers. They employ themes such
as using chalkboards to display menu items and prices, extras like CDs, and holiday-
related food and beverage items. The company has also achieved market dominance by
imbuing in its brand social issues such as fair trade, sustainable development, literacy,
and clean water (Pigott).

The company also strategically pays attention to how it labels its products. Instead of
small, medium, and large, for example, Starbucks uses “tall,” “grande,” and “venti.” In
this way, the company underscores a simplistic truism—the execution of a good idea is
critical to its success. The company’s ultimate goal is to build on the brand that
transcends java to include an array of other items—such as branded ice cream, bottled
beverages, beer, and perhaps even cyberspace (Scarpa).

Competition
Starbucks top competitors include primarily Dunkin Donuts, Nestle, and Tim Hortons
(Bramhall). It is predicted that specialty coffee will follow the pattern of other fast-food
segments, in which a few dominant chains gobble up weaker business, but a full-scale
shakeout is still far off (Scarpa). Other signs of the maturing of the segment were the
initial public offerings by small players determined for success in the market. Mall-based
coffee inlets have a widespread franchise system and a big trade in whole beans, brewing
wares, and coffee drinks. However, building lots of stores isn’t the only definition of
growth. Wholesale business is a large chunk of the market.

Other than specific businesses, there are several other risks to the gourmet coffee market
(Freidman, Billings, Ramsey).

- High gas prices, minimum credit card payments, and a slower housing market could
cause the consumer to cut back on spending on food away from home.

- Spikes in dairy or coffee prices could hurt margins.

- Starbucks’ international business produces approximately 10% of earnings, primarily

from Canada, the U.K., and Japan. Economic weakness or exchange rate fluctuations
in these markets could have a negative effect on Starbucks.

- Expectations for Starbucks are very high, reflected in its P/E ratio. If same-store sales
should slow below the market’s expectations, the stock’s reaction could be
significant.

0105.363.01 Marketing Analysis—Starbucks Co. 5

- The restaurant sector is a very competitive space, with few barriers to entry. Increases
competition in specialty coffee, including new café opening and entry into specialty
coffee by larger fast-food or packaged food competitors, could hurt Starbucks.

- Terrorist incidents in the U.S. or abroad could hurt consumer spending.

- Weather can have a short-term effect on sales.

Positioning and Relative Market Shares

Starbucks is a high-margin brand that serves about 4 million customers per week
(Forbes). Furthermore, the company also currently owns Seattle’s Best Coffee and
Torrefazione Italia coffee brands (Bramhall). The company is sitting comfortably in the
stock indexes, currently included in the S&P 500, ranking in at #338 in FORTUNE 500,
and #240 in FT Global 500. At the end of September, Starbucks’ 2006 sales were
upwards of $7,786.9 million, with sales growth of 22.3% over a year’s span (Bramhall).

Given the rate at which branches of Starbucks are springing up, it could be mistaken that
consumers are so hooked on coffee that the two biggest makers of grocery store coffee—
Nestle and Kraft—must be enjoying unparalleled success (Claire). However, there is
evidence that a more plentiful supply of specialty coffee drinks is making consumers—in
urban areas at least—turn their noses up at standard grocery brand coffees. The maturity
of the coffee market means that the major manufacturers are searching for ways to
squeeze out some value growth. The below highlights the market share of the top
competition for gourmet coffee, compared to that of the market and industry median.
Starbucks takes the lead in profitability.

Profitability Starbucks Dunkin Nestle Tim Industry Market

Hortons Median Median
Gross Profit 59.20% -- -- 27.90% 24.50% 51.30%
Margin
Pre-Tax 11.60% -- -- 18.60% 4.80% 6.40%
Profit Margin
Net Profit 7.20% -- -- 12.90% 3.80% 4.90%
Margin
Return on 26.1% -- -- 36.0% 11.6% 9.4%
Equity
Return on 14.2% -- -- 11.4% 6.2% 1.6%
Assets
Return on 19.6% -- -- 13.6% 7.3% 4.3%
Invested
Capital

0105.363.01 Marketing Analysis—Starbucks Co. 6

Intended Customer Segment
Starbucks is an international company that is recognized and respected. It’s is well known
for its coffee as well as the relationships formed with its customers. The typical gourmet
coffee fan is that sought-after individual with high levels of education and disposable
income (Scarpa). This targets college students and business people in general, as well as
individuals from the baby boomer generation to generation Y. Starbucks aims to promote
their brand and the coffee experience to foster human connections—which is what
Starbucks advertising is all about (starbucks.com).

SWOT Analysis

Strengths
- Customer Loyalty—Starbucks has very strong brand recognition and faithfulness
among those who frequent the coffee shop. The Starbucks “high flyers” are known to
frequent stores at least three times a week, if not more.

- Employee Loyalty—Starbucks’ partners are their greatest assets. They empower

their employees, allowing them to make their customers’ experiences memorable and
satisfactory.

- Themes—Each Starbucks store is allowed its own individuality, though the business
as a whole is unified in the look and feel of the restaurant envionment. For example,
chalkboards are used for creativity in expressing the menu. CD’s, books and movies
are also sold, which the company helps to produce and/or promote. The book
readings and signings have been very successful for both Starbucks as well as the
individual authors.

- Social Issues—Starbucks supports many social issues including, but not limited to:
Fair Trade Organization, literacy, clean water and health issues.

- Coffee is still an up and coming industry, and Starbucks is growing right along with
this business.

Weaknesses
- Some of the stores may be overpowering to the cultures they merge into. For
example, in their Dublin store in Ireland, local coffee shops open mid to late morning,
while Starbucks opens much earlier. Some people feel that this takes away from the
laid back atmosphere of the Irish culture (Hammonds).

- Starbucks has a somewhat narrow product line for their overseas countries. For
example, it is hard for Starbucks Coffee to promote tea in China.

0105.363.01 Marketing Analysis—Starbucks Co. 7

- Many people and industries view the company’s lack of advertising as a negative
business strategy.

- Over-expansion: too many stores. Starbucks may eventually become too big for
itself.

- Over-expansion: too many products. Right now Starbucks is venturing out of the
coffee industry and into music, books, entertainment, and other foods as well. Too
many brand extensions may become harmful to the company.

Opportunities
- Starbucks could add to their product line multiple brand extensions: desserts,
sandwiches, coffee makers, espresso makers, IPOD stands, breakfast items, more
coffee/hot chocolate variations, etc.

- There is a great deal of overseas expansion available to the Starbucks Coffee

Corporation.

Threats
- Immediate competition from fast-food restaurants catching on the specialty coffee
wave and developing products that competes with Starbucks.

- Tim Hortons

- Dunkin Donuts

- McDonalds

- Nestle

Market Segmentation

Target Market
Starbucks is mainly adult-focused and aims to connect with their customers,
communities, and children through various advertising tactics. The vast majority of these
customers come from urban areas, where individuals are willing to go the extra mile to
purchase costly gourmet coffee.

Another new and large growing target market within the coffee industry is college-age
students and post-graduate individuals residing in urban areas. These two segments
account for the largest portion of gourmet coffee drinkers (Isidro). There have been
studies showing that coffee consumption has increased with the drinker’s educational
level. Those who have finished college have bought a lot of coffee but those who are in

0105.363.01 Marketing Analysis—Starbucks Co. 8

the post-graduate level have bought 71% more (The Gale Group). Urban areas have the
most coffee drinkers because it is where most of the educated professionals are located as
well as the large universities. More and more individuals are becoming educated which
shows that there will be a growth in the market of coffee drinkers.

Since the largest number of consumers are those being educated or beyond that stage,
sales should be increasing steadily. Starbucks, compared to other competitors such as
Tim Hortons, experiences a larger degree of profitability in urban areas due to its creative
ability to cater to the needs of the large market of young professional adults.

Market Attraction
Targeting adults and young adults is a good mechanism for Starbucks because this age
level has the same interests as the foundation that promotes arts, culture, education, and
the environment (starbucks.com). The company satisfies their customers through their
advertising, support programs and, of course, their coffee.

This large portion of the coffee consuming market is attractive because Starbucks has the
money, resources, and time to cater to young adults. In 2002, an innovative ordering
program was created—customers can pre-order and prepay for coffee, etc. via phone or
the Starbucks Express website (Isidro). This initiative and the drive-through are examples
of how this market segment is attractive. Customers want fast service and/or ideas and
methods that will save time. Now that Starbucks has established itself it is able to spend
time to increase success among different segments. Since Starbucks has the resources to
be innovative, they have captured the attention of the younger generation which is filled
with individuals willing to shell out the extra dollar for great service, atmosphere, or even
items that are affiliated with the brand.

By catering to young educated adults, Starbucks will see increased profit levels now as
well as in the future as the generation ages. Drinking coffee is a long-term growing trend
that is becoming more and more popular among adults, especially the younger adults who
make up the largest portion of the market.

Segmentation
Starbucks is a company that embraces diversity, not limiting themselves to one specific
demographic, behavioral, or geographic segment. Individuals appreciate how, regardless
of any little difference, at Starbucks they are always treated as equals. Most adults are
very open-minded which is why they are a good target market. The company promotes
minorities and women who own businesses. It works to encourage diversity and thus set
new goals to create more inclusive businesses. This helps to increase the feeling among
all their customers that they are valued (starbucks.com).

Adults like to see companies embrace all groups because in that way their children will
be prepared to be part of the global community where people of diverse backgrounds will
have to learn to work together to promote greater harmony in the world.

0105.363.01 Marketing Analysis—Starbucks Co. 9

Starbucks advertising is under a heavy “sensitivity review,” which refers to the idea that
any offensive material will be altered to avoid upsetting certain ethnic, racial, religious,
or youth groups and other aspects that could turn customers away from Starbucks
(starbucks.com). Adults have strong opinions regarding a large variety of issues, such as
religion, race, age, money, and politics, and there are many things that could be
potentially upsetting to various communities. This review is highly important because it
prevents customers from becoming angered, and thereby avoiding negative publicity. The
advertising may be for adults but it must remain child-and-minority-friendly. The
“sensitivity review” works to keep customers coming back.

Product Positioning
Starbucks is listening to the needs of the educated by devoting its business and research
to developing ways to cater to this group’s wants and needs (Pigott). They’ve begun to
revamp its company by creating a “drive-thru” for the popular urban areas. The drive-thru
caters to the new generation of coffee drinkers because college-age students and the
general population are always in a rush with little time to spare (The Gale Group). The
drive-thru stores came out in 2004 and have been enormously profitable, making the
process of buying coffee easier by eliminating long lines or creating alternative ways to
buy coffee faster and avoid the prospect of impatient customers (Isidro).

Starbucks continues to create a retail store experience that attracts customers and has
them repeatedly coming back. In 2001, the coffee stores began to offer wireless high-
speed Internet access to enhance the gourmet coffee experience for its new-age
consumers who consist of students, business travelers, and web surfers (Isidro). By
offering Internet service, customers are feeling more and more comfortable, allowing
people to sit back and enjoy their coffee while enjoying the opportunity to be virtually
connected to the world or listening to their favorite song.

The company knows that the younger generation is concerned with brand affiliations and
they have begun to diversify their product line. Later this year or in 2008, they plan to
introduce CD burners so that customers can sample online music while sipping their
coffee (Isidro). The company currently has mugs, bags, and other durable products with
their logo which have been gobbled up by consumers who are coffee lovers. These
promotions are also methods with cash in mind. By detaining customers in the stores,
there is a greater opportunity for more purchases, whether they are more cups of coffee,
food items, or other products.

The world today as we know it is mostly based on convenience, electronics, and the latest
new fad. Most of the new additions such as a drive-thru, a diverse selection of music
aimed at different types of individuals, and high-speed internet access are all attempts
aimed at younger individuals with less time on their hands (Isidro). By being innovative
and increasing store ambiance, an environment that enhances and complements the coffee
drinking experience has emerged.

0105.363.01 Marketing Analysis—Starbucks Co. 10

Brand Image
Starbucks has positioned itself so that it keeps customers satisfied the minute they walk
in, to placing an order, to receiving the cup of fresh coffee within a timely manner, and
finally to either being able to relax and feel at home in the rich ambiance that is offered or
moving on with their daily routine (Isidro). A large reason for Starbucks’ success is
accredited to the fact the company is dedicated to keeping customers satisfied. There is
not one strategy in which the corporation partakes that is not directed at satisfying
consumers.

Furthermore, Starbucks does not market children or youth directly, but uses advertising
and event-sponsorship programs for community activities that are important to a younger
audience. The company supports youth education programs that benefit diverse and
undeserved communities in order to please adults and attach the brand name to a good
cause. These events and programs are usually child-friendly, which pleases the parents
who tend to be the Starbucks customers (starbucks.com).

Starbucks has entered the age where it is now a known brand with positive affiliations in
the community as well as towards helping children. By being involved in community
activities and education programs for children, Starbucks is indirectly earning the respect
of its consumers who are the future of the company. Another good reason for satisfying
parents or communities is that later on, when the children become of age, they will buy
the coffee that they have seen their parents or older individuals drink. Educated
customers with a large degree of discretionary income know that any of the products
purchased will be satisfactory and enrich their coffee experience.

Marketing Mix

Product
“The customer base is asking us to be innovative,” says Richard Feinberg, director of the
Perdue University Retail Institute, on behalf of Starbucks. “Our organization is really
looking to enhance the food side of our business” (Schouten). It would be most beneficial
for Starbucks to focus on their in-store items and baked goods. The test locations have
already started to focus on this trend, and have given positive feedback and results.

The focus product will be the in store made sandwiches. This breakfast option is
scheduled to go company wide within the 2007 fiscal year (starbucksgossip). Multiple
choices are available in Washington D.C. and other locations already (Zimmer). These
variations include: ham, bacon, sausage, eggs Florentine, turkey with spinach and sun-
dried tomatoes. Also, modifications of these made-to-order products will be available.

The breakfast sandwich is largely based on the company’s need to compete with
McDonald’s fast food restaurant, that has recently added “Gourmet Coffee’s” to its menu.
Although Starbucks coffee sales continue to rise, McDonalds has become a strong
competitor in the industry. “Egg McMuffin” is often used as the general term for

0105.363.01 Marketing Analysis—Starbucks Co. 11

breakfast sandwiches, and Starbucks is attempting, with their own products, to break that
name brand association.

These sandwiches are similar to the McMuffin, but with a much wider range of freedom
for their customer’s palettes. For example, Starbucks will offer a whole-wheat muffin,
sourdough muffin, and plain white muffin for the product base. There are multitudes of
options for the meat, including: turkey, chicken, ham, sausage and bacon. Also, a mix
and match of toppings gives the customers an extended opportunity to personalize their
choices.

A variety of “house selections” will be created, and the chalkboard menus will allow
variation from store to store; week to week. Such options will include: Eggs Florentine
Muffin, Turkey Jack Muffin, Lumberjack Muffin, etc. These pre-fabricated sandwich
options will be described in full on the menu board.

Another product that will be promoted is a breakfast parfait. This product is in direct
competition to the McDonalds breakfast parfait (Kramer). Starbucks customers have been
looking for healthier options, and along with their fat-free and reduced-fat baked items,
this fruit-filled option has already been a success in Starbucks test stores (Kramer).

The breakfast parfait will contain a non-fat vanilla yogurt; while McDonalds offers a
plain yogurt. There will be seasonal fruit options including: watermelon, strawberries,
blueberries, raspberries, blackberries, cantaloupe, honeydew and pineapple. McDonald’s
parfait contains only strawberries and blueberries. Whole-grain granola will be added to
the parfait as well to provide texture and fiber to our consumers. This option will
succeed due to its’ high health benefits and high portability as well.

Price
The breakfast sandwich will range in price from $3.99-$5.99 depending on location and
type of sandwich. In general, Starbucks will be making a 15%-30% profit off of each
sandwich produced. This will vary and can be higher in simpler menu items. For
example, the meatless “Egg Classic” will produce a 50% profit, while the “Lumberjack
Muffin” that contains a variety of meats only comes in at an 18% profit.

Due to the fact that Starbucks’ breakfast sandwiches are a much higher quality than those
of McDonalds, Starbucks prices will be set marginally higher. McDonalds also offers a
greatly limited variety of products, and Starbucks customers will be willing to pay the
increased price for a customized product, rather than a flash frozen fast food creation.
Starbucks customers have strong brand loyalty, and the breakfast line will give them
more of a quality “one-stop-shopping” experience, rather than a “fast-food” experience.

The breakfast parfait item is currently offered in the New York metropolitan test markets
at $3.45 (Kramer). This price will vary slightly due to the change in demographics of
each store, as it does with their basic menu items. Although the company will be using

0105.363.01 Marketing Analysis—Starbucks Co. 12

seasonal fruits as well as frozen, the price will remain constant year round in order to
provide stability to their customers.

Place
With over 8,000 stores worldwide, Starbucks’ products are well-tested in multiple
locations prior to distribution company-wide. Their test markets include thier larger
stores, such as those in Indiana (Schouten), Washington D.C (Zimmer), New York City,
Connecticut, and their California Markets (Kramer). With success in these locations,
Starbucks is certain to succeed with their test products in other locations as well.
Starbucks announced this year that it wants grow worldwide from 12,000 stores to more
than 40,000—a strategy that requires rapid expansion outside densely populated
metropolitan areas (Starbucks Pours it on). Indiana has become a headquarters for that
strategy. Two years ago, Starbucks opened a regional office in downtown Indianapolis
that supports coffee shops in 18 states. The company also has used Indiana to test new
products including warm cereal and desserts, breakfast sandwiches and a new kind of
whipped cream.

Well over 1,000 stores are located in Supermarket locations (Major). For this reason,
testing in this atmosphere is important. Supermarket stores are projected to do very well
in the breakfast segment of their company sales as more and more people continue to
visit for a sit-down experience either before or after shopping. Since Starbucks does not
franchise their supermarket stores, a consistent “Starbucks quality” product being
produced to this niche is foreseen.

These items will do spectacularly in overseas markets as well. For example, take the store
in Dublin, Ireland. Unlike most Irish coffee shops, Starbucks is open during their
standard “American” coffeehouse hours, while the locals don’t open until mid morning
(Hammonds). This will provide clientele a means of breakfast to go along with the wake
up call of coffee. There are similar situations in other overseas stores as well.

Promotion
Nobody has ever seen a Starbucks ad, billboard, television commercial, or mass media
marketing; this is something that is, and will continue to be, part of the Starbucks
company philosophy. “Avid fans and devoted employees can do more to boost a brand
than the best of marketing programs,” says CEO Jim Donald (Pellet). Through their
strength in consumer brand loyalty, Starbucks will focus on delivering a high-quality
product and letting word of mouth, miniscule local advertising, and Internet blogs and
websites carry their products forward. The chart on the following page shows the top ten
Restaurant Chains. It tells the percent of market share each company holds and the
amount of dollars each company spends on mass advertising. Starbucks ranks sixth in
the market share percentage and uses the least amount of dollars for mass media
advertisements. This company will continue to have the philosophy that word of mouth
and good service is far superior to mass marketing.

0105.363.01 Marketing Analysis—Starbucks Co. 13

Starbucksgossip.com proves to be one of Starbucks’ biggest sources for marketing. The
company uses the site to display new products that will be hitting the shelves—and at
which stores customers can visit in order to obtain these products. Success can be tracked
through the number of “hits” on this link, and by reading the consumer responses to the
ideas and postings. Not only will the company be able to read consumer responses
through this website, but our partners (employee’s) responses as well (starbucksgossip).
This website will help determine the company’s post service response as well.

(Chart provided by John Moore)

The company’s biggest source of post service response will be through the dedication of
their partners. Being that they are trained to provide above-average customer service and
are already expected to communicate with their customers (Pellet), the company expects
nothing less from them on this matter. They will continue to provide quality service and
post service, making sure their customers are satisfied fully with their purchases. If a
customer has not had a satisfactory experience with the new food product, a short verbal
survey will be conducted in order to discover what could make the product more
satisfactory. The answer handed in to management for changes.

Starbucks customers are not quiet in their feedback methods. They send in thousands of
comment cards daily with both positive and negative critiques. These are helpful and
necessary for the company’s success. Pre-stamped comment cards will be handed out in
take out bags, hoping to increase response about the new breakfast line. A Likert Scale
will be the method of response, with a comment line available after each question, and an
additional space for comments at the bottom. These cards will help to measure the
success of the Starbucks breakfast line.

0105.363.01 Marketing Analysis—Starbucks Co. 14

Again, dependence on all of their partners in the promotion of Starbucks breakfast items
cannot be stressed enough. CEO Jim Donald says it best: “You have to continue to
engage all of your partners.” If everybody in the company is on board with this project, it
will be a tremendous success. This includes not only their partners on the “in-store”
levels, but their growers, corporate members, franchisees and franchisers, and most
importantly—the customer. With the support of all of the Starbucks partners, the new
breakfast line items will succeed.

Recommendations

Drive-Thru
Starbucks is popular enough to sustain the possible downfalls of taking risks. The drive-
thru may not be risky but we recommend that there be risks taken to diversify it and
differentiate it from the usual drive-thru. Perhaps, while customers are waiting,
interesting non-elevator type music could be played. Or between the windows of making
the order to collecting it, there could be a widescreen television advertising Starbucks
products.

Especially in urban areas, it is harder to keep customers captivated because there are
always companies coming out with new ideas in regard to satisfying the latest wants and
needs. However, since Starbucks has managed to maintain its popularity, it should take
some risks and show their customers that they are better than ever. A drive-thru is a good
opportunity for a lot of new publicity and higher levels of sales.

The key to making the drive-thru a success is to insure that it runs efficiently and
customers leave satisfied. Workers need to communicate effectively with the customers,
and if a customer is not satisfied they need to find out why. The idea of a drive-thru is
fantastic but it needs to be operated correctly.

A drive-thru will do best in urban areas where there are a lot of students, and in family-
oriented areas where families with children have been reported to be the purchasers of the
second largest chunk of the coffee sales. The idea of a drive-thru may not be original but
it is popular among those in a rush and should be incorporated into the majority of
Starbucks’ stand-alone stores across the nation for the greatest benefit of the company.

New Advertising Venues

Brand management today means figuring out how to reach out to surprise and delight
customers wherever they may be—the Internet, a retail store, a bar, a street corner-rather
than just through media advertising (Pellet). For Starbucks, that translates to devoting
zero dollars to national television or print campaigns, and a "very small amount for a
company of our size" to local marketing efforts. Instead, the company's retail outlets
serve as its only ads.

0105.363.01 Marketing Analysis—Starbucks Co. 15

However, it’s known the company mainly aims to see itself as an experience—an
environment that is created in a store and becomes a community that is meaningful to the
people who go there. "Our goal is to continue to stay on point for new areas of focus we
can convert into beverage and food offerings and other forms of keeping the Starbucks
experience out in front of everyone," says Donald, who notes that the company vets each
potential extension for appropriateness and practicality. "We have invisible guardrails
that we stay between by making sure that what we put out is core to the coffeehouse
experience and that it works for our partners [store employees]. A new food offering, for
example, has to be something our partners can deploy without reducing the speed of
service."

Exclusivity of New Food Products

We highly recommend Starbucks promote their line of made-to-order gourmet
sandwiches and specialty food items and make permanent this launch of new product
offering. The new line has already been tested and deemed successful, and the company
is looking for a way to take the lead in the gourmet coffee market. Its competitors are
right in line with their fast-food items.

The company must not stop innovating and taking risks. Expanding the entire Starbucks
franchise to include breakfast items as well is another great way to spark attention from
regular customers. Often times students and regular working citizens will purchase their
morning ritual drink of coffee or tea from Starbucks and then stop off somewhere to get a
bagel or such. Food items usually offered at Starbucks are not so breakfast friendly.
Bagels are becoming a more and more popular breakfast and anytime snack item, making
them a quite versatile and worthwhile marketing item. Having a selection of breakfast
foods to go along with the drinks offered at Starbucks will not only make current
customers happy but draw in new customers as well.

0105.363.01 Marketing Analysis—Starbucks Co. 16

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