The History of the Development of the Starbucks Coffee Company

The following sample essay is about the history of the Starbucks coffee company. To read the introduction, body, and conclusion of the essay, scroll down.

Starbucks had a humble beginning with one small store front in 1971 at the famous Pike’s Place in Seattle, Washington. The inspiration for Starbucks came from Peet’s Coffee and Tea who started importing fine Arabica beans from around the world (Arthur, 1999). At that time Starbucks had a simple mission of providing the world’s finest fresh roasted coffee to its customers, and it worked.

A decade later in 1981, Howard Schultz, now Chairman, President and CEO, had entered Starbucks and was instantly captivated. For over a year, Howard pursued employment at Starbucks, wanting the job far more than Starbucks wanted him.

Eventually, he convinced the three partners to take him on as head of marketing. He soon hung up his high profile New York City position and moved to Seattle. He quickly gained acceptance, knowledge and experience in all aspect of the coffee business.

Howard’s trip to Italy a year later would change that one small store into the global corporation it has become today. He was be taken by the warmth and connectivity local Italians shared at their coffee bars, and wanted to combine the great coffee with the closeness of the community.

After having a cafe latte, he concluded it was the perfect drink and no one in America knows about it. Upon returning, he had growing frustration as the owners did not want to leave the retail business for the beverage business.

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A year later, once the sixth store was open did Howard get his espresso bar? It was a huge success, but he could not convince the owners to expand the beverage business to the other stores. He left Starbucks to create his own coffee shop il Giornale with the financial help of Jerry Baldwin. He used Starbuck’s coffee to brew espresso and coffee beverages.

Soon II Giornale’s three stores had annual sales of $1. 5 Million. In 1987, Jerry Baldwin and Gordon Bowker decided it was time to sell Starbucks and Howard knew this was his opportunity. He was able to obtain the $3. 8 Million in capital to purchase Starbucks. This acquisition started the chain of quick expansion for Starbucks. By the late 1980’s, Starbucks had a few years of unprofitability as the stock market had crashed in October of 87. Howard relentlessly pushed forward, battling with his board to better the company and continue expansion.

By 1991, the financial performance had improved and Starbucks went on to introduce their “bean stock. ” This was an employee stock option plan that all employees working more than 20 hours per week were granted 12 percent of their base pay with stock options (Arthur, 1999). These generous fringe and higher than average pay allowed for Starbucks to retain highly motivated and talented baristas. In 1992 Starbucks went public with one of the most successful IPOs of the year. This allowed for Starbucks to pursue their three year geographic expansion plan.

They achieved their plan by opening a large store in a major city that acted as a hub. A team of professionals were located in the “hub” and were task with the opening, support, and development of 20 or more stores around the hub store (Arthur, 1999). To grow internationally, Starbucks sought out license agreements with local companies. In 1996, they made their first international expansion into Japan and Singapore. They identify reputable companies that had experience in retailing and strong local knowledge.

Through their aggressive expansion strategy combined with their model to be a connected member of the neighborhood, they have stores in 61 countries and 18,066 shops. They have successful just launched the acquisition into India with the first stores opened in Mumbai in 2012. Starbucks has a diverse beverage product line. Their core business is fresh roasted Arabica coffee, and espresso beverages. From this base, Starbucks continue to innovate their beverage offering based on consumer’s wants where they offer a range of smoothies, teas and chocolate beverages.

With tea being a substitute for coffee, they had acquired Tazo Tea and most recently Teavanna. They have expanded their food offering in every store with an emphasis on healthy options. Through a partnership with Pepsi bottling, Starbucks entered the soft drink retail business with bottled Frappuccino and other coffee drinks. The entered the instant home brewing market with the launch of the Starbucks K-Cups. They continue to grow their merchandising and equipment business. Starbucks have a diverse line of merchandise from coffee accessories to music that is played in the stores.

They retail all the equipment necessary to properly brew coffee from home, and sell their fresh roasted coffee. Not just a coffee shop and retailer, Starbucks realized its strength and advantage came from motivated baristas who would positively engage customers. The baristas are the face of Starbucks, and to cultivate the Italian espresso bar image, Starbucks had to develop engaged employees. Starbucks is very committed to quality and the image of Starbucks that is why Starbucks does not operate any franchises. At the end of 2012, Starbucks had a total of 18,066 stores of which 9,405 were company owned and 8,661 were licensed stores.

The mix of company owned stores and licensed stores allow Starbucks to retain authority while accessing difficult markets and reducing costs. Starbucks classifies its stores into a three-region structure which includes: 1) Americas; 2) Europe, Middle East, and Africa; and 3) China/Asia Pacific. As of September 30, 2012, Starbucks had 7,857; 882; and 666 stores opened in each region respectfully. Under their licensed agreements, Starbucks had 5,046; 987; and 2,628 stores respectfully in each region (Form 10k). Overall the licensed agreements accounted for 9 percent of total revenue in 2012.

Since 2009, Starbucks have seen a rapid and steady increase in their stock price. From the low of $8. 45 per share to the recent value of $65. 11 per share as of June 24th, Starbucks is trading just under its 52 week high. Starbucks is financial sound, producing steady cash from operations indicating steady demand and innovation. Consolidated revenues for 201 were $13. 3 billion which is an increase of 13. 7 percent from 2012 revenues of $11. 7 billion. From the $13. 3 billion, company-owned stores contributed 79. 2%; licensed stores – 9. %; and CPG food serveries contributed 11. 7% (Form 10K).

Starbucks has been making financial improvements to its operating income which is up 40% since 2010. Their net income is also up 46% since 2010. With this increase only brings marginal performance increase. The operating margin for 2012 was 15% up from 13% in 2010. This has only seen slight improvements due to the volatility in the commodity markets and high costs of operating the stores. Starbucks has been steadily improving and that have estimated a revenue increase of 10 to 13 percent for 2013.

They continue to develop and expand their channel development line which includes K-Cups and bottled coffee and tea drinks. They will see a steady increase in revenue from their licensed stores as-well-as their company owned stores. Their stock is estimated to appreciate into the low $70 per share range for 2013. Starbucks faces extensive competition on their coffee beverage business from quick-service restaurants and specialty coffee shops. As more local coffee shops open, they pressure the sales of existing Starbucks. Dunkin Donuts has set its sight on Starbucks, and has rebranded them a beverage company.

By 2015 they plan to have opened 15,000 stores west of the Mississippi with a large portion of those stores operating in California (O’Connor, 2013). In distribution and sale of coffee and premade coffee products, Starbucks faces completion from nationwide coffee manufacturers. Kraft Foods is the supplier of Maxwell house and Procter and Gamble is the parent company of Folgers brand coffee. Recently Starbucks had a deal fall through with Kraft over the distribution of coffee to supermarkets. Schultz’s vision to create a company with soul derived the basis of Starbucks competitive advantage.

Schultz’s dream to treat every employee with respect and to do better for the community became a way of life for Starbucks through good and bad financial times. Through extensive employee training and involvement, Starbucks developed actively engaged baristas that exceeds customers’ expectations of their coffee shops. Every new hire receives 24 hours of training within the first two to four weeks. They learn how to address and engage the customer, brew the perfect cup, and properly handle the coffee. Starbucks coffee line is hand chosen from around the world.

Starbucks strives for the highest standard in the coffee industry and bypasses the coffee commodity market. They enter into fix-price contracts to secure their supply. This also allows Starbucks to exert considerable power of farmers to rely on the accuracy of the fair trade agreements. The stores ambiance of Starbucks is critically important to driving the culture and experiences at the coffee shop. Starbucks developed their own internal team of architects and designers to ensure that each store would convey the right image and character (Arthur, 1999).

The company went to great lengths to make sure the store fixtures, the merchandise displays, the colors, the artwork, the banners, the music, and the aromas all blended to create a consistent, inviting, stimulating environment that evoked the romance of coffee, that signaled the company’s passion for coffee, and that rewarded customers with ceremony, stories, and surprise (Arthur, 1999). Soon the cost of opening a new store became highly undesirable. Starbucks responded by centralizing buying which allowed them to realize a discount of 20 to 30 percent on orders from vendors.

They focused on the equipment that was absolutely necessary for a successful new launch and employed a just in time management system on materials. This significantly cut costs and lowered store development time from 24 to 18 weeks. Through innovation Starbucks continues to remain competitive. Schultz’s built a company where employees can freely, without repercussions, submit ideas and comments about any aspect of the business. Through technological change, Starbucks have captured and stayed true to their promise of coffee and connectedness.

Through digital applications, customers can pay for their order by using their phone to enhance the experience of their 14. 6 million loyalty card members. They adapt to consumer preferences and delivered Starbucks K-cups, a lighter roast coffee, and Starbucks refreshers. A constant problem that Starbucks faces is the increased competition from specialty coffee shops around the country. These shops possess a great threat to Starbucks because they specialize in fair trade organic coffee, but have a reputation of being the small business.

Starbucks have been able to maintain a competitive edge over the small local coffee shop through their support of the “hub” system, high traffic locations, and Starbucks mission. The “hub” system allows for a highly talented team to quickly react to changes in the local market and satisfy consumers. The highly visible and high traffic locations make for convenience when consumers are in a rush on their daily routine. Starbucks involvement in the community through their extensive corporate social responsibility programs makes Starbucks seem like the local coffee shop.

Starbucks Coffee Company (Starbucks) has five major stakeholder groups: customers, partners (employees), community / “neighbors,” suppliers and shareholders. Customers – Starbucks is incredibly dedicated to its customer base and emphasizes the human connection. Starbucks aims to, “connect with, laugh with, and uplift” (Starbucks mission statement) its customers, even though the customer interaction time is short. Partners (employees) – Starbucks does not simply call its employees, ‘employees,’ but rather partners because it is not just a job, but a passion (mission statement).

Everyone within the organization “treats each other with respect and dignity. ” All partners can feel comfortable being themselves because Starbucks is a place that embraces everyone’s individuality. Community / “Neighbors” – Starbucks has an extensive program around social responsibility and corporate citizenship. Starbucks believe that it should “have a positive impact on the communities it serves, one person, one cup and one neighborhood at a time. ” (http://www. starbucks. com/responsibility) Suppliers – As part of its community and neighbor focus, Starbucks is passionate about ethically sourcing its coffee beans and “improving the ives of people who grow them. ” (Mission Statement).

Starbucks also makes it a point to work with suppliers that share the same vision of social responsibility. If a supplier is not meeting expectations, Starbucks will work with that supplier to make the necessary changes. Shareholders – Starbucks believes that if it can deliver in all of the above mentioned areas that it will be successful and be able to reward its shareholders. It wants its shareholder to “endure and thrive” (mission statement). Conflict among stakeholders can arise during changing economic conditions, specifically when suppliers are forced to raise prices.

This increase in expense for Starbucks can translate into charging higher prices for its products. Customers may be turned off and change their habits and purchase their morning coffee from a competitor. This in turn will affect the financial success of the company and negatively impact the return to shareholders. (Annual report) However, interestingly enough coffee prices are actually falling but Starbucks has decided to increase its prices for certain products, as much as 10 cents. The shareholders will benefit from the extra money to the bottom line, but customers will be unhappy and may feel as though they are being taken advantage of.

Table 1 (below), displays Starbucks’ top-management hierarchy, much in the same way the Jones text does in Figure 2. 1 (Jones, p. 38). Starbucks is a publically traded company so its shareholders are the legal owners of the organization. To oversee its governance structure, Starbucks’ Board of Directors adopted governance principles, committee charters and policies that guide the company to stay committed to its mission and maintain its uncompromising principles as it grows (corporate governance).

The Board of Directors is also accountable for monitoring and evaluating the corporate-level management team that is responsible for Starbuck’s overall vision, strategic planning and goal-setting. Starbucks’ executive team is led by company founder and CEO, Howard Shultz. Schultz’s top-management team is made up of 14 executives that set strategy and oversee specific geographic areas (Americas, Asia, Africa, etc. ) and company functions like marketing, public affairs, community involvement, digital business, global strategy, and global coffee.

Following down the chain of command are managers in line roles that are specifically responsible for the production of coffee in six roasting plants, and managers in staff roles that are responsible for overseeing specific organizational functions like communications, design, engineering finance, green coffee and tea management ,marketing, operations, procurement, quality, research and development, sales, social responsibility and supply chain management. Beyond the central functions are the divisional and functional management teams that oversee Starbucks’ 18,066 (annual report) company-operated and licensed stores throughout the world.

In succession, regional directors oversee district managers that oversee store managers that supervise assistant store managers that supervise assistant store managers that oversee shift supervisors and baristas. Each position has its own responsibilities for meeting financial, management and customer service goals. One of the most important positions is probably that of the barista, as those partners are the face of Starbucks interacting with customers and create that personalized and unique customer experience.