Starbucks Corporation is a global coffee
chain founded in 1971 in Seattle, Washington.
They are one of the largest coffeehouse company in the world with 24,000
stores in 70 countries (Starbucks
Corporation, 2016). Starbucks mainly operates and competes in the
retail coffee and snacks store industry apart from coffee industry.
It was originally owned by Jerry Baldwin,
Zev Siegl, and Gordon Bowker which back then, Starbucks was a small coffee bean
sales operator (Entrepreneur, 2016). In 1982, Howard Schultz joined as director of
retail operations and marketing and started supplying coffee to espresso bars
and fine dining restaurants (Starbucks
Corporation, 2016). Schultz left Starbucks and with the help of
local investors, he returned in 1987 to take over Starbucks (Starbucks Corporation, 2016).
Starbucks started to expand their
headquarters in Seattle in 1990’s when the demand increased and went private
with initial public offering (IPO) in 1992 (Starbucks Corporation, 2016). The coffee phenomenon continues to grow and
Starbucks ventures out of America with opening their first store in Tokyo,
Japan in 1996 followed by Singapore (Starbucks Corporation, 2016).
Starbucks view on the expansion in the
Southeast Asia with potential of an avenue for possible sustainable growth,
they announced their plans of opening additional 750 stores through China in
2014 and 1,500 by 2015 (Levin & Roxburgh, 2014). As of 2015, Starbucks have in total 23,043
stores worldwide (The Statistics Portal, 2016).
Starbucks not only serves coffee and tea
products but they also serves hot chocolate, pastries, gift cards, coffee
machines for homebuyers and drinkware such
as thermal mug, sport bottles and mugs.
Starbucks offers a cheerful environment
with friendly and helpful employees with key market segment of urban residents
with age ranging between 25 and 40 without gender specific, the age group
accounted 49% of their total business according to Lehnert (2010).
Their main competitors remain as McDonald (McCafe) and
Dunkin’ Donuts (Hawley, 2015). In 2015, $18.5 billion revenue was generated
by Starbucks while $783 million was reported by Dunkin’ Donuts and $26 billion
revenue by McDonald which is the highest (Hawley, 2015). Current market share of Starbucks is at 42.4%
while Dunkin’ Brands Inc stands at 25.5%
The main purpose of this analysis is to analyze the issue
faced by Starbucks Corporation, appraised the methods or theories Starbucks
used to solve the issue and lastly, to recommend the best approach which
Starbucks Corporation can implement if they faces the same or similar issue.
Strategic partnership between Kraft Foods
Inc. and Starbucks Corporation first came together in 1998 with distribution
agreement, under which Starbucks brand packaged coffee will be distributed by
Kraft Foods in their grocery stores (Gupta, 2013). In view of the success of generating USD 50
million in annual revenues, partnership between both corporations were expanded
to include new brands which Starbucks acquired in July 2003 of Seattle Coffee
Company (Gupta, 2013).
As the contract was set to
renew automatically with no expiration date, the only way to not to renew the
contract is to provide a valid termination in which Starbucks are required to
pay Kraft substantial amount based on fair market value of the business with
premium (Gupta, 2013).
It was started off with
Starbucks Chieft Executive, Howard Schultz emailed to then Kraft’s CEO Irene
Rosenfeld in January 2010 to highlight dissatisfaction of Kraft failure to
storing their coffee, selling outdated packages and products was not given
sufficient shelf space in the groceries that leads to the termination of
partnership (Jargon, 2013). In the same year, due to the popularify of
single-serve coffee pods used for coffee machines, Starbucks wanted full
flexibility to optimize the sales however due to the strategic partnership, it
limits Starbucks to only selling coffee pods that are tied to Kraft’s Tassimo
machines (Lutz, 2016) while Starbucks is
in the race to increase market share against their competitor, Green Mountain
Coffee’s Keurig system and K-Cup single serving packs (Shonk, 2016).
After 12 years of success
with business generating from packaged ground and whole beans of Starbucks
which generated almost USD 500 million in annual revenues, in August 2010,
Starbucks intended to terminate the partnership and offered USD 750 million
however Kraft declined (Neuman, 2016). Starbucks
proceed with K-Cup serving packs although Kraft objected the termination (Shonk, 2016) and since then,
market share of single-serving coffee pod increased 18.4% and exceeded more
than a billion of K-Cup packs sold (Strom, 2013).
Starbucks ended the contract
in November 2010 quoting Kraft breaches the deal in terms of not promoting
Starbucks’ brand agressively in Kraft stores while Kraft accused Starbucks of
hurting the Tassimo coffee system sales with
holiday season around the corner (Neuman, 2016).
Although Krafts claimed
one-sided and unjustified of the announcement made by Starbucks in their public