Restructuring / Turnaround Strategies Case Study

Starbucks in US: Too Much Coffee Spilling All Over?

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Abstract:
What helps retailers decide ‘how much of a good thing is too much’? This is the dilemma that Starbucks, the leading retailer, roaster and brand of specialty coffee is facing. Starbucks, with over 14,000 stores and $9.4 billion in sales worldwide, exemplifies how a commodity can be successfully converted into a premium brand. In about two decades, the company has grown from 17 to more than 10,000 stores in the US – its largest market. However, now it is feeling the strains of rapid expansion with the same store sales in the US and the share price of the company declining. The situation has led to the reinstated CEO Howard Schultz ruing that in its efforts to grow; Starbucks has commoditised its brand. In the first move at damage control, the company has announced that it would be closing 600 underperforming stores in the US. Will that be sufficient? What else should Schultz do to ensure that the Starbucks brand stands steady?

This case study talks about how Starbucks converted the world’s second most traded commodity into a much sought-after luxury. The company’s expansion strategy is dealt with in detail emphasising, how and why the company grew at the rate that it did. The data in the case study enables students to debate Starbucks’ position vis-à-vis its competitors. The changes that Starbucks made along the growth track are also mentioned along with how each change affected the company. Through the case students identify the brand dilemmas that Starbucks is facing and suggest alternatives for improvement.

This case is best suited to understand how differentiation can increase consumer willingness to pay premium prices for a commodity item and how over-exposure can soon erode that same willingness, resulting in commoditisation of the brand.

Pedagogical Objectives:

• To understand the dynamics of the coffee industry especially the specialty coffee segment in the US
• To understand how a premium brand can be created around a commodity item
• To understand Starbucks’ growth strategy and debate whether growth and over expansion have led to the commoditisation of the niche brand
• To debate whether premium brands can grow big and ubiquitous without hurting their brand image
• To understand Starbucks’ position vis-à-vis its competitors and the brand dilemmas it faces.

Keywords : Starbucks, Howard Schultz, Business Model, Differentiation, Expansion, Positioning, Founder/Outsider CEO, Branding, Business Environment, Competition, Industry Dynamics, Succession problems, International Business, Growth Strategies of Starbucks