Starbucks Strategy

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An internationally recognized brand with over 16,800 locations worldwide and is valued at $5.23 Billion as of 2005 (source: Prepared by Florence L [Fashion Marketing Critic]

Starbucks started its journey back in 1971, and has since grown to serve millions of sociable coffee-goers from around the world. With more than 16,800 locations across the globe as of 2009, Starbucks is still the dominant player in the field of upscale coffee houses for mainstream customers. You ask: “How can they be ‘upscale’ but cater to mainstream customers at the same time?” To make a comparison to the fashion industry, upscale brands does not mean that
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• Product placement: when you have celebrities drinking your coffee on a daily basis, their fans will consume whatever their idol is consuming; • Product innovation: by innovation I do not mean that they are brewing super coffee that gives you ten hours of energy, it means special products tailored for certain markets. For example, collectors’ edition cups, mugs, location based Starbucks cards and flavored Frappucinos. All of their stores are able to leverage off their supply of coffee beans, and of course the more you buy in bulk from suppliers, the better the price you can get for it. According to its 2010 4th quarter financial release, its consolidated operating margin is 14.1%, with US operations raking in 17.3% and international operating margins of 13.8%. On the other hand, Tim Hortons earned a considerably higher operating margin at 22.66% in the same fiscal period.

In North America we see Frappucinos in glass bottles. More commonly in Japan we see Lattes from Starbucks packaged in paper cups like the one pictured here. We also see double shot espressos sold in small cans (pictured on the cover of this report). I was definitely surprised when I learned that they sold a size called “short” in Japan. I later realized that it is available in North America too, but it’s
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