Starbucks Corporation (a)

Abstract

Listen

Translate article

The issue in this case is whether it is realistic for Starbucks to continue to be a high-growth company. Questions raised are whether all growth is good; whether bigger is always better; whether businesses must “grow or die”; and under what circumstances does too aggressive growth destroy value? In trying to remain a high-growth company, Starbucks has opened some stores in subprime locations, resulting in dilution of its customer value proposition and poor performance. One of the founders steps in as CEO to “fix” Starbucks, and students can follow the measures he took to get the company back on track. Excerpt UVA-S-0175 Rev. Jan. 24, 2011 Starbucks Corporation (A) Founded in 1971, Starbucks Corporation became a high-growth market leader. In a virtually untapped market of Italian-style espresso cafes, under the leadership and vision of Howard Schultz, the company grew uncontested without any national competition during its first several years. Through Starbucks, Schultz realized his twin dreams of escaping the poverty he had experienced as a child and building a highly successful company with a heart. In the beginning, Schultz set out to establish and replicate “the Starbucks Experience”: an imitation of the drama and romance typical of the Italian coffee-bar experience. His ultimate goal was for Starbucks retail locations to become the world's most popular “third place” for customers—a place other than work or home where they would congregate. A true advocate of high growth, Schultz used the success of the company to open more and more stores across the United States and abroad. Schultz's growth strategy was evident as early as 1988. While visiting the company's Vancouver store, he noticed a long line and, rather than being excited, was concerned. He started searching for a nearby location where he could open another store. His motivation was twofold. First, he wanted to shorten the long lines. Second, he decided that a second store nearby with a different traffic pattern would attract customers for whom the location of the first store was inconvenient. Thus, opening a new store would cause only minimal reduction in sales volume, preserve the experience for existing customers, and attract new customers. Starbucks's real-estate consultant, David Firestein, likened the Starbucks market-saturation strategy to the game of Monopoly: “Pick the best property and keep building as many houses as you can manage.” Despite what seemed like saturation in some areas, comparable store sales continued to grow. . . .