An additional strategy Starbucks employs is licensing. Currently, the company has more than 900 licensed store locations at places including airports, Barnes & Noble bookstores, and grocery and mass-market retail chains such as Target, Albertson's, and Safeway stores. The company also has licenses with United Airlines and Marriott to exclusively serve Starbucks coffees. The benefit of this licensing strategy is to extend the Starbucks brand presence, but retain a higher degree of control than franchising. Starbucks charges a royalty on gross sales and a licensing fee to start up the business.
Finally, another critical component of the Starbucks strategy is product innovation. Its forays into books, movies and music demonstrate the company's continual search for ways to extend and enhance its product line, but with a careful eye to its brand and customer demographic. Yet it also carefully evaluates, and pulls back when it sees a new approach is not working, as can be seen from their exit from direct management of the Hear Music business.
Effectiveness of Starbucks Strategy
Despite the economic recession and the emergence of new low-cost competitors in the marketplace, the company's strategies focused on differentiation, continual product innovation, and carefully managed growth are proving effective: Starbucks posted record earnings in first quarter of FY2010. The company's consolidated net revenues increased by 9% to $2.5 billion, while at the same time, comparable store sales increased by 7% "driven by a 3% increase in traffic and a 4% increase in average ticket." (Starbucks Reports Record Second Quarter Earnings)
Short-Term Outlook
In 2010, Starbucks is beginning to open new store locations domestically again, in response to a rebound in domestic sales. It needs to proceed carefully to ensure that new stores do not cannibalize existing store revenues. However, in the big picture, Starbucks has captured less than 4% of the U.S. coffee market overall and an even smaller percentage of the global coffee market (Starbucks Outlines Strategy for Accelerating Profitable Global Growth, 2010), leaving room to continue carving out a larger gourmet coffee market share for itself and extending its brand into new markets.
The company has also recently begun experimenting with a new store concept that eschews the Starbucks name (other than a small "inspired by Starbucks" notation) in favor of a local coffee house feel and name, for example, the first of these stores is called 15th Avenue Coffee and Tea. This could be a viable strategy for capturing more of the gourmet coffee market and coffeehouse customer demographic that may have begun to suffer from potential "brand fatigue" and seeks more of an "independent" coffee house feeling.
Long-Term Outlook
Long-term, Starbucks can likely expect to maintain a strong performance and market growth, but at a more modest rate. Starbucks "is adept and knowledgeable when it comes to designing approaches to further their profits and market share while maintaining a close relationship with customers and their needs. Every aspect of their strategy has been carefully considered and thoroughly planned out." (Analysis of Starbucks). In spite of the more cautious consumer spending environment and new low-price substitutes that have recently entered the market, "Starbucks remains the dominant player in specialty coffee. Although we doubt the firm can return to its lofty historical growth numbers, particularly in...
The extraordinary strength of its brand focus, innovative product development, and ability to provide value to its customers and employees will sustain long-term performance.
Appendix 1 -- 1997-1992 Performance
Appendix 2: 2005 -- 2009 Performance
Appendix 3 -- Starbucks Stock Price
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