Planning by 2012, Starbucks' Chairman

Planning By 2012, Starbucks' Chairman Howard Schultz is promising the investment community that his company will nearly triple annual sales, to $23.3 billion (Helm, 2007). Can he really do this? That's certainly the question everyone is asking. This paper performs a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis of Starbucks to assess Starbucks' likelihood of success. Starbucks has many strengths. The company's chairman is a hands-on manager who has influenced the company's direction into premium gourmet coffee and the espresso bar culture (Helm, 2007).

This has, in turn, been implemented as an "authentic" customer experience supplemented by highly trained employees who participate in the Coffee Master program (Helm, 2007). Great customer experiences are what fosters customer loyalty and long-term success (Rae, 2006). Starbucks' stores have a customer loyalty program that includes free Wi-Fi access (McRoskey, 2008) and its "Geography is a Flavor" promotions of coffee-growing locations are unique. The company is diversified.

It operates in 39 countries and sells everything from breath mints to CDs to notebooks (Helm, 2007) as well as other types of beverages such as fruit smoothies (McRoskey, 2008). Its operations are very efficiently with optimized space design, fast automatic espresso machines and vacuum-sealed coffee that is easy to ship (Helm, 2007). Further, its price-earnings ratio in 2008 of 26.5 is well above the industry average of 19.1 (McRoskey, 2008). Currently, the company has a number of weaknesses. Its premium beverages are expensive and are high in calories (Helm, 2007).

Further, as it has grown, the company's image as well as its coffee image has become commoditized as it has conquered mass audiences (Helm, 2007). As such, it has lost its image as a "cozy, upscale coffeehouse on every corner" (McRoskey, 2008). The company is struggling in international markets. During the third quarter of 2009, sales slowed in Canada and traffic declined in Britain -- Starbucks' two biggest international markets (McRoskey, 2008). The company also has to close 61 of its 84 stores in Australia (McRoskey, 2008).

The company is also experiencing a slow down in its domestic operations, closing more than 600 U.S. stores where lower-income consumers have been forced to cut back their purchases of expensive coffee (McRoskey, 2008). Opportunities hold the key to Starbuck's future. By far the largest opportunity Starbucks is pursuing is international expansion. While it has cut back on its initial target of 1,050 new international store openings, its revised figure of 900 is still aggressive (McRoskey, 2008). It will need for these to be successful to hit its growth targets.

Successful global expansion would not doubt allow Starbucks to further optimize its word-wide supply chain. Other than international expansion, the company must rely on new products and services that can be retailed in its cafes. For example, it has recently found success with adding fruit smoothies (McRoskey, 2008) and should look for additional beverage and food opportunities. It may want to pursue lower-cost products to protect itself from the recession, but it would need to do so in a way that will not cannabilize its prmium products.

Finally, increasing repeat business through expanded customer loyalty efforts would help to increase sales. Threats abound. A longer than expected recession could lead to more sagging demand for premium-priced coffee. An ongoing recession will also continue to make it difficult for Starbucks to impose additional price increases at a time when U.S. operating margins are falling because of increased labor and utility costs and increasing coffee prices (MCRoskey, 2008). Dunkin' Donuts and McDonald's are fierce competitors at lower-price points and could always scale up to offer more premium-based products.

The company's international expansion plan is extraordinarily aggressive and customers may find that it has failed to meet their cultural expectations for cafes and coffee. This expansion is coming at a time when the company is experiencing problems in its established global markets. Continued growth could further erode the company's brand image and lead to commoditization that threatens the company's ability to charge high prices. Additionally, health conscious consumers are increasingly turning away from sugar-laden beverages such as Starbucks' 440 calorie Grande latte and this trend may spread.

Based on the SWOT analysis in this paper, I do not believe that Starbucks will even come close its goal of tripling annual sales to $23.3 billion by 2012. Much of this has to do with timing and its premium coffee strategy. This isn't very appealing to a mass market during a recession.

When the recession will end is anyone's guess, but consumers may continue to be more price conscious for some time to come, especially with a product such as premium coffee that can easily be replaced with lower-cost options from Dunkin' Donuts, McDonald's.