Starbucks Performance Management Plan and KPI Analysis

Overview of the Company's Landscape

Starbucks was founded in 1971 in Seattle, USA, with the goal of elevating the coffee-drinking experience. The founders identified a market gap and recognized a need to create a welcoming place where people could relax after work or away from home. Enjoying a cup of coffee was one of the best ways to cultivate that feeling of calm. Coffee lovers in America embraced this initiative, and many people who enjoy a daily cup credit Starbucks with teaching them a different way to appreciate coffee. In America, the brand is often regarded as a model the entire world can learn from (MartinRoll, 2020).

Starbucks has expanded throughout the world and has always been strategic when opening new locations. The company began international operations in Tokyo in 1996. Two years later, it opened a store in the UK, and in 2002 another location in Mexico City. Starbucks became very popular in Russia by 2007 and responded to growing global demand by opening a store in Ho Chi Minh City, Vietnam, in 2013. Another milestone came in February 2014 when it entered Brunei — the 15th market in Asia and the 64th globally. In 2015, Starbucks reached 99% ethically sourced coffee by opening a new location in Panama. The firm has sustained a stable and rapid growth rate, with over 30,000 stores operational in 80 countries as of June 2019 (MartinRoll, 2020).

Starbucks changed its top leadership on April 3, 2017, with Kevin Johnson taking over from CEO Howard Schultz. Johnson was well suited for the role, having served as a board member since 2009 and as chief operating officer since 2015. Since Johnson took the helm, he has overseen several key initiatives, including craft iced teas, elevated food options, and coffee innovation (MartinRoll, 2020).

Starbucks divides its operations into three segments: Channel Development, International, and Americas. To strengthen brand positioning, the company sells tea and coffee products through licensed stores such as groceries. Starbucks also buys and roasts coffee through its worldwide store network and is involved in the production and sale of other beverages, including tea. Other brands operating under the Starbucks umbrella include Princi, Evolution Fresh, Seattle's Best Coffee, Ethos, and Teavana (Reuters, n.d.).

Financial Performance and Operating Segments

Starbucks has dominated the coffee-selling business for over five decades. The company participates in the full coffee production process — from roasting and marketing to retail sales of the finest coffee. As part of its operational expansion, the company also sells other branded products, including food and beverages. As of September 27, 2020, Starbucks had opened over 32,000 stores across 83 markets, all of which were operational. A larger store footprint represents a deliberate strategy to expand market reach and achieve broader global coverage. The company generates most of its profit from beverages, with the Seattle-headquartered Americas segment leading in revenue contribution (Farley, 2020).

The year 2020 was difficult for Starbucks due to the damage caused by COVID-19. To maintain social distancing, many consumers chose to avoid public spaces such as coffeehouses, which threatened the company's growth trajectory. In the fiscal year (FY) ending September 27, 2020, Starbucks recorded net earnings of $924.7 million — a 74.3% decline compared to FY 2019. The company spent $1.6 billion on operational expenses during the year. Net revenue totaled $23.5 billion, representing an 11.3% drop from 2019. Beverages accounted for 75% of total revenues, with food in second place at 20%. Tea and single-serve coffees each stood at 1%, while the remaining 4% came from other sources including ready-to-drink beverages and serveware. The second and third fiscal quarters were the hardest hit by the pandemic due to temporary store closures and major operational adjustments. The gradual reopening of closed stores contributed to the improvements Starbucks began recording by year's end (Farley, 2020).

The Americas segment includes companies operating in the United States, Latin America, and Canada. According to company revenue reports, this segment accounts for over 70% of total revenue. Approximately 54% of all Starbucks stores operate in the United States, which is why the Americas segment posted the highest net income of $16.4 billion in FY 2020 — despite recording a 10.3% decline attributable to the COVID-19 pandemic. Operating income stood at $1.8 billion, a 51.7% drop compared to 2019. Approximately 64% of total operating revenue comes from the Americas segment (Farley, 2020).

The International segment encompasses licensed stores and company-owned stores outside the Americas. Most international operations are located in the Asia Pacific, Middle East, Europe, Africa, Japan, and China. This segment contributes 22% of total revenue. In FY 2020, the segment posted $5.1 billion in net revenue, a 16.8% decline from FY 2019. Operating income stood at $354.0 million, a 63.3% drop compared to the prior year. Combined across all three segments, the International segment accounts for 12% of total operating income (Farley, 2020).

This segment covers branded ground coffee, whole roasted bean products, Teavana-branded single-serve items, Seattle's Best Coffee, and ready-to-drink beverages such as Refreshers, Teavana iced tea, Frappuccino, and Doubleshot. All products in this category are sold worldwide through licensed outlets or company-owned stores. The segment comprises 8% of total revenue. Net revenue for FY 2020 was $1.9 billion, a 3.4% decline from the previous fiscal year. Operating income declined 1.5%, with figures standing at $687.2 million. This segment accounts for approximately 24% of total operating income (Farley, 2020).

Company Strategies: Product and Service

The foundation of Starbucks' business strategy rests on four pillars:

First, offering an excellent place for people to relax away from home or work. At Starbucks, this is called the "Third Place" experience — a comfortable environment designed for individuals or groups. Beyond relaxing and drinking coffee, customers can work at Starbucks locations, which is why free Wi-Fi is available at many stores. The seating areas are designed to keep customers comfortable and encourage longer stays, converting to more sales in a way that benefits both the company and its visitors (Peterson, 2015).

Second, serving the finest coffee is a core strategy. Customers are willing to pay premium prices for quality products. A combination of excellent customer service and high-quality offerings is a primary reason that makes Starbucks exceptional (Dudovskiy, 2017).

Third, Starbucks ensures its brand is visible in major markets around the world. The company does not hesitate to open new stores, even in emerging economies, and this strategy has propelled significant growth over the years. Its effectiveness is demonstrated in the China/Asia Pacific (CAP) market, where Starbucks' global market share grew from 7% to 14% in 2017. The company opened over 2,719 stores within two years, demonstrating its commitment to the expansion strategy (Dudovskiy, 2017).

Fourth, adopting the latest technology in business. High-end technology can improve service delivery in numerous ways. Technology can automate processes, eliminating costly delays, and streamlining payment systems translates directly to better customer service (McNamara & Moore-Mangin, 2015). Additional areas where Starbucks applies technology include product development, monitoring customer satisfaction, and marketing. A clear example is the Mobile Order & Pay feature, which resolved queueing problems at busy locations. Customers also receive text-message notifications from Starbucks about offers, newly launched products, or completed orders (Peterson, 2017).

Starbucks practices quality-based marketing, so premium prices are no surprise to customers. Customers expect the products they encountered in marketing messages — or better. Delivering a lower-quality product would harm the brand significantly and erode customer trust. What sets Starbucks apart from other coffee brands is its consistent quality and excellent customer service. The store environment is designed to replicate the comfort of a well-appointed home, and Starbucks products are known to fulfill customer expectations, which is why its customer base remains highly loyal (Panagiotaropoulou, 2015).

The company has embraced a brand differentiation strategy to keep its products unique and achieve a sustainable competitive advantage. Approaches used to accomplish this include innovative store designs, high-quality coffee bean sourcing, and creating a distinctive store environment. The primary customer segments using Starbucks products include business professionals, students, and tourists. The company customizes its products and store experiences to meet local cultural expectations. Starbucks facilitates sales and marketing through four channels: licensed stores, consumer packaged goods, company-owned retail stores, and food-service operations. A distribution strategy that reaches buyers while they are at the store, traveling, or at work creates a strong customer network. Other products — such as beverages and fruit juices — are processed using methods such as high-pressure pasteurization (HHP) to retain natural ingredients. Natural ingredients are positioned as health-beneficial, and this narrative forms part of the company's broader marketing strategy (Panagiotaropoulou, 2015).

To maintain its top market position, Starbucks invests heavily in customer engagement. Constant communication with customers is a key method for understanding their expectations. One strategy involves adopting a more focused brand identity that highlights the company's values. To achieve this, Starbucks has updated even its logo, aligning everything with a coherent marketing mix. The seven attributes of the marketing mix — place, product, price, process, promotion, people, and physical environment — each communicate the value customers can expect. Additional marketing strategies include social media marketing, integrated marketing communication, and the cultivation of exceptional customer experiences. Sustained customer contact helps build long-term relationships (Panagiotaropoulou, 2015).

Starbucks invests heavily in online platforms to promote its brand. The power of consistent, brand-centric marketing is critical to maintaining a premium global brand. Key messages communicated to customers include the company's ethical principles, loyalty rewards for existing customers, and the premium nature of its services. These campaigns have played a significant role in elevating the Starbucks brand globally. In 2018, the Starbucks brand was valued at $32.4 billion worldwide — a valuation based on coffee and related merchandise revenue. Beverage revenue alone totaled approximately $15.9 billion. Rising brand value confirms that marketing campaigns are generating substantial financial returns (Pafitis, 2020).