Starbucks’ International Operation
All's Not Well with Starbucks
For Howard Schultz, Chairman of Starbucks Corp., this list was special as Starbucks featured in the list. It was a dream come true for the Seattle-based entrepreneur.
Though the U.S. economy was reeling under recession and many major retailers were reporting losses and applying for bankruptcy, Starbucks announced a 31 % increase in its net earnings and a 23% increase in sales for the first quarter of 2003. Analysts felt that the success of Starbucks showed that a quality product speaks for itself. The fact that Starbucks spent less than 1 % of its sales on advertising and marketing strengthened this view. In addition to ...view middle of the document...
By 1981, the number of Starbucks stores had increased to five, and Starbucks had also established a small roasting facility in Seattle. Around the same time, Schultz, who was working with Hammarplast—a Swedish housewares company that marketed coffee makers—noticed that
Starbucks, a small company from Seattle, was ordering more coffee makers than anyone else. In order to find out more about the company, Schultz visited Seattle. Schultz was so impressed by the company and its founders that he offered to work for the company.
In 1982, Schultz joined Starbucks as marketing manager, with an equity stake in the company. During his first year at Starbucks, he studied the various types of coffee and the intricacies of the coffee business. The turning point came in 1983, when Schultz was sent to Milan, Italy, for an international housewares show. There he observed that every street in the city had an espresso coffee bar where people met and spent time. Schultz realized that Starbucks could introduce espresso coffee bars in the United States. He put forward this idea to his partners, but they did not like the idea of selling espresso coffee. However, after a lot of persuasion from Schultz, they agreed to allow him to sell espresso coffee in their retail shop. The business picked up, and by the weekend, they were making more money by selling the beverage than by selling coffee beans. Still, the partners refused to venture into the beverage business, so Schultz decided to quit the company and start out on his own.
In April 1985, Schultz opened a coffee bar called II Giornale in Seattle, with a seed capital of $ 150,000 invested by Jerry Baldwin and Gordon Bowker. The rest of the capital was raised through private placement. Soon, the second and third stores were opened in Seattle and Vancouver respectively. During 1987, when Schultz heard that Starbucks' owners were selling off six stores along with a roasting plant and the Starbucks brand name, he raised $3.8 million through private placements and bought Starbucks. Because Starbucks was a more established name, Schultz decided to retain it instead of II Giornale. Schultz expanded Starbucks to Chicago, Los Angeles, and other major cities. But with increasing overhead expenses, the company reported a loss of $1.2 million in 1990. However, Schultz was confident of his business plan and continued his expansion spree. He even hired employees from companies such as PepsiCo. By 1991, the number of Starbucks stores had increased to 116, and Starbucks became the first privately owned company to offer employee stock options. In 1992, Starbucks was listed on the New York Stock Exchange at a price of $17 per share.
The strategy Starbucks adopted was to blanket a region with its new stores. By doing so, it could reduce the customers' rush in one store and also increase its revenues through new stores. This helped the company to reduce its distribution costs and the waiting period for customers in its stores,...