Retail Management 12th Edition by Barry Berman ,Joel Evans

Exercise 14

Case 1: Howard Schultz on Starbucks' Future Plans to Grow
Howard Schultz, the founder of Starbucks (www.starbucks.com), returned to the company as CEO in 2008, after not being involved with day-to-day responsibilities with Starbucks for almost eight years. Shortly after his return, he began to question the appropriateness of the company's strategy in the recessionary environment. Evidence of a major problem at Starbucks was that many of its underperforming shops had been open for business for less than 18 months.
Schultz believes that too many retailers manage their companies on the basis of same store sales growth objectives. Although this measure focuses on sales growth in existing (versus new stores), too much reliance on same-store growth may cause a store manager to increase sales in ways that can undermine a brand's long-term image and reputation. To illustrate this point, Schultz found that one of his managers decided to sell teddy bears to grow sales, even though the stuffed animals had no relationship whatsoever to coffee. As a result, Schultz decided to stop reporting same-store sales each month.
As a vehicle for long-term growth, Starbucks introduced new products and brands within its stores. Instead of first selling VIA, a new instant coffee, in grocery stores and drugstores, Starbucks decided to first sell VIA in its own stores over a six to eight-month time period. After VIA's success was proven, it was then sold through the other traditional channels. The initial sales success of VIA reduced the need for stocking payments (slotting allowances) to the grocery stores and drugstores. It also enabled the new product to achieve additional credibility among consumers.
Starbucks has also had great success with its loyalty card program, which accounts for one-fifth of all store-based transactions. Its program lets customers receive rewards for purchasing Starbucks-branded products in grocery and drug stores.
Starbucks is counting on China as a major growth market. As of 2011, Starbucks had about 800 stores in China. In the long run, it plans to have thousands of stores there. Starbucks' first Chinese stores were located in Shanghai and Beijing. It now has locations in secondary and tertiary markets such as Fuzhou. Although many Westerners have never heard of Fuzhou, it has a population of over 5 million people. On its opening day there, Chinese consumers lined up to try Starbucks coffee despite inclement weather. China has 140 cities with more than 1 million people each. Unlike other retailers, Starbucks plans to develop territories before moving to new markets. Starbucks is also looking at expanding in other emerging markets including India, Brazil, and Vietnam.
Starbucks is careful to modify its products to reflect the unique tastes of foreign palates, as well as to be respectful of cultural differences among consumers. For example, Chinese customers prefer black sesame seed to blueberry as a topping or filling for muffins. To successfully implement its strategy, Starbucks needs to decentralize planning and decision making on a regional or even county-based level.
Acquisitions represent another potential vehicle of growth for Starbucks. With $2 billion in cash on its balance sheet, Starbucks is financially capable of buying successful companies in both the United States and abroad.
1. Discuss the pros and cons of evaluating a retailer's success using same store sales growth data.
2. Comment on Starbucks' introduction of VIA in its own stores before attempting to sell it in grocery and drugstores.
3. Evaluate Starbucks' strategy of developing (saturating) existing foreign markets before expanding into new countries.
4. Describe the pros and cons of growing through acquisitions as opposed to internal expansion to Starbucks.