Starbucks was founded in 1971 in Pike’s Place Market, Seattle, Washington. They started out as a small local coffee shop selling fair-trade coffee-beans. In 1983, Howard Schultz, Starbucks' current CEO, joined the company and introduced the idea of selling hot coffee beverages. His proposal was rejected, so he decided to do pursue it on his own. He was convinced that there was a lot of money to be made in selling coffee beverages to Americans on-the-go. In 1985, he opened his first Italian-inspired coffee bar chain, II Giornale. In 1987, he managed to persuade the Starbucks chain to sell, and rebranded his II Giornale outlets into Starbucks. The company expanded rapidly in the U.S. market, which today accounts for around 70% of their sales. Starbucks has been opening a new outlet every single day. Their philosophy is based on a “build it and they will come” strategy and as a result, they are the largest chain of coffeehouses in the world with 15,012 stores across 44 countries.
Nowadays, even Starbucks is in financial trouble due to the current global crisis. In a recent article “Will Your Recession Be Tall, Grande, or Venti” Daniel Gross proposes the Starbucks Theory of International economics. His theory is very interesting and suggests that the higher concentration of Starbucks-stores in a country, the more likely the country will suffer catastrophic financial losses. Surprisingly enough, by looking at Starbucks global presence, their main target areas are in fact those that have been mostly affected.
The Starbucks Coffee crisis was completely unexpected, they were very optimistic and assumed that they would have a continuing growth-pattern. Quite the opposite, their stock-price has dropped 97% this year, and as a result they have been forced to make some dramatic changes. The main reason for the drop in sales can be summarized in one word, uncertainty. No one really knows what will happen next, and at the moment it is too risky to continue growing at the same pace.
Starbucks is considered to be a luxury coffee-brand, and therefore consumers are visiting their outlets less frequently. People are in general all over the world saving more and spending much less. Already on the 1st of July, 2008, Starbucks CFO Pete Bocian said "We believe absolutely we are seeing a major impact from [the] economy". After only working at Starbucks for 18 months, he left the company last month to work for Hewlett-Packard. In addition, Starbucks announced recently that they have to close down 600 non-profitable stores, which means cutting down 12,000 jobs, roughly 7% of its global work-force. According to CEO Howard Schultz, the company has decided to “focus efforts on locations where we can more effectively improve the customer experience."
Another response to help ease the pressure on their customers wallets is this month’s launch of their New Starbucks Gold Reward card which was designed with Starbucks most loyal customers in mind. For a yearly membership of $25 customers receive a 10 percent discount on any purchase plus many other benefits. Sales of Starbucks Gold memberships have already exceeded initial projections by 20 percent. For the first time in Starbucks history they are advertising through an online campaign, currently the launch of Vivanno smoothies. Advertising only via Starbucks outlets was sufficient - spending money on advertising was never needed.
The recession has proven to drop sales even within the coffee-house market. Although the majority of coffee-consumers continue to indulge themselves with their cup of coffee, many have cut down on high-end coffee brands like Starbucks. People are switching to cheaper alternatives or having more coffee at home, even McDonalds has become a huge competitor. Consumers who buy luxury-brand products on a regular basis are becoming more conscious, hence considering more reasonable and affordable brands. The best advice to Starbucks for the nearest future is probably to be extra-cautious on large-scale corporate decisions and better prepared on dealing with financial loss. After all, closing 600 non-profitable stores in less than a year is not a small number!
Nowadays, even Starbucks is in financial trouble due to the current global crisis. In a recent article “Will Your Recession Be Tall, Grande, or Venti” Daniel Gross proposes the Starbucks Theory of International economics. His theory is very interesting and suggests that the higher concentration of Starbucks-stores in a country, the more likely the country will suffer catastrophic financial losses. Surprisingly enough, by looking at Starbucks global presence, their main target areas are in fact those that have been mostly affected.
The Starbucks Coffee crisis was completely unexpected, they were very optimistic and assumed that they would have a continuing growth-pattern. Quite the opposite, their stock-price has dropped 97% this year, and as a result they have been forced to make some dramatic changes. The main reason for the drop in sales can be summarized in one word, uncertainty. No one really knows what will happen next, and at the moment it is too risky to continue growing at the same pace.
Starbucks is considered to be a luxury coffee-brand, and therefore consumers are visiting their outlets less frequently. People are in general all over the world saving more and spending much less. Already on the 1st of July, 2008, Starbucks CFO Pete Bocian said "We believe absolutely we are seeing a major impact from [the] economy". After only working at Starbucks for 18 months, he left the company last month to work for Hewlett-Packard. In addition, Starbucks announced recently that they have to close down 600 non-profitable stores, which means cutting down 12,000 jobs, roughly 7% of its global work-force. According to CEO Howard Schultz, the company has decided to “focus efforts on locations where we can more effectively improve the customer experience."
Another response to help ease the pressure on their customers wallets is this month’s launch of their New Starbucks Gold Reward card which was designed with Starbucks most loyal customers in mind. For a yearly membership of $25 customers receive a 10 percent discount on any purchase plus many other benefits. Sales of Starbucks Gold memberships have already exceeded initial projections by 20 percent. For the first time in Starbucks history they are advertising through an online campaign, currently the launch of Vivanno smoothies. Advertising only via Starbucks outlets was sufficient - spending money on advertising was never needed.
The recession has proven to drop sales even within the coffee-house market. Although the majority of coffee-consumers continue to indulge themselves with their cup of coffee, many have cut down on high-end coffee brands like Starbucks. People are switching to cheaper alternatives or having more coffee at home, even McDonalds has become a huge competitor. Consumers who buy luxury-brand products on a regular basis are becoming more conscious, hence considering more reasonable and affordable brands. The best advice to Starbucks for the nearest future is probably to be extra-cautious on large-scale corporate decisions and better prepared on dealing with financial loss. After all, closing 600 non-profitable stores in less than a year is not a small number!
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