Starbucks Coffee: Case Study by onion: mrkokung@hotmail.com

1. The Starbucks Story
Starbucks Coffee EMEA

2. Today’s Agenda
 Our History & Building of the Brand.
 Our Values
 Our Numbers and Our Goals.
 Our Partners and Partnerships
 The Future

3. A brief history ...
 The story begins in 1971
 Howard Schultz arrives 1982
 A trip to Italy changes Starbucks
 Starbucks goes public June 1992 (165 stores)
 Starbucks opens in Japan 1996 (1006 Stores)

4. Our Values and Our Brand
The following six guiding principles will help us measure
the appropriateness of our decisions:
 Provide a great work environment and treat each
other with respect and dignity.
dignity.
 Embrace diversity as an essential component in the
way we do business.
 Apply the highest standards of excellence to the
purchasing, roasting and fresh delivery of our
coffee.
coffee.
 Develop enthusiastically satisfied customers all of
the time.
 Contribute positively to our communities and our
environment.
 Recognize that profitability is essential to our
future success.

5. Starbucks …
Brand Essence
“Who We Are”
Comfort Surprise
Familiarity Discovery
Authenticity Inspiration
The third place experience

6. Starbucks …
•Uncompromising Standards
•Attention to detail
•Everything matters
Passion
Coffee People
•Quality •Service
•Innovation •Community
•Personalization and Choice •Personal Connections
•Knowledge/Expertise •Employer of Choice
Source: Starbucks Internal Audit.

7. An Expanding
Global Brand

8. An Expanding Global Brand
 Leading specialty coffee brand & retailer
in the world
 5,000+ stores worldwide serving approximately 18
million customers a week.
 Presence in 26 countries with 1,000+ stores
outside of North America
 Enormous retail expansion opportunity worldwide
 Tremendous worldwide brand expansion potential

9. What we do ...
 Coffee - roast, retail and wholesale
 Retail- our core business
Retail-
 Ice Cream - No.1 coffee ice cream in US
No.1
 Frappuccino - No.1 prepared coffee drink in US
No.1
 Merchandise
 Brewing, mugs, books, coffee/tea ware
 CDs
 Starbucks chocolate
 Tazo Tea

10. Focus on People,
Experience and Product

11. Where We
Are Today

12. Today
Category leader with a very strong
& still improving image
Among 100 Strongest Global Brands
2nd year as America’s Most Admired
Company In Food Service Category
One of 75 Great Global Brands
in the 21st Century

13. Today…
Dedicated to sourcing
the highest quality coffee in the world

14. Today…
Loyal partners create the experience
that creates loyal customers
4th
year as
one of
“The 100 Best
Companies to
Work For”

15. Today…
Business practices that contribute positively to
our communities & environment
Among 100 Best
Corporate Citizens
Component of Dow Jones Sustainability
World Index

16. Today…

17. Today…
Starbucks partner volunteering
at United Way’s Day of Caring

18. Commitment to origin coffee
growing regions

19. What do we mean by
Commitment to Origins?
‘Starbucks aspires to be recognised as much for our
commitment to social responsibility as we are for the
quality of our coffee. We will do this through focusing
our efforts on improving social and economic
conditions for coffee farmers; minimising our
environmental impact; making a positive contribution
in the communities where we do business; and
providing a great work environment for our partners.’
Orin Smith, 2001

20. Specific Elements of Commitment
to Origins
Unique Coffee Selections:
• Fair Trade Coffee
• Shade Grown Coffee
• Organic Coffee
… AND…
Corporate Social Responsibility:
• Commitment to Coffee Farmers
• Commitment to the Environment
• Commitment to Local Community

21. Fair Trade
How Fair Trade helps farmers: Over half of the world's coffee is produced on small
family farms with only a few acres of coffee trees. Fair Trade certification provides a way
for these farmers to increase their incomes by helping them organize into cooperatives
and linking them directly to coffee importers. Fair trade farmers are guaranteed a
premium over the prevailing price being paid for coffee on the international market. This
helps them afford basic healthcare, education and housing improvements for their
families and farms. In addition, Fair Trade improves farmers' economic stability by
encouraging importers to extend financial credit to cooperatives and to develop long-
term trading relationships.
About Starbucks and Fair Trade: Starbucks is committed to sourcing coffees of the
highest quality that support a sustainable social, ecological and economic model for
production and trade. In April 2000, Starbucks formed an alliance with TransFair USA
that provides an additional opportunity for us and our customers to have a meaningful
impact on the working and living conditions faced by many who grow, harvest and
process coffee throughout the world.

22. Organic Coffee
Organic coffee is grown without synthetic pesticides,
herbicides or fertilizers. This procedure helps maintain
a healthy environment and clean ground water.
Many farmers have traditionally employed organic
growing methods passed down from one generation to
another. In fact many of the coffees that Starbucks
buys are grown using organic methods, although most
are not identified as such. Coffee grown organically,
but not certified is sometimes called ‘passive organic.’
EcoLogica, an organic certification organization in
South America, provided the certification to the coffee
farm that produced Starbucks first certified 100%
organically grown coffee, Organic Costa Rica, in
1999.Official certification requires that farms submit to
three years of soil testing followed by annual testing
to retain certification as organic producers. Once
harvested, the coffee beans must be processed in
organically certified mills and roasting facilities in order
to be sold as organic.

23. Organic Shade Grown Mexico
• The wave of growth in coffee houses has raised with it the issue of
the plight of coffee growing nations especially Southern Mexico
• Organic coffee is available in grocery stores and markets across the
region, but not widely available in coffee shops, and is a small but
rapidly growing segment within speciality coffee (c. 3% of whole
bean sales, however there is 25% growth per year in this category).

24. Corporate Social Responsibility
• Starbucks commitment to
“contribute positively to our
communities and our environment” is
a key guiding principle in the
Company’s mission statement.
• Starbucks strives to become a
great, enduring company by
championing business practices that
produce social, environmental, and
economic benefits for Starbucks
communities around the world.
•

25. Commitment to Farmers
• Starbucks commitment to coffee origin
countries includes addressing social and
environmental issues in order to help sustain the
people and places that produce our coffees.
• Starbucks purchases coffee directly from
farms, paying high premiums for the coffee,
working closely with the producers on quality,
and encouraging participation in social
programs for health and education.
• Purchases of organic, shade grown and
fair trade coffees by Starbucks all contribute to
greater social, economic and environmental
sustainability of coffee production.

26. Humanitarian Support
• Starbucks has contributed more
than $1.5 million to CARE, the
international development and relief
organization.
• CARE focuses on long-term
support for literacy and education
programs in the coffee-growing
regions of Indonesia, Ethiopia, Kenya
and Guatemala.
• In addition, Starbucks
frequently provides emergency relief
aid to disaster victims in coffee origin
countries.

27. Origin Country Initiatives
Starbucks makes
many long-term
investments in
coffee origin
countries, such as
building schools,
health clinics,
and coffee For example, Starbucks alliance with Grants
to Enterprise Works Worldwide helped
processing farmers build two coffee processing facilities
facilities to in Guatemala, enabling a cooperative of 700
improve the well farm families to improve their economic
being of families situation by milling their own coffees.
in coffee farming
communities.

28. Commitment to the Environment
Starbucks Environmental Mission
Statement:
Starbucks is committed to a role of
environmental leadership in all facets of our

29. Environmental Initiatives
Starbucks will fulfill our Commitment to the Environment
through:
• Support of Conservation International programs
• Starbucks Green Team (Environmental management
team)
– Instill environmental responsibility as a corporate value
– Striving to buy, sell and use environmentally friendly
products in all operations
– Minimising the environmental impacts of materials,
manufacturing processes and distribution systems
• Reduce, Re-use, Recycle Program
– Program employed or being developed in all stores and
company facilities
– Starbucks recycles used coffee grounds and burlap bags
used to ship green coffee
– Encouraging customer use of re-usable serveware
• Green Sweeps Program ( Cleanups by staff)

30. Commitment to
Community
Starbucks recognises the importance of community
and the role which we play and provides support
through donations, partner volunteerism, strategic
partnerships and giving programs.
The Make Your Mark in the US program
encourages volunteerism of employees in local
communities, likewise within EMEA, many of our
partners are involved in local community-related
activities. Employee-led initiatives focus on physical
improvements to neighbourhoods, tutoring, and
assistance with sick children, in soup kitchens for
the homeless, among many others.

31. International
History

32. From a small start in 1996 …
Japan
Stores 0 2
1995 1996 1997 1998 1999 2000

33. FY 1997 …
Japan
Hawaii Singapore
0 2 17
Stores
1995 1996 1997 1998 1999 2000

34. FY 1998 …
UK
Japan
Thailand Taiwan
Hawaii Singapore Philippines
128
0 2 17
Stores
1995 1996 1997 1998 1999 2000

35. FY 1999 …
UK
China Japan
Kuwait Korea
Thailand Taiwan
Malaysia
Hawaii Singapore Philippines
278
New
Zealand
128
0 2 17
Stores
1995 1996 1997 1998 1999 2000

36. FY 2000 …
UK
Lebanon China Japan
Kuwait Korea
Qatar Thailand Taiwan
UAE Malaysia
Hawaii Singapore Philippines
524
278
Australia
New
Zealand
128
0 2 17
Stores
1995 1996 1997 1998 1999 2000

37. FY 2001 …
524
278
128
0 2 17
Stores
1995 1996 1997 1998 1999 2000 2001

38. By this Morning..
 1155 international stores open in 26
international markets
 Exceeding expectations in virtually all
markets
 Opening stores at an annualized rate of
over 400 new stores in the international
division

39. Today
335
4270 Europe
75
North America
Middle
745
East
Asia
1155 International Stores Pacific
26 Markets

40. Where
We Are
Going

41. (In Millions) Net Revenues
$2,649
$3,000
(5 Year CAGR=31%)
$2,178
$2,500
$1,687
$2,000 $1,309
$975
$1,500 $698
$1,000
1996 1997 1998 1999* 2000 2001
$500
$0
*Fiscal Year 1999 includes 53 weeks versus 52 weeks for all other years

42. Global Retail Store Growth
4,709
5,000
(5 Year CAGR=36%)
4,500
4,000
3,501 31%
31%
3,500
3,000
2,498
2,500 1,886
2,000 1,412
1,500
1,015 69%
69%
1,000
500
1996 1997 1998 1999 2000 2001
0
Company-operated Licensed

43. Comparable Store Sales
10 9%
9
8 7%
7 6%
6 5% 5% 5%
5
4
3
1996 1997 1998 1999 2000 2001
2

44. Earnings Per Share
$0.50
$0.46
(5 Year CAGR=29%)
$0.45
$0.40
$0.35
$0.35 $0.27
$0.30 $0.22
$0.25
$0.17
$0.20 $0.13
$0.15
$0.10
$0.05
1996 1997 1998 1999* 2000 2001
$0.00
Excluding one-time charges
*Fiscal Year 1999 includes 53 weeks versus 52 weeks for all other years

45. Our Partners

46. International Ownership Strategy
Partners
Greater Equity Over Time
Starbucks
100% 50/50 <20% Straight
Starbucks JV JV License
Demonstrate Leverage partner’s Gain board seat, Move quickly,
concept, establish expertise, maintain minimize P&L minimize risks
credibility influence impact

47. Programs
International Ownership Strategy
Example market with 3
ownership assumptions
5
Operating Profit ($ Millions)
4
3
2
• Years 1 to 3: Minimize P&L
1
impact of start-up losses
0
(1)
• Year 5: Opportunity to capture
earnings through contractual buy-
(2) in provisions
Year 1 Year 2 Year 3 Year 4 Year 5
Licensed (0%) JV (50%) Owned (100%)

48. Our Partners and
Partnerships
Choosing the right partners is critical to our success
Shared values and corporate culture
Dedicated human resources
Strong multi-unit retail/restaurant
experience
Commitment to customer service
Quality image
Creative ability, local knowledge and brand-
building skills
Strong financial resources

49. Programs
• Growth: Develop New Markets
Increasing Competitive Threats

50. A quick World Tour …

52. Sydney, Australia

53. Canberra, Australia

54. Auckland, New Zealand

55. Shanghai, China

56. Beijing, China

57. Philippines

58. Beirut, Lebanon

59. Palm Strip store in Dubai

60. Kuwait City

61. Edinburgh, Scotland

62. Worlds highest
volume Starbucks
Shibuya, Japan
Shibuya, Japan

63. A glimpse of our
future...

64. The Potential in Europe:
0 500 1000 1500 2000
Germany 1450
France 990
UK 750
Spain 725
Potential
370
5,225
Italy
Benelux 360
Stores
Scandinavia 300
Switzerland 140
Europe
Austria 140

65. • International Store Growth )’02 to ‘07
‘07
1,821
‘07
2,615
Europe
‘02
361
‘02
865
‘07
Latin America (incl. Puerto 316
Rico & Hawaii) ‘02
87
‘07
430 Middle East/Africa
‘02 Asia-Pacific
37
1,350 International Stores by FYE 02
5,182 International Stores by FYE 07

66. …and the Rest of the World:
0 1000 2000 3000 4000 5000 6000 7000
Europe 5225 1425
Asia Pacific 4120
745
Potential
Latin America
110
11,
11,740
Middle East
Stores
Africa 115 Internationally

67. Still room to grow – even here …
(Company-
operated North
American stores
only)
No Stores
Fewer than 100 Stores
More than 100 Stores

68. QUESTIONS?
Thank you!

69. Onion Head
Siriporn Pongvinyoo
mrkokung@hotmail.com