Starbucks Marketing Plan
Marketing Plan
Student name
Contents
Executive Summary 3
Why Starbucks is looking to move into new avenues 3
Introduction 4
PESTEL Analysis: Japan 4
Political 4
Economic 5
Social 5
Technology 5
Corporate Strategy Plan 6
Taking the supply chain to International markets 6
Store Opening & Closures: New Marketing Plan 7
Distribution Strategy under New marketing Plan 8
Marketing Campaign and New Media Plan 9
Market Analysis 9
Robust Growth Opportunity Internationally 10
Marketing Expansion into new Countries 11
Conclusion 12
Executive Summary
The largest component of Starbucks overall cost save initiative, and the main reason why the company was able to exceed its year one cost save target was driven by domestic in-store savings. Specifically, Starbucks implemented Lean operating principles at the store level to help reduce food waste (better prep techniques and demand forecasting) and drive greater operating efficiency through labor optimization (labor scheduling). This has resulted in strong productivity-related gains. These enhancements also helped improve customer service levels through improved food quality and faster speed of service. In year one of the cost save initiative, in-store savings accounted for roughly $190mm (or one-third) of the $580mm in total saves. Starbucks is further expected to remain disciplined with its store-level costs. (Mutair et al, 2012) The company finished the rollout of POS in all of its U.S. stores by the end of 2012 and began rigorous efforts to implement an ERP system and CRM software into the U.S. in 2011. Through continued learning from these new tools in addition to other methods of improving productivity (i.e. mobile ordering speeding up service, inventory management further improving food quality and reducing waste), Starbucks is believed to have a long runway for continued opportunity to reduce costs at the store level. The company identified million of U.S. dollars in cost save opportunities. Company is looking into expanding to Japan region.
Why Starbucks is looking to move into new avenues
This paper is a marketing plan for Starbucks in country of Japan. In order to remake itself as a leaner company that could become less reliant on high levels of revenue growth to drive margin expansion and enhance returns, the company announced a major restructuring initiative that would focus on removing costs in 4 primary areas: 1) Store level improvements, 2) Corporate overhead, 3) the Supply Chain and 4) Store closures. Over the two-year period since announcing this plan, the company has had roughly $700 million in annualized savings (approximately $580mm in year one and close to $200mm in year two). This has translated into a meaningful reduction in the company’s key store operating costs as a percentage of store revenue. (Anne P. Crick, 2011)
Introduction
Starbucks identified nearly 800 company-operated stores domestically (and about 100 internationally) that it would close, owing to lackluster sales and operating unprofitably, which resulted in huge cost savings benefit. The savings here were all related to shuttering the unprofitable stores, which boosted overall profitability of the existing U.S. store base. This is the reason why company wants to move into more profitable venues like Japan. This paper focuses on the country analysis and the new marketing plan in the country.
PESTEL Analysis: Japan
Political
Initially his public approval rating was high, but his popularity has since ebbed, partly reflecting a lack of clarity and determination in dealing with a number of important policy issues. These include the future of nuclear power in the country and the possibility of Japan's joining talks towards the Trans-Pacific Partnership (a free trade agreement that is under negotiation between the US and several countries n the Asia and Australasia region and in South America). (Darwish A. Yousef, 2000)
Economic
Given that a national election must be held within the next 18 months, Mr Noda would probably be wise to eschew unpopular initiatives, but he is determined to proceed with a plan to double the consumption tax rate from its current level of 5% by 2015. (Mutair et al, 2012) Although confronted by evidence that the majority of voters dislike the proposal, Mr Noda has continued to pursue the broader policy, even if he has made numerous revisions to his specific plans, and in mid-February it received cabinet approval. (The tax increase still needs to be approved by parliament.) As a result of Mr Noda's espousal of this policy and his wish to enact the necessary legislation before the next election, there are rumblings of discontent in the DPJ: several powerful figures in the party are keen to avoid discussion of the consumption tax until after the election at least. (Seifudein Adem, 2012)
Social
There is little likelihood of a mass defection from the ruling party over the issue, but the internal discord has hardly helped the DPJ to burnish its public image.
But since taking office the DPJ government has struggled to assert its authority and has stumbled over policy towards the US, fiscal issues, internal financial scandals and many other matters. The slow pace of reconstruction activity in the areas devastated by the March 2011 earthquake and tsunami is another factor that is undermining the prime minister's popularity.
Technology
So far Mr Noda has failed to tackle the daunting challenges facing Japan's economy; success in this area would help to secure the position of the DPJ as a viable long-term alternative party of government to the Liberal Democratic Party (LDP), which is currently in opposition but which previously held power continuously for more than 50years until 2009. Thus, it is possible that voters could return to the LDP in the next election. However, current signs are that forces outside the two main parties are gaining popularity. Many of these are movements led by charismatic political personalities such as the maverick mayor of Osaka, Toru Hashimoto. (Seifudein Adem, 2012)
A delay to the election is possible because of a constitutional problem. The Supreme Court has ruled that there are unacceptable disparities in the voting power of different constituencies that must be remedied before the next general election, but the two big parties have not yet addressed this issue.
Corporate Strategy Plan
The second-largest component of the company’s cost save plan came from reductions in corporate overhead ($180mm in year one). Starbucks identified nearly 800 U.S. company operated stores that it closed, owing to lackluster sales and operating unprofitably. (Mutair et al, 2012) This allowed the company to remove a tremendous amount of non-store overhead that largely acted as a support mechanism for company stores. The company identified million of U.S. dollars in cost save opportunities from reduction in force of non-store personnel in year one, and ended up coming in at the high end of the range, with approximately $180mm in saves. (Anne P. Crick, 2011)
Taking the supply chain to International markets
The company also identified a number of opportunities to enhance its domestic supply chain and drive meaningful cost savings. Specifically, Starbucks improved procurement from SKU reduction and rationalizing its vendor base, it made changes to its sourcing for core raw materials, and it became much more efficient with demand replenishment. All of these efforts combined to drive millions of U.S in cost savings. As we look ahead, we still see opportunities for Starbucks to further enhance its supply chain. Specifically, the company has been exhibiting steady increases in on-time delivery to its stores over the past few years, but it is still just below what it classifies as “world-class levels,” so clearly there should still be room for improvement there. In addition, the company has opportunities to further scale procurement and distribution costs given its size, as well as better leverage regional/national vendors. As such, it is expected to continue cost-related improvements going forward from further optimizing its supply chain. (Aimée C. Kaandorp, 2010)
Store Opening & Closures: New Marketing Plan
Finally, Starbucks identified nearly 800 company-operated stores domestically (and about 100 internationally) that it would close, owing to lackluster sales and operating unprofitably, which resulted in huge cost savings benefit. The savings here were all related to shuttering the unprofitable stores, which boosted overall profitability of the existing U.S. store base. With that said, however, the company is now well positioned to once again begin accelerating U.S. store growth, albeit much more gradually than in the past. Starbucks targeted 100 net new additions in 2011 and believed that can be accelerated in 2012 and beyond. The key determinant behind the company’s decision to resume store growth is the improvement in unit economics of newly opened stores. Specifically, stores opened in 2012 had sales to investment ratio of 2.2 to 1, which is above the company’s internal hurdle rates and compares favorably to the last few years of 2.0 in 2009, 1.8 in 2008, 1.7 in 2007 and 2.0 in 2006. The dramatic improvement is attributable to the newly opened stores to the strong customer response from new product innovation and better product quality, meaningful improvements in customer service levels and more value-relevant offerings. As long as the economics continue to make sense, there is an opportunity for the company to continue to expand, albeit at a much more gradual pace than it has in the past. (Marques, 2008)
Distribution Strategy under New marketing Plan
Starbucks recently announced it was ending its agreement with Kraft (the company’s former partner and distributor of packaged coffee into non-retail store channels), alleging that Kraft did not meet its responsibilities to actively protect and promote the Starbucks brand. An arbitration process was followed to determine if Starbucks rightfully decided to terminate the agreement and whether any penalties will be levied as a result. Starbucks took control of its own distribution within CPG beginning in March 2011, and it has assured its retail partners that the transition will run smoothly. The company has built internal capabilities to handle the transition (accumulating information and know-how from some of the top CPG companies in the world) and plans to leverage the expertise of Acosta in handling merchandising, promotions, and pricing (Acosta is a third party company that handles these types of services for major packaged goods companies). With roughly 15 retail customers accounting for about 80% of the coffee sold at grocery stores, we believe Starbucks can be successful with a direct distribution model (vs. other countries that have much greater fragmentation). (Marques, 2008) In our view, by using Acosta and by going directly to retailers, Starbucks can better promote and market its product in these channels, and protect the premium equity of its brand. In turn, we believe this helps develop very strong relationships with Starbucks retail partners (whereas in the past Starbucks only communicated to its retail customers through its JV partners, such as Kraft). As we look at CPG’s operating margins, the segment presently generates a higher margin than both Starbucks’ International and U.S. segments, in the 30- 35% range. CPG’s revenue mix is expected to increase from about 7-8% in 2010 to almost 11% in 2013. In addition, margins in CPG is expected to accelerate from 32.9% in 2011 to roughly 34% in 2013, as the company scales back upfront investments as the VIA product rollout becomes more mature. As CPG becomes a bigger contributor to Starbucks over time, we estimate this will have favorable mix benefits for the company. (Adem, 2011)
Marketing Campaign and New Media Plan
What this implies is that all the marketing campaigns and media noise out there has created tremendous awareness for the coffee category overall. In general, it could be believed, greater awareness and consumer education is likely to lead consumers to trade up to better quality and a better experience. While increased marketing for a specific brand may lead to some initial trial, consumers will ultimately gravitate toward the higher quality offering, which plays into Starbucks’ hands.
Finally, to combat the notion that Starbucks is very expensive relative to other coffee chains, the company rolled out a number of value-relevant initiatives to help drive traffic. This included bundling of breakfast items with a coffee, offering Grande Iced Coffees during the summer for under $2, and strategically taking down price on some key menu items. All in, this plays to the value relevance equation and helps the company compete more effectively against other restaurants offering breakfast or value-priced beverages.
Market Analysis
Japanese market is huge and segmentation and positioning of the company Starbucks will decide the future of the company in that region.
Robust Growth Opportunity Internationally
With approximately 5,700 retail stores outside of the U.S. and annual International revenue 21% of total revenue, Starbucks is the largest international retail coffee chain. Given the fairly high levels of restaurant saturation in the U.S., along with Starbucks’ already massive domestic footprint (11,000 stores) the company has been gradually increasing its mix of international stores and sales over the years. Presently, the company’s largest markets are Canada, the UK, and Japan, which account for nearly 50% of Starbucks’ international unit count, while China continues to grow in relevance for the company as well, with about 400 stores in mainland China (about 800 in greater China) and high levels of operating profit. Over time, we expect China to become Starbucks largest international market. (Anne P. Crick, 2011)