Starbucks

Starbucks : advertising & marketing profile

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Starbucks is the world's leading retailer, roaster and brand of specialty coffee, now with operations in more than 50 countries. The company was initially lampooned for its empire-building ambitions, as it extended its network with bewildering speed, first throughout the United States and then around the globe. Yet Starbucks was astonishingly successful in creating a global brand in record time, while also maintaining - until 2008 at least - an enviable 20%-plus annual increase in revenues. There was a dip in performance for a couple of years as Starbucks recovered its poise, but the group has delivered record performance once again since 2010. It has also extended its footprint into packaged retail coffee, the ready-to-drink sector (with an equally successful bottled Frappuccino in association with PepsiCo), and most recently instant coffee and a home-brew system to compete with Nestle's Nescafe and Nespresso respectively. Yet for all its ruthless commercial acumen, Starbucks still prefers to think of itself as a personality choice, a lifestyle brand, a home away from home.

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Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 18th Apr 2018: Starbucks will close all of its 8,000 company-owned US stores for a single day on May 29th to conduct racial bias training for nearly 175,000 employees. It's a bold and very public attempt to make amends for a hugely controversial incident which occurred last weekend in a Starbucks store in Philadelphia, after two black men asked to use the bathroom while waiting for a friend. Because they hadn't ordered anything, they were refused permission. The men sat down again, were asked to leave, but refused. The store's female manager called the police and the men were eventually arrested, handcuffed and escorted off the premises. Footage of the incident spread like wildfire on social media, creating immense embarrassment to Starbucks, and of course to the individuals themselves who were subsequently released without charge because no crime had been committed. Starbucks CEO Kevin Johnson flew to Philadelphia to apologise in person to the two men and talk to local community leaders. "Starbucks stands firmly against discrimination or racial profiling," he said in a statement. "Regretfully, our practices and training led to a bad outcome - the basis for the call to the Philadelphia Police Department was wrong. Our store manager never intended for these men to be arrested and this should never have escalated as it did." The company said that the manager in question is no longer employed by them.

Adbrands Weekly Update 5th Apr 2018: Starbucks seems to have found the Holy Grail in China, in the shape of its Reserve Roastery outlet in Shanghai. It has opened these high-end outlets - which offer premium craft coffees, bakeries and augmented reality experiences - in several global markets but none has been anything like as successful as Shanghai, now the group's single highest-grossing outlet anywhere in the world. "This is among the crowning achievements in the company's history," said CEO Kevin Johnson. "Customers, in some cases, are lined up for hours to enter the Roastery and be taken on an immersive multi-sensory coffee, food and tea journey. On its very first day of operation, the Shanghai Roastery became the highest grossing Starbucks store in the world, averaging more than double the number of transactions of our highly successful Seattle Roastery, and with an average ticket of $29. Starbucks has cracked the code in China, and no Western consumer brand is better positioned than Starbucks in China."

Adbrands Weekly Update 7th Dec 2017: An Indiana court has blocked Starbucks' plan to close all its standalone Teavana stores in the US, in response to a lawsuit from mall-owner Simon Property Group. Starbucks will have to maintain operations in 77 of its 379 Teavana outlets and honour its existing leases, some of which have years to run. Unlike retailers like Sears or Macy's, Starbucks isn't closing the stores because they're losing money, but just because they're not growing fast enough, and in the current retail environment, Simon Property would struggle to find new tenants. "Starbucks' decision to close its Teavana stores is simply an effort to further increase its economic gains at the expense of others," said Simon Property's suit. "Starbucks simply believes it can make more money if it violates the leases than if it honoured its contractual promises and obligations." [The two companies reached an undisclosed settlement in Jan 2018 to end the dispute, allowing the closures to proceed.]

Adbrands Weekly Update 9th Nov 2017: Unilever further expanded its already vast tea empire with the purchase from Starbucks of the Tazo packaged tea brand for $384m. Tazo slots in alongside Lipton, PG Tips, Brooke Bond and Unilever's other tea products. The deal represents a significant profit, at paper at least, on Tazo which Starbucks acquired in 1999 for just $8m. The sale follows Starbucks' decision to shutter all retail outlets of its other and much more lucrative tea brand Teavana, which it will retain and will continue to sell through its Starbucks retail estate. Sales of tea are growing at double digit percentages through Starbucks' network, and the company said Teavana generated sales of around $1.6bn over the past year. The sale of Tazo accompanied generally solid performance from Starbucks for its fiscal year ended October 1st. Revenues rose 5% to $22.4bn, while net earnings were up a little over 2% to $2.9bn. Even so, investors were a little concerned by the final quarter's performance which came in below expectations, as well as a slight downgrade for 2018's projected profits.

Adbrands Weekly Update 3rd Aug 2017: Starbucks is doubling down on China. The coffee company unveiled the biggest ever deal in its history with the buyout for $1.3bn of its local partners in what was previously a 50/50 joint venture managing around 1,300 coffee shops in Shanghai and three provinces in Eastern China. Shanghai alone is home to almost 600 Starbucks branches, more than any other city in the world. At the same time, though, Starbucks relinquished its interest in a similar joint venture in Taiwan (for around $175m) and also announced the closure of all 380 standalone US outlets of Teavana, the premium tea brand acquired by the group in 2012 for $620m. The Teavana brand itself seems to be doing fine - it is doing well in mainstream Starbucks stores in the US and elsewhere, said the company, and is a key factor in the renewed push into China where it is a major seller. However, standalone Teavana outlets, located mainly in shopping malls, are struggling. That contributed to weaker than expect same-store sales in the US, up only 3% in the latest quarter, compared to the 3.7% analysts had been expecting. Group reported revenues were also disappointing, and the company cut its full-year profit forecast as well, prompting a sharp sell-off its shares at the end of last week.

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Background

Free for all users | see full profile for current activities: The first Starbucks shop opened in Pike Place Market in Seattle in 1971. A simple retailer of fine beans and blends as well as coffee-making equipment, it was named by owners Gordon Bowker and Gerald Baldwin after a character in Herman Melville's literary classic Moby Dick. (Mr Starbuck is first mate on Captain Ahab's ship, the Pequod. Despite the legend that has grown up around the naming of the store, there is no reference by Melville to Mr Starbuck being a particular fan of coffee). The romantic vision of early sea-born coffee traders also gave rise to the mermaid logo. For a decade it remained just a shop not a cafe. By 1982, there were six Starbucks outlets in Seattle, and the company had a profitable operation selling its coffee in bulk to upmarket restaurants. That year Howard Schultz joined as director of retail operations and marketing. On a business trip to Milan two years later he fell in love with the style and atmosphere of Italian espresso bars and tried persuade Bowker and Baldwin to open a coffee bar inside each Starbucks store. They declined the suggestion, but lent Schultz some money to start his own, which he named Il Giornale. This proved even more successful than Starbucks, and in 1987, Schultz bought out Bowker and Baldwin and merged his coffee shop concept into the Starbucks chain.

As a result of further openings in Chicago and Canada, Schultz now operated 17 outlets, and he launched a mail order catalogue in 1988 to supply fine coffee throughout the US. Further locations opened in the wake of the mail order division's modest success, and by 1991, the chain had grown to 116 outlets. The following year, Starbucks Corporation issued an IPO, and subsequently negotiated deals to open instore cafes in Nordstrom department stores and Barnes & Noble bookstores, and to supply beans and ground coffee to ITT Sheraton Hotels and United Airlines. In 1996 Starbucks took its first steps outside North America, agreeing a joint venture with Sazaby Inc to open the first Starbucks outlet in Japan. Further shops quickly followed in Japan and in Singapore. The same year, a tie-up was agreed in the US with Dreyer's to market Starbucks coffee ice cream, and with PepsiCo to market its Frappuccino iced coffee.

By now, the coffee bar concept was being borrowed by other companies, especially in the UK, where a number of Starbucks imitators had sprung up. The Seattle Coffee Company UK had been set up in 1990 by Scott and Ally Svenson to introduce Starbucks-style cafes to the local market. It proved a notable success, and was itself followed by a number of competitors. By 1998, Seattle Coffee Company remained the biggest player in the UK market with 60 outlets. That year it was acquired by Starbucks, and was rebranded under the Svensons' management. Back home the company also began acquiring other smaller coffee bars and importers as well as tea importer and blender Tazo.

In the late 1990s, the company moved aggressively into the internet economy, conscious that internet users were a key part of its target market. Starbucks introduced internet terminals into several US outlets, and made a number of investments in online businesses, including cooking site Cooking.com, furniture store Living.com and delivery service Koszmo.com. However most of these failed to survive the subsequent crash. More successful was the Starbucks card, introduced in 2001, which allowed customers to charge their purchases to a pre-paid swipe card. In 2002, the company began rolling out what it claimed was the world's biggest Wi-Fi or wireless internet network, in partnership with Deutsche Telekom subsidiary T-Mobile and Hewlett Packard. This allowed users to log on to a wireless Starbucks internet portal instore using their own laptops. Meanwhile the company continued its relentless expansion into new international markets. In 2002, the Starbucks brand made its debut in eight new countries including Germany, Spain, Mexico and Greece, followed by four new markets in 2003, including its first in South America. Also in 2003, the group moved into a new sector, negotiating "pouring rights" at venues including The Statue of Liberty, Madison Square Garden and Radio City Music Hall in New York, as well as several Seattle locations, to make Starbucks those venues' official coffee. The group launched in France, home of cafe culture, for the first time in 2004. See full profile for current activities


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