Operation Management of Starbucks by kxm70152

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Starbucks International




    Margaret Chang
      Brian Curtis
       12/6/2006
   Global Management
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                                         Proposal


       Margaret Chang and Brian Curtis are choosing to research Starbucks Chengdu.

Through interviews and facts and figures we will analyze the company and follow its

global movements.

       The paper will consist of mainly the explanation and insight on the company’s

choices to go global. Also a brief touch on the American ideas used in the Starbucks

worldwide. Current events and criticisms will be involved in the paper along with

troubles and answers Starbucks chose to overcome. The headquarters of Chengdu was

contacted by email and unfortunately no response was obtained. A store manager and

staff were interviewed in order to find the necessary information to analyze the company

through the workers eyes. Emphasis was placed on China at the level of a common

worker.

       A portion of the paper will deal with the company in other countries. For that,

research will be needed in order to give clear evidence of the strategy and success in the

countries.
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                                            Starbucks

       Starbucks started out as a small coffee bean distributor in Seattle in 1971. Today

the company has expanded to over 10,800 stores globally. The logo with the green ring

around the mermaid has become a house hold image in the United States and is becoming

very well known around the world. Starbucks is ingrained in the American vocabulary

and the corporation hopes to engage the world in the same way.

       Starbucks started its venture into the global market in 1995 with its first store in

Japan. The corporate team decided that the first international location would be in Asia

and not long after they chose the islands of Japan. Initially Starbucks was drawn to the

large market in Japan and the consumer desire for western brand goods. Before entering

Japan, Starbucks did a study to find what environment would work best in Japan. They

came to the conclusion that a third-place venue would work best. It would give business

people a place to go besides work and home. It was also important to offer an area that

was friendly to young women and families, the no smoking policy appeared to be the best

solution. The first store was very successful and currently there are over 600 stores

blanketing the islands. Starbucks uses Japan as a test for new drinks, for instances, they

previewed the green tea beverages in Japan before offing the drink to other global

locations, knowing that if it is successful in Japan other countries will most likely enjoy

the drink. Starbucks decided to enter Japan with a joint venture. They found success in

their partner Sazaby, who helped safeguard the brand name and quality associated with it.

The choice to enter the global market paid off, through pre-entry research and they didn’t

jump into a situation unprotected. (1)(3)
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       In 2003, the coffee giant found itself in a bit of trouble in the global market. The

company had expanded to over thirty countries and the initial Starbucks craze was

dwindling. Many problems are due to the startup costs and the loyalty of customers to

the competition. European coffee drinkers found the taste of Starbucks unappealing

compared to the espresso shot they enjoyed at the local coffee bars. Another difficulty

was bringing customers back into stores, with the highest prices for all drinks; most

Europeans didn’t want to spend extra money. Starbucks changed the plan of expansion

slightly and slowed down. The company suffered losses in most of its European stores,

mainly due to the joint ventures that Starbucks used to rush into the countries. The loss

in Israel hit rock bottom and closing all six locations was the appealing option. The

executives are not worried about the losses and most areas showed profit in 2005. One

reason Starbucks can afford to take short term losses is the fact that the company is

basically debt free and in 2004 enjoyed $300 million in free cash flow. Starbucks

understands that the short term may show little or no profit but the benefit is in the long

term investment abroad. Starbucks headquarters decided to go global initially due to the

fact that they were running out of room in the United States. (1)

        Starbucks world wide sells coffee at American prices. In lower wage countries

such as China it is incredibly hard for the common Chinese to afford a cup of coffee. This

creates a social class in China. If a Chinese person can walk around with a cup of

Starbucks or go to work everyday with a fresh cup of Starbucks, they are seen in a higher

class. It is a way to show off the wealth of the person without talking about it. This also

makes Starbucks a special occasion for families.
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       The Chinese local coffee houses are Starbucks biggest competition. These coffee

houses cater to the Chinese customs of enjoying and afternoon with a drink, playing

mahjong, smoking and being loud with friends. Traditionally, Chinese are not

accustomed to drinking coffee, so Starbucks initial coffee drinkers came from the foreign

Americans visiting or living in China. Starbucks slowly began to draw in the Chinese

crowd with their provided atmosphere. The Chinese all feel that Starbucks coffee is very

expensive, but more of the locals began to admire and enjoy the relaxed environment.

This gives them a chance to get away from the typical noisy and smoky Chinese local

coffee houses. The Chinese express that they enjoy having Starbucks to relax and try this

American coffee culture.

       Starbucks holds an American culture in the stores dispersed around the world.

Since the goal is to draw in local and foreign customers to the store, they localize to a

certain degree and maintain an American atmosphere. This allows the local people to

feel comfortable and is still attractive to foreign customers in every store location. The

local customers in China will always have the luxury to order in Chinese and enjoy their

time to sit and socialize. The foreign customers are comforted with the familiar logo,

menu, music, decoration, and the usage of English. One of the main challenges that

Starbucks faces in the global setting is that it enforces the no smoking rule that originated

in America. This is a different culture for most of the Chinese because they are use to

having an environment to sit, socialize, and smoke at their leisure. This creates major

competition from the local small coffee stores that cater to the local customers. It is

important for Starbucks to maintain their American atmosphere and logo. This is their
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way of being recognized globally. This gives them the task to carefully choose how to

localize in each and every country they decide to enter.

       The entrance strategy used by Starbucks for China was based on the same idea

they used for Japan. They started by doing market research to decide whether a niche

was available and who would be their competitors. Originally, to initiate their way into

the China market they form joint ventures. This has been a successful route for them to

expand over the country. Now that they have concreted themselves in the China market

they are able to wholly own their own stores.

       Starbucks is an expanding giant in today’s world and a great example of a global

corporation. Currently there are over 230 stores in mainland China and the numbers are

growing rapidly. When they first entered China, they only had stores available in Hong

Kong, Shanghai and Beijing the biggest tourist and shopping areas when China started

their open door policy. Within the last year Starbucks has spread throughout the rest of

China. Our main focus is on development of Starbucks in Chengdu, and we will also

investigate the strategy Starbucks used to enter and develop in China. (1)

       We started our investigation by interviewing an employee at the Starbucks located

on Ren Ming Nan Lu, near Sichuan University. This Starbucks is located within the

lobby of the Western Tower, which is an international business center. This is a newly

developed center right next to the American Consulate. This Starbucks opened in March

and has slower business then the other Starbucks in Chengdu. Since they have slower

business they hire a smaller work staff. Normally, Starbucks in China hire about 18 to 20

employees. The Western Tower Starbucks only has 12 employees.
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        To be hired at Starbucks it begins with an application process. The applications

for Starbucks can be found in newspapers, their website, local stores and headquarters. It

is easily found and accessible. Once the application is reviewed the potential candidate

will receive a phone call from the manager. If the candidate still wants to work at

Starbucks they will start the employee in a one month training course. Lychee an

employee at Starbucks on Ren Ming Nan Lu, told us about her experience. When she

received a phone call from the managers at Starbucks, she accepted the job because it was

the first company out of the five she applied to that responded. She immediately left her

home town and flew over to Chengdu. The day after, Lychee was sent to Guanzhou to

start her one month training. Starbucks pays for all of the training they give their

employees. The first week consists of classroom instruction; all the employees must

learn the workbooks and general Starbucks knowledge through lectures, and activities.

The Second week they are dispersed to different stores in Guanzhou to do a job shadow.

This allows them to get on the job training and get a better idea of the work environment.

The focus of the one month training is to teach all of them the eight workstations required

to work at Starbucks. They eight workstation are coffee machine, drip coffee, cold

station , pastry, merchandise, back room, lobby and cash register.

       The Coffee Machine station consists mainly of the espresso machine and all the

paraphernalia that goes along with it. The employees need to make sure the temperature

is correctly set everyday. They need to know what setting to grind the coffee, if the

setting is wrong it will ruin the coffee and make the drinks taste bad. They need to test

the strait espresso every morning before entering to make sure that everything is correct.
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For production, this station is the most important, what happens with the coffee depicts

the taste of the coffee and it crucial to have the same taste constantly.

        Another station dealing strictly with coffee is the Drip Station. At this station it is

important for the employees to check filter and water quality to ensure a quality cup of

coffee. Once again it is important that every employee understands the correct grind for

the coffee in order to use it in the drip coffee. If it is wrong it will give the drip coffee

either a weak taste or a very strong, bitter taste.

        The Cold Station is mainly the area that contains the products needed to create

cold drinks. Here it is important to know what measurements and ingredients go into the

array of different drinks. This station has fewer technical properties; instead it is an area

that completes the product. If a drink is to be altered by the customer it would most

likely be accomplished in this area. It’s a more artistic area and allows the staff to be

creative and decorative.

        The backroom is the washroom, all the equipment is washed along with in house

cups. It is important for the Starbucks image to have clean equipment and cups. The

store room and inventory room are also in the back. General knowledge of the backroom

is important more for upper management than customers. In order for Starbucks to

operate, they need to make sure the employees are efficient in taking inventory and

communicating with the headquarters.

        There is a pastry case in the front of the store that is also a station. They must

pass a test showing that they understand how to set up the pastry case; this is an

important task when opening the store every morning. Along with pastry that must be set

up every morning is the merchandise station. The staff of each store must know the
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amount of each product they have and make sure that they have products out for display.

Starbucks sells a lot of mugs and travel cups, it is important for each store to have these

staples out for the customers. The Starbucks tumblers are offered in large city locations

around the world. They are specialized to each big city that the Starbucks is located in.

The tumblers have become collector items. With the demand for the tumblers, Starbucks

has created an advertisement that pays for itself and brings in profit for the company.

World travelers collect these mugs and tend to buy them as gifts for family and friends.

       Another station is the cash register region. The employees are trained on the

computer system and tested to make sure they understand operation and money issues.

The computer systems are also large databases. Each store has the same computer system

and it records purchases in different categories. For instance, the computer will record the

promotional drinks bought on an individual day, week or month. There is also a record

for each type of drink on the menu.

       The lobby is the most important station to the employees. Starbucks would like

the employees to be as friendly as possible and to be noticeable in the lobby. This will

make the customers happier and allow the staff to give off a friendly and warm feeling.

Also in the lobby area, the staff has to make sure the coffee bar is correctly set up and

clean. This is the area that houses the straws, napkins, sugar and extra milk. Being

familiar with the eight stations is the most important requirement for the Starbucks

employee. The employees will study the different stations and pass a test in order to

operate by themselves in Starbucks.

       To ensure that all Starbucks are meeting all of the standards, upper management

will inspect every store through audits. These auditors check the employees’ cleanliness
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and history of the store, and the staff is quizzed to guarantee that the Starbucks team is

knowledgeable towards all of their work stations. There is also another form of auditing

where the store will not know the presence of the auditor. They enter the store as a

regular customer. Inconspicuously, the auditor will order a drink and then sit and enjoy

their cup of coffee. During this time he or she will observe the service that is provided

and grade the store.

.         In order to make sure that every station is clean and in its best condition, the

employees must arrive half an hour before opening and stay a half hour after closing.

The Ren Ming Nan Lu Starbucks is open Monday through Friday from 7:30am until

11:00pm. On the weekend, the store is open 8:00am to 11:00pm. This is due to the fact

that people enjoy sleeping in on the weekends. In particularly since this Starbucks has

slower business the daily hours are less than the normal operations hours at other

Starbucks locations; especially the Starbucks located around Chun Shi Lu is open daily

from 7am until 12am.

       Lychee, commented that Chengdu has one of the friendliest working staff in

China. She said that if you visited one in Beijing the atmosphere is different. The staff is

likely to be exhausted by the long working days and the abundance of customers that

move through the store daily. In a long and stressful day, and the staff will show their

exhaustion. In contrast, every Starbucks in Chengdu has a cheery and friendly working

staff. When a customer enters the store they are always greeted with a warm welcome

and a staff member is always ready to take their order at the cash register. Starbucks

prides itself on customer service and feel that being friendly will help them gain

popularity globally.
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        In China, an employee will be trained in a different city. For example, the new

employees in Chengdu are trained in Guanzhou. The Chengdu Starbucks is the training

area for the Xian staff. By moving people around it helps create a move universal

environment at all the Starbucks. Also it allows the staff to understand how Starbucks are

run in different Cities.

        The menu globally is limited, compared to the United States. They have specific

drinks that were chosen by each marketing department, for instance, to sell in China there

are only the basic popular drinks. The drinks are listed on the menu both in Chinese and

English, catering to both the Chinese and foreigners. There are three drink sizes available,

short, tall, and Grande; Starbucks in China does not offer venti because it is not part of

Chinese taste and custom to drink a cup of coffee that big, if they choose to drink coffee

it is a smaller amount than other countries. Chinese enjoy drinking tea more than they do

coffee; it is still a new taste to the Chinese and a specialty.

        The most common drink sold at Starbucks is the caramel macchiato and the

cappuccino. During the summer the frappacinos are customers all time favorite drink.

Then during the winter season the hot drinks are thoroughly enjoyed and a staple for

Starbucks, along with the holiday season offerings. Every week their goal is also to sell

at least 20 bags of coffee.

         Every Starbucks store is in charge of their own inventory, when they are short in

supply they must send in their own order. They must keep a record of inventory every

day, every week, and every month. When the inventory is low, they make their

individual order to the Starbucks headquarter in Shanghai. In Shanghai they have a huge

warehouse stalked full of coffee and merchandise that is shipped over directly from the
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headquarters in Seattle, Washington. DHL does all of Starbuck’s transportation and

shipping. Shanghai sends the orders directly to every individual store.

       Every worker at Starbucks has a different work schedule every week. This is

devised by the store manager. The number of staff working at a time varies throughout

the day, and the amount during a shift depends on the busy and slow hours at each

location. The employee breaks are very flexible, totaling 20 minuets for break during off

peak time and 40 minutes for a lunch break. They also have the choice to take their break

all at once, giving them a total of an hour.

       The benefit program in China for employees is much different than in the United

States. In the US Starbucks offers full benefits such as health and vision insurance as

well as stock-options for employees who put in as few as 20 hours a week. These options

aren’t all available for China, but the employees are taken care of. Starbucks employees

are granted medical and dental insurance. They also have the luxury of free drinks at

anytime. Another incentive they receive for working at Starbucks is that at the end of

every year they are paid time and a half. Wages are different for every employee

depending on there work position. Every worker also has the opportunity to move up in

there position depending on their performance and relationship with the manager. To

critique the employee and store performance a meeting is held with the manger every

month. This is a chance to express all the good and bad events that has occurred during

the month.

       One difficulty Starbucks is having internationally is advertising. The blanket

strategy isn’t paying off as it does in the United States. Initially, the marketing teams

must come up with new and creative ways to bring the customer into the store. After that
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the Starbucks atmosphere will help bring people back into the stores. The Starbucks in

China is a great example. Knowledge of Starbucks is not common among the people and

it is necessary to add Starbucks to their vocabulary to ensure a market. To help promote

Starbucks around the community, the marketing department has devised many events that

reach out to businesses and schools. The Company Social Representative (CSR)

organized by the marketing department runs a program to donate clothes for children in

school. Starbucks will run the donation for about one month in the store, allowing

customers the chance to donate to the collection. At the end of the event, Starbucks will

distribute the assortment of clothing to those in need in the area. The Starbucks staff

members are also active in participating in street cleanings and picking up litter. When

they are out in the streets helping clean up, Starbucks gives them uniforms to help protect

them, and so they can have Starbucks logos on them to help show the public that

Starbucks cares. Starbucks also shows their concern towards the environment by giving

customers a discount if they bring in their own tumbler for coffee. In Chengdu, more

customers go to Starbucks during the day to sit and read their newspaper, use the wireless

internet, or work on assignments; compared to American customers who are in and out of

the store with their coffee. The marketing department has found that they can benefit the

environment by providing glass mugs for their in house customers. Only by request will

they give their coffee drinker a paper cup. This cuts down on the world’s plastic and

paper waste that can accumulate over a day through drinking coffee.

       The marketing department at the Starbucks Chengdu headquarters found an

opportunity to specifically promote the Starbucks on Ren Ming Nan Lu. On December 2,

2006 an event was held in Western Chengdu and the marketing department took this
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opportunity to promote their coffee for the Western Tower Starbucks. They took a total

of four large buckets of coffee over along with other sales merchandise. This ended up

being a four day event and Starbucks is hoping that this will draw in more local

customers.

       Starbucks helps incorporate many regions of the world into their business. The

coffee bean industry is world wide and Starbucks offers different blends from different

areas. This results with the farmers in coffee bean areas becoming an additional part of

the Starbucks team. The media has made Starbucks out to look careless since it doesn’t

use 100% fair trade beans. In 2000, the company started to use fair trade beans and

supported the small family farmers. Today, three options of fair trade coffee are

available accounting for 3.7% of all Starbucks coffee, though it doesn’t sound like much

they are the leading buyer of fair trade coffee in North America. Starbucks claims in

2005 they purchased 11.5 million pounds of fair trade bean. Starbucks is the only

company certified to sell fair trade coffee in all of its abroad locations.

       The global future of Starbucks seems bright. Over the next five years Starbucks

plans to open over 30,000 new stores, half of these in the global market. Currently

Starbucks has over 8,500 stores abroad and only about 500 in the European Union.

Starbucks has made its entrance into South America by opening its doors in Brazil. Many

analysts are skeptical with the South American market since it is the coffee bean capital

of the world. Also the gift card is going global after bringing in over $2 billion since

2001 in the United States. In November of 2006 Starbucks international cards were

released in Britain, Japan, Spain, Germany, Greece, Australia and Thailand. The idea is

to create the same ease that was developed in America. The cards make great gifts and
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can be used as a debit system. This creates a way for people to have Starbucks coffee

without having cash on them. Starbucks hopes this will help ignite sales in the European

Union and reignite the slower stores around the world. Starbucks is using customer’s

loyalty and connivance to draw people to the stores. The future of Starbucks

International in our opinion will mimic the success in the United States. (1)

       By entering the global market through a very western country like Japan,

Starbucks was able to predict success. The joint venture entry strategy allowed Starbucks

to enter each market and country rapidly. There have been some difficulties with profits

in the short term but the plan for Starbucks is long term and looking to be very successful

globally. By featuring American culture and adapting to each local customs the company

is able to create an environment that both locals and foreigners can relate to.
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Work Cited

   1. Wikipedia

   2. http://seattlepi.nwsource.com/local/6420AP_Brazil_Starbucks.html

   3. http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2006-11-

      14T084152Z_01_T79334_RTRIDST_0_FOOD-JAPAN-

      STARBUCKS.XML&rpc=66&type=qcna
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