Starbucks Management Styles - PDF

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					                                                                                                                                                                                  6/07 MEININGER’S WBI
 MARKETS                                                                                                                                                  S TA R B U C K S

Starbucks’ president Howard Schultz built a retail coffee chain that remains a point of
reference for anyone trying to brand a gourmet commodity experience. Dr. Laurent Guinand
looks at six companies that hope to follow in his footsteps and build the Starbucks of wine.

    ew retail chains are as admired as                               - It was one the first brands                                    songs, long before other coffee oulets.

F   Starbucks, but different people
    revere the company for different
reasons. Some will argue that
                                                                     established for coffee shops,
                                                                     - It created a lingo to describe the
                                                                     coffee drinking experience,
                                                                                                                                         Through these measures customer
                                                                                                                                      value was expanded from the 79 cents
                                                                                                                                      a cup at the local gas station to $5 a
Starbucks’ main achievement has been                                 - It carefully planned its real estate                           cup on premise while checking emails
their ability to bring gourmet coffee to                             approach so that it was able to position                         before a business meeting.
mainstream America. Others might                                     its stores to optimize its service in                               The American world of wine is now
underline the visionary positions of its                             America’s most important Metropoli-                              at the beginning of a similar transfor-
long time president, Howard Schultz,                                 tan Statistical Areas (MSA),                                     mation. Over the past few years, Amer-
and his commitment to employee care                                  - It implemented processes that could                            icans have been drinking more and
                                                                                                                                      more wine, which is slowly becoming
                                                                                                                                      the alcoholic beverage of choice. Ana-
 1      Wine Bars Market Positioning                                                                                                  lysts predict that the United States will
                        The Wine Loft                        The Grape                             Vino Volo                          become the world’s largest wine mar-
                                                                                                                                      ket within two years. This growth
  Web site                       
                                                                                                                                      comes both from new drinkers discov-
  Preferred locations   In city centers                      In malls and city centers             In airports
                                                                                                                                      ering wine, as well as from the
  Simplified wine       No specific classification           Yes. Specific classification          Yes. Classification in four
                                                                                                                                      increased frequency of consumption of
                                                             including 10 categories based on      categories: Bright, Rich, Light,
                                                                                                                                      established consumers.
                                                             weight of wine, color, and occasion   Brooding. Patented Vino Chart
                                                                                                                                         Yet, the world of wine is at least as
                                                             (numbered 1 to 10). Trademarked
                                                                                                                                      confusing today as the world of coffee
  Wine selection        70 wines by the glass                120 wines by the glass or bottle at   About 160 wines
                                                                                                                                      was 20 years ago, probably more so.
                        250 wines by the bottle              the bar                               (40 per category above)
                                                                                                                                      There are 10,000 domestic companies
  Prices range          $8/$14 per glass                     $5/$14 per glass
                                                                                                                                      producing 70% of the wine America
                        $20/$400 per bottle                  $10/$500 per bottle                   $15/$200 per bottles
                                                                                                                                      consumes, with wineries in all 50
  Exclusive wines       No                                   Yes, 80% of references                No
                                                                                                                                      states. The remaining 30% is made by
  Culinary selection    Hors d’oeuvres                       Hors d’oeuvres, appetizers,           Small plates
                                                                                                                                      thousands of estates scattered all over
                        Desserts                             cheese plates, salads                 Cheese plates
                                                                                                                                      the world and shipped here by some
                                                             Few entrees, desserts                 Cured meats
                                                                                                                                      2,000 importers with different geographic
  Wine Bar              Yes                                  Yes                                   Yes
                                                                                                                                      coverage. You’ll find the mix
  Retail Store          No                                   Yes                                   Yes
                                                                                                                                      has hundreds of varietals from
  Online Store          No                                   No                                    Yes
                                                                                                                                      Chardonnay, Cabernet and Mstvane to
  Events                Wine courses, high margin wines,     Happy hours                           Wine Club (two bottles/month)
                                                                                                                                      Sagrantino. It is true that a few wines
                        promotions, afternoon Happy Hours,   Live music                            Take away food and wine
                                                                                                                                      such as Yellow Tail or Santa Margherita
                        sponsored wine events
                                                                                                                                      sell several million cases in the US
Choice of location has a major impact on the business structure. A wine bar operating out of airports has customers who are in        market each year, but as new wine
transit and are therefore interested in stopping somewhere comfortable, not in wine courses or events.                                enthusiasts tune their palates and
and sustainable trade. Still others will                             be replicated in all its stores, from                            preferences, they quickly migrate to
emphasize Starbucks’ ability to                                      organizing the steps to produce                                  more interesting, more complex and
increase the value of local real estate                              specialty coffees in record time to                              more expensive wines. This developing
when opening new stores in less                                      streamlined food procurement,                                    enthusiasm, accompanied by the
desirable neighborhoods.                                             - It allowed for different modes of con-                         development of gourmet cuisine, is
  However, the success of Starbucks                                  sumption, from on premise, through                               apparent in the ever growing number
rests on something that’s even more                                  on the go, to cofee at home, with                                of wine events organized by schools,
important. Starbucks delivers a                                      packets of coffee for sale                                       restaurants or liquor stores every day
consistent experience to its client base                             - It embraced new technologies such as                           in all major cities. Yet, when you
through a series of key developments:                                wireless hot spots, gift cards or MP3                            discuss wine with enthusiasts,



                       especially beginners, you discover a      other wine events, which may be                                 or Pernod-Ricard will deal with
                       tremendous amount of confusion about      educational or not                                              companies of that size.
                       buying wines for daily consumption or     Real estate planning: A centralized                                In terms of operations, table two
                       gifts. That’s especially true when the    team of professional real estate                                offers an overview of the nature and
                       average liquor store carries at least     planners is responsible for devising                            organization of each chain. Most
                       1,000 different references. A few         the best locations in the MSA for the                           critical functions and processes are
                       companies have turned this situation      new wine bars.                                                  centralized in order to control the
                       into an opportunity and developed            The main differences between the                             uniform development of the different
                       business models similar to Starbucks      three chains are their target markets                           locations:
                       to attract those potential customers in   and their individual atmosphere. Vino                              - Wine selection, purchasing and
                       need of help. Some are wine bars,         Volo serves business travelers in                               inventory management allow for
                       others wine stores. While their overall   airports, a small, but captive and prof-                        reduced cost based on volumes not
                       concepts are similar, each company        itable segment. The Wine Loft looks                             possible for a single location.
                       has different plans. The following six    more like a regular bar or lounge,                              - Centralized information technology
                       companies are good examples of where      where professionals go after work or                            and web site management as well
                       the market is heading. The wine bars      dinner. The Grape is focused more on                            as marketing and communication
                       are, in no particular order: Wine Loft,   food so that people stay longer and                             functions allows for cost savings, but
                       The Grape, Vino Volo. The wine retail     consume more. Further, the Wine Loft                            also help build a single brand and com-
                       chains are Best Cellars, Vino 100 and     and The Grape have both been                                    municate it in a consistent manner
                       Wine Styles.                              developing in the South Eastern Unit-                           across the geographic regions.
                          What all these wine bar chains have    ed States, where the wine knowledge                             - Centralized real estate planning is
                       in common is that they are trying to      of consumers is low.                                            probably the most important aspect of
                       bring a consistent and comfortable           All, though, are hampered by the                             this model as a team of specialized
                       experience to the wine enthusiast in a    fact that it’s not as easy for people to                        brokers and developers are able to
                       fashion similar to that of Starbucks,     consume wine in the same way they do                            identify the best locations to develop a
                       through similar strategies:               coffee at Starbucks and then drive                              new wine bar in a given area.
                       Branding: They are trying to create       home. Further, it will be difficult, if not                     - Franchising has been the preferred
                       the first powerful wine-related brand     impossible, to create wine brands large                         mode of development as a way to
                       in the retail hospitality industry        enough to supply a chain the size of                            quickly gain ground and sustain fast
                       Specific lingo: They use simplified       Starbucks. Moreover, it is unclear                              growth, without also needing to raise
                       proprietary classifications to present    whether an ‘own label’, as Starbucks                            any capital.
                       their wine selection as opposed to tra-   has created for its coffees, will have                             The three retail chains presented in
                       ditional systems based on varietal or     any credibility with consumers who                              table three – Vino 100, Best Cellars
                       place of origin                           trust brands, nor how large producers                           and Wine Styles - follow a similar
                       Replicable processes:                     such as Constellation Brands, Foster’s                          growth strategy, including a simplified
                          •Although the number of wines
                          presented remains modest, with a
                          maximum of 250, widely different        2      Wine Bars Operations
                          price points are represented and all                                         The Wine Loft                The Grape                    Vino Volo
                          wines are categorized
                                                                   Year Started                        2003                         2000                         2004
                          •Most wines are sold by the glass
                                                                   Number of Locations                 10 locations                 26 locations                 5 locations
                          so that customers can taste the wine
                                                                   Franchise model                     Yes                          Yes                          No
                          before buying a bottle
                                                                   Centralized purchasing              Yes                          Yes                          Yes
                          •Food accompaniments remain
                                                                   Centralised wine                    Yes                          Yes                          Yes and No
                          simple and do not need a full
                                                                   selection and purchase                                                                        Some focus on local wines
                          kitchen operation so they can be
                                                                   Centralised inventory               Yes                          Yes                          Yes
                          prepared in advance from one point,
                          though served in several locations
                                                                   Centralised IT and website          Yes                          Yes                          Yes
                       Modes of consumption: bottles can be
                                                                   Centralized national                Yes                          Yes                          Yes
                       bought at the wine bar or in the retail
                                                                   marketing and brand management
                                                                                                                                                                                             SOURCE: THE AUTHOR

                       section of the bar when allowed by
                                                                   Centralized real estate planning    Yes                          Yes                          Yes
                       state law. Further, bottles can be re-
                                                                   and development
                       corked to take home when not finished
                                                                   Centralized training                Yes                          Yes                          NA
                       Education: all these establishments
                       drive traffic through Happy Hours and     By centralizing operations from marketing to inventory management, the wine bars represented here can eliminate waste.

                     MARKETS                                                                                            S TA R B U C K S

                    wine classification, limited selection of                              higher? Or is it more appropriate for
                    wines, wine events to foster traffic and                               the wine bar, where wine margins are
                    narrow price ranges. The two franchises                                higher, but there is less consistent
                    have been growing much faster than                                     traffic and higher operational costs?
                    the non-franchise.                                                        Starbucks      ended       up     having
                                                                                           locations in airports, mall and city centres
                    The race is on
                                                                                           - and always bundled the on-premise
                       Franchise models have grown faster                                  experience with the retail sales. None
                    than organic ones because they                                         of their stores are franchises. Processes
                    require less capital from head office.                                 and operations are the same in its
                    However, as organizations evolve over                                  more than 10,000 locations across the
                    time, franchises usually have more                                     globe. It will be interesting to follow
                    difficulties in remaining consistent.                                  these new breeds of wine bars and
                    New systems might not be implemented                                   wine stores as they continue to grow,
                    everywhere, local marketing campaigns                                  merge or see other business models
                    become more important than national                                    emerge to compete with them. The
                    ones to fight local competition and                                    first company to go public will proba-
                    potential mergers represent true                                       bly have enough cash on hand to con-
                    challenges to integrate. All these                                     tinue growing its network of locations
                    aspects usually affect profitability.                                  with a level of control and profitability.
                                                                                           Like in the early days of Starbucks, the
                    Who is going to win?
                                                                                           most successful wine bar and retail
                      Is this business model more appro-                                   chains will probably buy each other
                    priate for stores where wine margins                                   out and grow, not organically, but
                    are lower, but inventory turn-over is                                  through acquisition.

                     3      Wine Stores Comparison
                                            Vino 100                              Best Cellars                       Wine Styles
                      Web site                       
                      Year started          2003                                  1996                               2002
                      Number of locations   69                                    7                                  180
                      Franchise             Yes                                   No                                 Yes
                      Preferred locations   Suburban Malls                        City Centers                       Suburban Malls
                      Atmosphere            Simple and user-friendly retail       Sleek design – urban chic          Warm and reminiscent of
                                            space                                 $5/$14 per glass                   Mediterranean village
                      Simplified wine       Yes                                   Yes                                Yes
                      classification         ‘Vino 100 Taste Barometer’ that      Tailored classification            Tailored Classification “What’s
                                            measures flavor (fruity vs dry) and   3 types of white: fresh/soft/      your style” TM
                                            body (heavy vs light)                 luscious                           3 types of white: crisp/silk /rich
                                                                                  3 types of red: juicy/big/smooth   3 types of red: fruity/bold/mellow
                                                                                  2 other: fizzy/sweet               2 other: bubbly/nectar

                      Wine selection        100 wines                             100 wines                          About 150 wines
                      Prices range          No                                    Happy hours                        Yes
                      Wine Focus            Small Wineries                        Wine in exclusivity                Mostly Small Wineries
                                            Some comfort wines                    No or little overlap               Some well known brands
                                                                                                                     Cuvees for Wine Style stores
                      Online Store          No                                    Yes                                No

                      Events                Wine tasting events                   Wine tasting events                Wine Club
                      Note                  Sometime in same location as                                             Store can choose 150 wines out of
                                            Tinder Box (Cigar retail shop)                                           1,700 registered by HQ

                    The wine retail chains, just as much as the wine bars, are working hard to give customers a branded experience.


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