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Akepisith Kattareeya Poomnuree Supatsinee

By. Akepisith Kattareeya Poomnuree Supatsinee. Agenda. Company Profile. Situation Analysis. Issues and objectives. Recommendation. Financial Justification. Key Success Factors. Conclusion. Company Profile. STARBUCKS. Globally recognized. Impressive Growth. Positioning.

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Akepisith Kattareeya Poomnuree Supatsinee

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  1. By Akepisith Kattareeya Poomnuree Supatsinee

  2. Agenda Company Profile Situation Analysis Issues and objectives Recommendation Financial Justification Key Success Factors Conclusion

  3. Company Profile STARBUCKS Globally recognized Impressive Growth Positioning 3rd place between home and workplace Operating Segments 1 2 3 Consumer Product Goods US International Retail Stores Specialty

  4. Situation Analysis Mature brand Coffee Too Rapid Expansion “OVER SATURATION" customers’ visit frequency # of transactions per store US

  5. Situation Analysis International Coffee Mature brand Too Rapid Expansion “OVER SATURATION" “Growth potential” customers’ visit frequency contribution to total revenue # of transactions per store growth in sales per store US

  6. Coffee International IMPLICATION Mature brand Too Rapid Expansion • slow down the pace of domestic expansion • focus on the international expansion “OVER SATURATION" “Growth potential” customers’ visit frequency contribution to total revenue Situation Analysis # of transactions per store growth in sales per store US

  7. Situation Analysis Music • New source of revenue • Way to enhance store experience Coffee Music Concern Major changes Music Format for expansion Digital VS Physical Shift in purchasing habits Traditional Music as a local phenomena Music Localization Non-traditional

  8. Issues & Objectives Where the company is Where the Co. should be in 5 yrs • Successfully integrated its music business to enhance store experience • while still maintaining the core focus on coffee • achieve sales of $28.9 bn with 60% growth of Starbucks Entertainment • A globally recognized brand • looking to incorporate music in order to enhance the international growth • with the sales of $9.4 bn Integration of music business into its international operation Issues at Hand Maintaining focus on coffee

  9. STRATEGY OVERVIEW International Music Strategy MUSIC STRATEGY Coffee Strategy COFFEE STRATEGY

  10. STRATEGY OVERVIEW International Music Strategy MUSIC STRATEGY

  11. I. International Music Strategy 1 2 3 Country Selection Music Offering 3 Experience Enhancement 3

  12. Country Selection Music Offering Experience Enhancement 3 1 2 3 I. International Music Strategy

  13. Country Selection Music Offering Experience Enhancement 3 1 2 3 I. International Music Strategy

  14. Country Selection Music Offering Experience Enhancement 3 1 2 3 I. International Music Strategy 1

  15. Country Selection Music Offering Experience Enhancement 3 1 2 3 I. International Music Strategy 2 • Rationale for UK: • Superior than Canada in 4 categories • UK is more receptive in regards to music

  16. Country Selection Music Offering Experience Enhancement 3 1 2 3 I. International Music Strategy UK JAPAN 1 • Maintaining Physical Format • Higher profit margin • Higher % share in Japan, UK • Give value to customers • Special Compilations • Limited Editions • More convenient purchase for adult customers TARGET MARKET • Adult music audience: • -Music is important part of who they are • -Find purchase convenient at Starbucks 2 PRODUCT FORMAT • Catered to Target Market • Offer format in combination of: Physical Digital

  17. Country Selection Music Offering Experience Enhancement 3 1 2 3 I. International Music Strategy UK JAPAN 1 TARGET MARKET • Continuing Digital Format • Rapidly rising sales • Convenient for younger customers to purchase • Customized purchase • Adult music audience: • -Music is important part of who they are • -Find purchase convenient at Starbucks 2 PRODUCT FORMAT • Catered to Target Market • Offer format in combination of: Physical Digital

  18. Country Selection Music Offering Experience Enhancement 3 1 2 3 I. International Music Strategy UK JAPAN 1 TARGET MARKET 3 LOCAL PREFERENCE • Adult music audience: • -Music is important part of who they are • -Find purchase convenient at Starbucks • Locally relevant music • Partner with local licensee to identify music to offer to customers • Micro Level Approach • Local musical artists be played in certain stores • Make available online • Approach local record labels to create a exclusive music releases for Starbucks + 2 PRODUCT FORMAT • Catered to Target Market • Offer format in combination of: Physical Digital

  19. Music Offering Country Selection Experience Enhancement 3 2 1 3 I. International Music Strategy “Sound of Starbucks Online Community” Objective: Enhance Starbucks Experience by allowing customers/partners to to be a part of shaping the Starbucks Culture through music, film and books • Starbucks-Customers, C2C • Forums, Blogs, chat rooms, idea/suggestion box • Learn about local customer preferences  enhance product mix Exchange of Knowledge • Support local music lovers who lack the opportunity • Upload songs on the web  Customers vote for their favorites •  Selected songs will be played in stores •  Highest vote/request will be made into • album Encourage New Talents

  20. STRATEGY OVERVIEW Coffee Strategy COFFEE STRATEGY

  21. II. Coffee Strategy Use music to enhance Starbucks Experience … but do not want to lose focus on COFFEE • International Opportunity • Domestic market (US) is saturating • International Stores: • Higher growth in sales per store • Increase % contribution to Starbucks total revenue GROWTH STRATEGY USA- 20,000 World- 20,000 USA- 15,000 World- 25,000

  22. II. Coffee Strategy Coffee Market Growth (2008-2013 forecast) N. America (-1%) Europe (0.4%) Asia (2.2%) Asia (2.2%) Africa (0.8%) Australia (0.2%) L. America (1.1%)

  23. II. Coffee Strategy Coffee Market Growth (2008-2013 forecast) • Criteria for Country • Coffee Consumption per capita • Population & Pop. Growth • GDP • GDP per capita • GDP growth Asia (2.2%) Asia (2.2%) CHINA JAPAN Total Stores Open 2,083 = 419 + 1,664

  24. Revenue Forecast ($ mm) Financial Justification

  25. Net Income Forecast (HK$ mm) Financial Justification

  26. Incremental Cost in Total Expense/ Year : USD 68 - 184 mm Capex : USD 522 mm Sources of fund Internally generated Fund Financial Justification USD mm

  27. NPV USD 4.8 Billion PBP 1.25 Years Financial Justification USD mm

  28. Coffee Strategy Aggressive international expansion International Music Strategy Country, Product Mix, and Experience Conclusion Where we are? Where we want to be? • Successfully integrated its music business to enhance store experience • while still maintaining the core focus on coffee • achieve sales of $28.9 bn with 60% growth of Starbucks Entertainment • A globally recognized brand • looking to incorporate music in order to enhance the international growth • with the sales of $9.4 bn Integration of music business into its international operation Issues at Hand Maintaining focus on coffee

  29. THANK YOU

  30. Slide Navigator I Company Profile Situation Analysis Issues and objectives Recommendation I / II Financial Justification Conclusion

  31. S/W/O/T Recommendation I: MUSIC How does music help enhance experience? Why not expand Hear Music? Competitive Landscape Music Offering Broaden music offerings Dealing with piracy Piracy Index (Asia, Central & Eastern Europe, Latin, MEA, NA+W.Europe Lower digital margins Why not acquire label? Experience Enhancement Green Strategy ) Slide Navigator II • Recommendation II: COFFEE • Aggressive expansion need for roast plant • Country Selection evaluation • Where to expand? JAPAN / CHINA • Long term store expansion • Where would the rest of 5000 would be? • Others • What to do with domestic market? • Risk Factors: • Music • Coffee • General

  32. Financial Back-up Other sale assumption Overall Pro Forma Assumptions Excel History Forecast Excel stores needed Excel-Sales Forecast Recom1 Excel-sales forecast recom2 Excel-Recom2 Japan target expansion Excel-Recom2 China target expansion Timeline • Exhibit 2,3,4 – slide 61 • Stores Sales hist.&graph • Ratios • Cost Estimation • FCF/ROI • B/S • Depre/WC • I/S • I/S Assumptions • Incremental • Cost Breakdown of CD

  33. Competitive Landscape for Music strategy No direct competitor  filter selective songs Indirect competitors: Traditional music retailers: CD warehouse Tower Record Non-traditional music retailers: Grocery stores Clothing outlets Department stores Restaurants Drugstores Online

  34. Should Starbucks broaden music offerings? • Better cater local taste & preference • Not deviate from Starbucks brand & image • Same music genre • Same target market • Adversely effect the Starbucks Experience  effect sales + customer satisfaction • Main objective: enhance experience  no need for broaden of product offerings to increase sales

  35. Piracy Concern? • Beyond company control • Need for collaboration in dealing with this issue • Chosen to penetrate into countries with low piracy level • Differentiating points: • Filtered music selection

  36. Lower digital margins? Chosen to penetrate into countries with high % of physical sales shares Main objective: Music to enhance experience  revenues is not our main focus

  37. Why not acquire labels in expansion? High costs Losing focus on coffee Problem with management Risk of not finding suitable targets Most are under Multinational Record Labels

  38. Music: Green Strategy? Carbon-1 CD’s Paper case Encourage green initiatives through Starbucks Community site

  39. How can music help enhance Starbucks Experience? More product offerings: local preferences In accordance with strategies: Position  “Third Place” Looking for innovative way to make Starbucks more than just a cup of coffee Online community site: Create & foster relationships/bonds with customers & partners: more activities Understanding customer perceptions of Starbucks: “Discovering the Sound of Starbucks” Brining the Starbucks Experience outside the store

  40. Why not expand Starbucks Hear Music stores? Not leverage on the existing distribution of Starbucks stores Weak point of differentiation from traditional music stores Does not meet the objective of enhancing the Starbucks Experience Losing focus on Starbucks as a coffee brand High investment costs No expertise

  41. Aggressive expansion: A need for more roast plants? No change in total number of stores openings Shift of focus to Asia Already have vision for aggressive long term expansion Should already have prepare enough capacity to satisfy increase in demand

  42. What to do with domestic market? Slower store expansion: Decrease expected store opening from 20,000 to 15,000 in 5 years Expand Starbucks Entertainment: Discovering the Sound of Starbucks More music offerings but same genre to correspond to brand More product offerings (e.g.) Starbucks shirts, hats, etc.

  43. I. International Music 2008 2009 2010 2011 2012 Country Selection Adjust to local preference Sound of Starbucks contest Product offering Create online community site II. Coffee Strategy Japan China Financial Back-up TIMELINE Assign the shelf space Label record collaboration 76 76 82 89 96 105 198 400 452 508

  44. Strengths Opportunities • Globally recognized brand • Impressive record of growth (especially music in North America) • Unique retail environment and customer base • Starbucks to charge premium prices on CDs. • Realizes larger profit on CDs than the average record company • Has the biggest/most powerful retail distribution network in the music industry  Minimize marketing costs • Manage to avoid the price wars • Has the world’s biggest wi-fi network  well-positioned to offer music digitally • Strong financial health • Growth in the international markets • Music as a new revenue channel due to higher consumer demand • Becoming a distribution channel  offer digital via wi-fi network • Digital sales are growing • Starbucks deal is very attractive for artists because of the built-in audience • The changing of music industry • To capture more consumers due to fractured traditional music industry • Diminishing of the sense of the discovery many consumers used to feel about music

  45. Weaknesses Threats • Maturation of brand in the US • Fluctuation and changing in nature of the music industry • Competitors • Coffee  cheaper stores (McDonald’s) • Music  grocery store, clothing outlets, department stores, restaurants, drugstores • Low profit margin of downloads need to boost for volume • Digital media piracy (esp. China) • Price war in the music industry • Physical music sales have collapsed but digital revenues do not completely make up for the decrease in CD sales • Older customers not totally embrace digital download • Too-rapid domestic expansion led to over-saturation • Mismanaging the effort to broaden its music mix • Becoming too mainstream • Narrow customer base from Hear Music • Some aspects of the transformation agenda involve forgoing revenue-generating activities in order to focus on the coffee

  46. Piracy Index : ASIA Source: Piracy Study(www.bsa.org/globalstudy)

  47. Piracy Index: Central and Eastern Europe Source: Piracy Study(www.bsa.org/globalstudy)

  48. Piracy Index : LATIN Source: Piracy Study(www.bsa.org/globalstudy)

  49. Piracy Index : Mediterranean Source: Piracy Study(www.bsa.org/globalstudy)

  50. Piracy Index : NA/ W.Europe Source: Piracy Study(www.bsa.org/globalstudy)

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