Starbucks Process Analysis

Starbucks stores are typically clustered in high-traffic, high-visibility locations in each market. Stores vary in size, with an average of approximately 1,500 square feet. All Starbucks stores are located in leased premises. Because the Company has the ability to vary the size of its stores, Starbucks stores are located in a variety of settings, including office buildings, downtown and suburban retail centers, and kiosks located generally in building lobbies, airport terminals, and supermarket foyers. While the Company selectively locates stores in suburban malls, its focus is on stores that are convenient for pedestrian street traffic.

As part of its expansion strategy of clustering stores in existing markets, Starbucks has experienced a certain amount of cannibalization of existing stores by new stores as the store concentration has increased, but management believes such cannibalization has been justified by the incremental sales and return on new store investment. The Company anticipates that this cannibalization, as well as increased competition and other factors may continue to put downward pressure on its comparable stores sales growth in future periods.

The Company combines its merchandising strategy with its marketing programs to create and reinforce a distinctive brand image for its coffees. The Company's merchandising strategy is reflected in its product mix, product pricing, and sales and educational materials. The product mix in each store varies and depends on the size of the store and its location. Larger stores carry a revolving selection that can include any of the Company's more than 50 varieties of whole bean coffees and a range of coffee related products, including exclusive, high-quality coffee-making equipment as well as accessories bearing various Company trademarks, such as coffee mugs, coffee grinders, storage containers, coffee filters, and finely packaged gourmet food products. The smaller stores and kiosks usually sell a full line of coffee beverages, a limited selection of whole bean coffees and a few hardware items, mostly logo mugs and small equipment items.

Starbucks prices its coffees competitively with the prevailing high-end coffee prices, reflecting the high-quality of the Company's coffees and its high level of customer service. Prices vary by market, including Canada, but as expressed in U. S. dollars, coffee beverage prices range from $0.80 for regular brew to $3.65 for the most expensive espresso beverages. Whole bean coffee prices range from $7.95 to $17.95 per pound.

The Company goal is to open 2000 stores by the year 2000. Management goals of future fiscal year openings have consistently been exceeded. Starbucks anticipated opening 275 stores in fiscal year 1996. During the 52 weeks ending September 29, 1996, the Company opened 307 stores (including four replacement stores), and licensees opened 26 stores, bringing the total number of company-owned and licensed stores opened in North America to 333. Looking forward to fiscal 1997, there are plans to open at least 325 new company-owned and licensed stores and to enter at least three major new markets in North America. If fiscal 1996 is indicative of future success, then their hopes will lead to fruition. Starbucks averaged opening one store every 26.5 hours.

Starbucks depends upon both its outside brokers and its direct contact with exporters for the supply of green coffee. Coffee is the world's second largest traded commodity and its supply and price are subject to volatility. Coffee of the quality sought by Starbucks tends to trade on a negotiated basis substantially higher than commodity coffee pricing. Supply and price can be affected my multiple factors in the producing countries, including weather, political, and economic conditions.

To lessen the risks associated with the increases in coffee prices and to allow greater predictability in the prices the Company pays for its