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Starbucks Is “Juicing” Its Earnings

Mini-Case Starbucks Is “Juicing” Its Earnings per Store through Technological Innovations
The choice of a CEO signals potential actions to stakeholders about a firm’s potential actions. Howard Schultz
served as Starbucks CEO for many years; the firm achieved multiple successes during his service. As of April
2017, Schulz became executive chairman of Starbucks’s board while Kevin Johnson, a former CEO of Juniper
Networks and a 16 year veteran of Microsoft, assumed the CEO position for the coffee giant. Johnson’s
background may find him concentrating on the firm’s digital operations, information technology practices and
supply chain operations as a means of increasing Starbucks’s effectiveness and efficiency.
Many brick and mortar stores have experienced decreasing sales in the United States as online traffic has
increased. Interestingly, 2014 Starbucks sales store operations increased 5 percent in the fourth quarter; this 5
percent uptick in revenue came from increased traffic (2 percent from growth in sales and 3 percent in increased
ticket size).
Additional and more sophisticated technology applications may be the driver of this increase in revenues. To
stimulate sales, Starbucks is ramping up its digital tools such as mobile payment platforms. Customers now can
place online orders and pick them up in about 150 Starbucks outlets in the Portland, OR area. Besides
leadership and a focus on technology, Starbucks receives suggestions, ideas, and experimentation from its
employees. Starbucks views its employees, called baristas, as partners who blend, steam, and brew the brand’s
specialty coffee in over 21,000 stores worldwide. Schultz credits the employees as a dominant force in helping it
to build its revenue gains.
To incentivize employees further, Starbucks is among the first companies to provide comprehensive health
benefits and stock option ownership opportunities to part-time employees. Currently, employees have received
more than $1 billion worth of financial gain through the stock option program. An additional benefit for U.S.
employees is the firm’s program that pays 100 percent of workers’ tuition to finish their degrees through Arizona
State University. To date, one thousand workers have enrolled in this program. In mid-2018, Walmart offered
subsidized college tuition to its employees as a means of attracting and retaining talent in a tight labor market.
Walmart’s actions may demonstrate the value of Starbucks’s approach to supporting employees’ efforts to earn a
college degree.
When developing new storefront concepts, Starbucks innovates. For instance, it is testing smaller express stores
in New York City that reduce client wait times. Today, Starbucks emphasizes online payments as a means of
increasing the speed of customer transactions. It now gives Starbucks rewards for mobile payment applications
to its 12 million active users. Interestingly, this puts it ahead of iTunes and American Express Serve with its
Starbucks mobile payment app in terms of the number of users.
To put its innovation on display, Starbucks opened its first “Reserve Roastery and Tasting Room.” This is a
15,000 square foot coffee roasting facility and a consumer retail outlet. According to Schultz, it is a retail theater
where “you can watch beans being roasted, talk to master grinders, have your drink brewed in front of you in
multiple ways, lounge in a coffee library, order a selection of gourmet brews and locally prepared foods.” Schultz
calls this store in New York the “Willie Wonka Factory of coffee.” Based on this concept, Starbucks opened small
“reserve” stores inspired by this flagship roastery concept across New York in 2015. To attract customers in the
afternoon, the firm is “rolling out new cold coffee and tea drinks and is introducing happy hour promotions
featuring cold beverages.”
These technological advances and different store offerings are also taking place internationally. For example,
Starbucks is expanding a new store concept in India in smaller towns and suburbs. These new outlets are about
half the size of existing Starbucks cafes in India. In China, Starbucks is opening roughly one store daily and is
rolling out its Roastery and Reserve brands to penetrate the country further.
Sources: D. B Klein, 2018, Here’s how Starbucks plans to conquer China, The Motley Fool, www.fool.com, March
25; J. Jargon, 2018, Starbucks trying to woo afternoon customers, Wall Street Journal, www.wsj.com, May 8; S.
Nassauer, 2018, Walmart to pay certain college costs for U.S. store workers, Wall Street Journal, www.wsj.com,
May 30; I. Brat & T. Stynes, 2015, Earnings: Starbucks picks a president from technology industry, Wall Street
Journal, www.wsj.com, January 23; A. Adamczyk, 2014, The next big caffeine craze? Starbucks testing coldbrewed coffee, Forbes, www.forbes.com, August 18; R. Foroohr, 2014, Go inside Starbucks’ wild new “Willie
Wonka Factory of coffee”, Time, www.time.com, December 8; FRPT-Retail Snapshot, 2014, Starbucks’ strategy
of expansion with profitability: to debut in towns and suburbs with half the size of the new stores, FRPT-Retail 
Snapshot, September 28, 9–10; L. Lorenzetti, 2014, Fortune’s world most admired companies: Starbucks where
innovation is always brewing, Fortune, www.fortune.com, October 30; P. Wahba, 2014, Starbucks to offer delivery
in 2015 in some key markets, Fortune, www.fortune.com, November 4; V. Wong, 2014, Your boss will love the
new Starbucks delivery service, Bloomberg Businessweek, www.businessweek.com, November 3.
Case Discussion Questions
What competitive advantage or competitive advantages do you believe Starbucks seeks to establish? What are
the main challenges the firm faces as it tries to maintain the advantage or advantages you identified?
Identify three or four capabilities you believe Starbucks possesses. Of these, are any a core competence? If so,
explain your reasoning.
Starbucks’s mission is “To inspire and nurture the human spirit—one person, one cup and one neighborhood at a
time.” What actions do you recommend the firm take to reach this mission?
As Starbucks’s new chief executive officer and strategic leader, what key challenges does Kevin Johnson and his
firm face?

Sample Solution

Recruitment took place at the beginning of a class period after permission had been granted by the instructor. The researcher then explained the goals of the study and distributed individual sign-up sheet to preserve the anonymity of the participants. Any student who wished to participate was welcome. The researcher hoped to recruit at least 15 participants in each section of the French phonetics course to meet the requirement for representativeness, but due to lack of enrollment, there were only 7 participants per group. The qualitative data from the participants provided rich enough data to obtain a credible picture and ensure saturation. Thus the requirements for the representativeness/saturation trade-off was met. Both groups received the same instruction in French phonetics and pronunciation. The phonetics course was held every Monday, Wednesday, and Friday for fifty minutes. Fridays were dedicated to lab work, while Mondays and Wednesdays were lectures. At the University of Illinois, French pronunciation is taught following an explicit methodology. Each phonological feature is explained in detail according to the manner of pronunciation: tongue position, jaw position, lips, etc. Data Collection Before the first phonological feature was taught, the participants completed the pre-test (Time 1). The post-test (Time 2) was completed after the instruction of the features. Both pre-test and post-test included two types of reading/recording exercises: a short text and short sentences (created by the researcher), targeting specific phonological features of French: /y/ vs. /u/, or the “silent e” (or schwa). While reading the texts and sentences, each participant was required to record themselves at Time 1 and at Time 2. The recordings took place in the phonetics laboratory at the University of Illinois, where participants can be monitored. The researcher asked the students to record themselves only once to control for repeated recordings, which may allow the students to modify their pronunciation.
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