TO: Kevin Johnson
FROM: Your Name (initials)
DATE: December 12, 2019
SUBJECT: Report on the monetary detriment of Starbucks’s continued focus on high-sugar and high-calorie beverage offerings
Demands and tastes change over time- in some cases, dramatically so. In 2019, Starbucks must recognize the trends in food and beverage demand: the desires of the health-conscious consumer. To date, the beverage offerings of the Starbucks Corporation have not mirrored this trend. In fact, since 2016, Starbucks has suffered over 20USD million in revenue losses due to this demand/supply inequality. The longer Starbucks fails to align itself with shifting demand toward healthier options, the poorer it will perform. In this report, I will define the problem, offer potential solutions, identify advantages and disadvantages of each, recommend and defend one solution, and suggest an implementation schedule to best serve the needs of the 2020 Starbucks customer base.
The demand for healthy (defined as low-calorie and sugar-free) options has continued to rise substantially over the years. If Starbucks does not react to this change in demand by supplying more healthy beverage choices, the company will continue to lose customers and revenue.
This report will outline three potentially solutions to this problem:
Generating unique vegan/keto menus
Offering no-sweetener-added drink options
Implementing new sugar-free syrups
Each of these potential solutions has merit, which is why it is vital that Starbucks make an educated decision and define goals and plans for this upcoming quarter. The 2020 year is the perfect time for Starbucks to reexamine its business plan, with special attention to the changing demands of the customer base. The trend toward healthy consumption has been exponential over the past decade. Starbucks will face increasing hardships and declining profits if it does not make this shift.
Enclosures: recommendation report, resume
Increasing demand for low-sugar and low-calorie beverage options at Starbucks requires immediate action
Starbucks Corporation CEO
December 12, 2019
TABLE OF CONTENTS:
Statement of the Problem________________________________________________________5
Implementation and Schedule____________________________________________________10
Summary and Closing__________________________________________________________10
Disclaimer and Sources Cited____________________________________________________11
Since the year 2000, consumers’s dedication to healthy foods and beverages has skyrocketed. In fact, about 80 percent of all buyers now say they are dedicated to a healthy diet and lifestyle (USAToday, 2015). Starbucks, unfortunately, has not aligned itself with this shift in customer preferences. At a time when low-calorie and sugar-free beverage options are of primary demand, Starbucks continues to market Frappuccinos and other high-sugar beverages most aggressively.
Statement of the Problem:
Starbucks has not effectively aligned its beverages offered with beverages demanded by its customer base. By some estimates, less than 0.1 percent of beverages offerings at Starbucks can be considered “health-conscious.” In the past twenty years, the number of low-calorie and sugar-free options have not increased in any meaningful way. On the contrary, Starbucks releases approximately one (1) new healthy beverage per year. Customers are not impressed, which has resulted in a loss of about 20USD million in Starbucks revenue and a worrisome downward trend in returns. It is vital that Starbucks takes advantage of the health-consciousness trend in demand, rather than working against it.
There are many ways in which Starbucks could address this issue. However, all of the options ultimately entail offering a variety of new low-calorie or sugar-free beverages and reducing advertisements for Starbucks’s highest calorie and sugar options. The three policy solution options addressed in this report are the ones with the greatest likelihood of success and the lowest implementation costs. They are: 1) offering a separate vegan/keto diet menu separate from the primary menu, 2) offering no-sugar-added beverage options (focusing on teas and fresh fruits), and 3) increasing the number and variety of sugar-free syrups offered. Implementing separate vegan or keto beverage menus would reassure health-conscious consumers of their importance to Starbucks. No-sugar-added beverages, like fresh-fruit smoothies in the place of Frappuccinos, could in fact be the healthiest overall option. On the other hand, implementing new sugar-free syrup options represents the least expensive option and therefore could result in the highest short-term returns.
All three options have merit. However, implementing new sugar-free syrups is the option with the lowest start-up cost and therefore will be the easiest way for Starbucks to begin to react to the shift in demand. Both other potential solutions will take a greater amount of time and planning in order to fully develop new healthy beverage options. As Starbucks recognizes and begins to fully appreciate the health-food trend, taking on larger feats such as these may be possible. For now, Starbucks should begin to reverse its significant decrease in revenue by generating at least four new sugar-free syrup options for the health-conscious consumer.
Increasing demand for low-sugar and low-calorie beverage options at Starbucks requires immediate action
Since 2016, Starbucks has suffered a 20USD million decrease in revenue. After steady increases in profits over forty years of growth, 2016 proved the turning point. As employees and shareholders have noticed, demand for Starbucks beverages has tapered off and begun to decline since that time. The trend does not show signs of reversal. The problem stems from a change in demand and consumer preferences that Starbucks either did not anticipate or did not notice. Starbucks customers now want low-calorie and low-sugar beverage options like never before, on which Starbucks has failed to return. It is vital for the wellbeing of the Starbucks Corporation that Starbucks both recognizes this shift in demand and responds appropriately by offering new health-conscious options. In this report, I will define the problem, offer potential solutions, identify advantages and disadvantages of each, recommend and defend one solution, and suggest an implementation schedule to best serve the needs of the 2020 Starbucks customer base.
Statement of the Problem:
As of December, 2019, Starbucks offers four low-calorie/sugar-free beverage options: (4) hot teas, (4) iced teas, (1) Matcha Green Tea Latte (hot or iced), and (2) sugar-free syrups (sugar-free vanilla and sugar-free cinnamon dolce). By some accounts, there are tens of thousands of beverage options and combinations available at Starbucks (Insider, 2018). This means that less than 0.1 percent of Starbucks drinks can be considered “health-conscious.” It is important to note that the number of healthy beverage offerings have not significantly increased since 2010. Rather, the number of new low-calorie or sugar-free beverage options supplied per year on average fluctuates between zero and almost two. As figure 1 shows, the greatest number of healthy beverages released in the past decade was in 2008. Since then, no more than one new healthy beverage has been released per year.
Figure 1: Number of new sugar-free or low-calorie drinks released by Starbucks by year since the year 2000.
In the years 2012, 2016, and 2018, one new healthy beverage was released. In the years 2014 and 2020 (as is the forecast), no new low-calorie or sugar-free beverages were offered. Before the year 2000, the prevalence of healthy beverages at Starbucks was not a concern. In fact, six of the top ten best-selling beverages in 1998 were high-sugar and high-calorie Frappuccinos. After 2000, the health-foods trend began in earnest. Between 2000 and 2020, the number of individuals who said they were dedicated to a healthy diet increased by more than 700 percent.
Figure 2 demonstrates the strong upward trend of desire for healthy food and drink options. The report from USA Today shows that nearly 80 percent of the 30,000 interviewed globally say they are dedicated to a healthy diet, with about half saying they would actually pay more money for a healthy option.
Figure 2: Data according to the research conducted by USAToday shows that the number of individuals in a sample of 30,000 “dedicated to a healthy diet and lifestyle” has increased exponentially since the year 2000.
The number of individuals dedicated to eating (and drinking) healthy jumped from about 13 percent of the population in 2005 to 53 percent in 2010, and spiked again to roughly 80 percent of the population in 2020. The strong increase in demand for healthy foods and drinks between 2015 and 2020 correlates with a decrease in revenue at Starbucks within the same time period. In 2016, Starbucks revenue peaked at 1.2USD billion dollars during that year. In an unmatched reversal of Starbucks’s profit growth, the Starbucks Corporation saw decreasing returns for 2017, 2018, 2019, and for 2020. The revenue for Starbucks is now 20USD million less than it was in 2016 as is demonstrated in Figure 3.
Figure 3: As Starbucks fails to respond to the demand for health-conscious beverage options, the profits in total for the company have tapered off and slowly declined since 2014.
The Starbucks Corporation has failed to keep up with these trends, and the profit trends show that to be true. After a huge takeoff in the 1970s, strong growth through the 1980s and 1990s, and a peak profit margin in 2016, profits tapered and have begun decreasing. Signs point toward further decreases over the next few years if this trend continues. Without proper attention, Starbucks will continue to miss the mark on addressing customer preferences.
There are, in fact, multiple different possible solutions that Starbucks could choose to utilize to address revenue loss. This report will focus on the three most feasible options for the upcoming year 2020.
Solution 1: Implementation of distinct vegan/keto menus
Trends in health-consciousness are reflected in new diet movements. Customers adherent to veganism, the keto diet, and others can find it difficult to find accommodations at Starbucks. Too, information that they may need is difficult to find or clarify. In order to accommodate these customers, Starbucks could implement menus specific to those particular diet restrictions. This would mean development of new drinks, a new classification system within the current Starbucks menu, and sufficient advertising and promotion for the new menus.
Very customer-friendly. Customers will see the new menus as Starbucks’s dedication to their unique needs
Inclusive of these minority groups, but these options could apply to anyone looking for healthful alternatives
Separation of intentionally healthy options from the main menu will make it easy for customers to find a good option for them
A significant amount of promotion and advertising will be necessary
New menus and drink creation will require resources in terms of time, planning, and monetary input
A new menu (or multiple) may mean too many drinks will be offered at one time, and too much stock would need to be on order each week
Solution 2: Line of no-sweetener drinks
Starbucks already has a few (unadvertised) sugar-free options that remain underutilized. Matcha, iced teas, and dried fruit inclusions are a few of these. Starbucks could work to use these options more effectively in their drinks and offer options such as protein powder and fresh fruit smoothies in the place of Frappuccinos. A line of teas or smoothies sweetened naturally with honey or with fresh fruit could serve as a healthful replacement for other sugary beverages.
Very easy to implement. Few new ingredients (and no new materials) would need to be ordered
Unsweetened drinks are the healthiest option, even more healthy than artificial sugar alternatives
Smoothies (and other no-sweetener beverages) would apply most generally to the health-food consumers, with no restrictions as far as specific diet type
This may not represent much of a meaningful change, as Starbucks already sells unsweetened iced teas and matcha. Any frappuccinos can be blended without sweetener
Starbucks must make certain not to impede on other markets. The smoothie market is already successful; Starbucks’s identity is something different
Solution 3: New sugar-free syrups
As it stands, Starbucks only offers two sugar-free syrups: sugar-free vanilla and sugar-free cinnamon dolce. Any customer looking for a little flavor in their latte (or cappuccino or drip coffee) has only these two choices from which to choose. Perhaps the most important Starbucks offerings- the ones for which the company is branded- are the hot drinks. While health-conscious customers have a variety of non-dairy milks to choose from (soy, almond, coconut), they are limited in sugar-free syrup options. Starbucks could choose to offer a wider variety of sugar-free syrups, including sugar-free alternates of Starbucks’s top-selling flavors: mocha, caramel, white mocha, or hazelnut.
Easy start-up. Sugar-free syrups, once ready for mass production, will incur no other costs above those already incurred for sugared syrups
Will not change the Starbucks beverage routine, and will not require additional training of employees
Will be perfect to market specifically with non-dairy milks in hot drinks
It may be difficult at first to monitor the success of sugar-free syrups to determine which sugar-free syrups should be offered
Spreading awareness may take time and monetary inputs for sufficient advertising
Specific marketing must take place in order to orient sugar-free syrups as a healthful choice
Significant research and brainstorming with other Starbucks employees has resulted in a clear conclusion as to the best solution for the company at this time. While generating new menus and no-sugar-added beverages would be incredibly appealing to the customer base and those with specific diets, they will require a large amount of start-up revenue, planning, and additional resources. For these reasons, they are options that will be best suited for consideration in the long term. Indeed, Starbucks could think about analyzing the health-food trend further and implementing these other solutions within the next five years or so. As for this report and its findings, at least four (4) new sugar-free syrup options should be implemented on the Starbucks menu as soon as possible. I am without hesitation in recommending that this be the course of Starbucks company action for this upcoming year 2020.
Offering new sugar-free syrups will help Starbucks enter the market for healthier beverages options. It can serve as a first step for branding as a healthy-beverage retailer, or it can be a stand-alone change. It is the least expensive solution to address the demand for sugar-free options. Too, sugar-free syrups will be incredibly easy to implement in stores. They will require no other training of baristas and will not disrupt the beverage routine as it now stands. In this way, supply can more closely reflect customer demand while, otherwise, changing very little about how Starbucks currently operates.
In the past four years, customers began to question whether Starbucks really knew how best to serve them (as is evident by the 20USD million decrease in revenue). Offering new sugar-free syrups will allow customers to have the same delicious Starbucks classic beverages that they love with the added benefit of feeling good about their sugar intake. It is important for Starbucks to reassure customers that they are valued, appreciated, and that we care about their unique needs. With limited advertisement, Starbucks will begin a shift in alignment with the general trend of beverages demanded.
By redirecting a small portion of funds now dedicated to approximately sixteen sugared syrups currently offered at Starbucks, the amount of funds needed to establish new sugar-free syrups can be cut in half. At least two underappreciated sugared syrups (potentially the Cascara syrup and the Toffee Nut syrup) can be directly replaced with sugar-free alternatives. Thus, inputs will be incredibly minimal, while returns will be significant.
It will be necessary to implement sugar-free syrup options in alignment with specific marketing campaigns. It must be evident that Starbucks is offering sugar-free options as a healthful alternative to other syrups. This could take some careful advertising in order to orient sugar-free syrups as an intentionally healthy choice in the minds of consumers.
Still, seeing as sugar-free syrup offerings will take little to no training or other implementation costs at the store level, it will be worthwhile for Starbucks to use the funds saved to work on the marketing scheme.
Implementation of new sugar-free syrup options will be an incredibly easy feat for Starbucks (specifically, compared to the alternate options available at this time). No employee training will be necessary, as sugar-free syrups can be used in the identical manner to sugared syrups. Figure 4 will demonstrate the time frame and steps necessary for sugar-free syrup implementation in stores.
Weeks Task Notes 1 Decision: what sugar-free syrups to include on Starbucks menu? Consider which sugared syrups are least popular (to replace). Four sugar-free options should be chosen 2
Syrups decision made, sent out for production
Final product should be produced and sent to stores in the U.S. within 2-3 weeks 3 Employees made aware of upcoming change Marketing teams working on advertisements Advertisements on social media perhaps most important 4
Syrups begin to arrive in stores
Baristas and other marketing efforts to make customers aware of new sugar-free options
Figure 4 shows tasks necessary, per week, for implementing new sugar-free syrups in Starbucks stores.
At the very least, it will take four weeks to implement new sugar-free syrup options in Starbucks stores. However, it will likely take longer than that, depending upon how long it takes to develop the new sugar-free options and ship them out to stores. That will be the step which takes the greatest amount of time and effort. At the same time, marketing teams will be developing advertisement plans in order to market the sugar-free syrups as healthy alternatives for customers’s hot beverages. These steps, if treated as a primary priority, would place the new syrups in U.S. Starbucks locations between January 7 and January 21.
The Starbucks Corporation has the ability to continue its success as leading coffee house in the United States and abroad. Overall, business structure and advertisement has kept the company successful. As profits decline, it is necessary to review new tastes and demands. Our data is at our fingertips: the best way to serve customers is by offering them what they so obviously desire. I aim to strengthen the Starbucks Company by doing just that. By realizing that healthy beverage options are indeed the trend, Starbucks goals and business model can be molded for efficiency. Sugar-free syrup options will serve to fulfill customer demands, which will result in meaningful gains for the company. To discuss your decision or follow-up with any questions, please contact me at (303)643-3344 or [email protected] by December 31. I look forward to continuing my work with this company; it is time for a Starbucks revival.
Bhardwaj, Vivek. “Starbucks’ Growth: A 20-Year Review.” Seeking Alpha, 22 Apr. 2014, seekingalpha.com/article/2153683-starbucks-growth-a-20-year-review.
Booth, Jessica. “15 Things You Never Knew about Starbucks.” Insider, Insider, 10 July 2018, www.insider.com/starbucks-fun-facts-2018-7.
Horovitz, Bruce. “Younger Folks Want Healthier Food – and Will Pay for It.” USA Today, Gannett Satellite Information Network, 19 Jan. 2015, www.usatoday.com/story/money/2015/01/19/healthy-food-nielsen-global-health–wellness-study/22000167/.
Disclaimer: All data for this proposal has been created and modified by me, Hannah Atkinson, the author. It is not an accurate representation of Starbucks Corporation’s profit or business interests to date. It is for educational purposes only.
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