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APPROACH TO THE CASE SITUATION

Starbucks is an international coffee company with number of quality coffee products and
co...
ANALYSIS OF THE PAST AND PRESENT
Financial Position and Performance Measures
1. Income statements
Starbucks has the net re...
than the asset value in year 1994. The liabilities of the Starbucks coffee industry in
year 1994 were 50 percent of the to...
As shown in the above chart the net margins of the sale to the coffee industries, is
higher for the starbucks than other c...
800000
700000
600000
1994
500000

1995

400000

1996
1997

300000

1998

200000

1999

100000
0
Shareholder Equity

Fig: S...
Starbucks is the largest coffee industry with 19555 stores in the 58 countries.
Starbucks sell cold drinks, soft drinks, c...
Mostly the coffee is used by the people who are under the age group from 35 – 54 and
also 18-24 but the percentage is much...
The threat of substitutes: It will only happen in case if the large customer base shifts
from coffee to the tea. There are...
live of the customers. The main objective is to create a human connection with the
customers.
2. General business competit...
ANALYTICAL PROJECTIONS INTO THE CHANGING FUTURE
Projected Future Changing Business Competitive Environment
The increasing ...
FUTURE DESIRED STRATEGIC POSITION — COMPETITIVE STRATEGIES
AND IMPLEMENTION PLANNING

For the implementation of the new st...
7. Paul G. Patterson, Jane Scott, Mark D. Uncles(2010) Australasian Marketing
Journal (AMJ),Pages 41-47
8. Peter S.H. Leef...
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  1. 1. APPROACH TO THE CASE SITUATION Starbucks is an international coffee company with number of quality coffee products and coffeehouse chain across the world. This case study analyses the market and financial information with the customer value identification and satisfaction. The future of the coffee industry is very productive and will have high growth in spite of the other existing industries. Strategic Situation analysis and planning is the most effective way of analyzing the industry to get the correct and exact insight of the industry. Starbucks is the largest coffee industry with 19555 stores in the 58 countries. Starbucks sell cold drinks, soft drinks, coffee beans, salads, cold and hot sandwiches, sweet pastries and snacks etc. The financial position, competitive environment, mission and strategy of the Starbucks Company need to be analyze in order to meet the customer requirement and be in competitiveness.
  2. 2. ANALYSIS OF THE PAST AND PRESENT Financial Position and Performance Measures 1. Income statements Starbucks has the net revenue of more than USD $ 10.7 billion till year 2010 but as shown in the case study the financial statements of the firm is given for the 6 years from 1994 to 1999. 1600000 1400000 1200000 1994 1000000 1995 800000 1996 1997 600000 1998 400000 1999 200000 0 Net Revenues Net Earnings Fig: Income statements for the 6 years from 1994 to 1999 (US $ Thousands) For the period of 6 years from 1994 to 1999 the above graph shows that the net sales of the company got increase by 80 percent in the last 6 years that indicates the rapid growth in the sales of the company. The net earnings of the company also got increase by many folds from the year 1994 to the year 1999. The position of the company at the time of 1999, seem to be more strong as the growth of the company is more than 80 percent which is a good sign to the growth of the coffee industry. 2. Balance sheets Starbucks Company in year 1994 has the lowest assets and in year 1996 the assets were higher because the company expanded its coffee business and production centers across the world so there were highest assets during that period. In year 1994 the assets were USD $ 84150 and in year 1996 assets were USD $ 339541 so the increasement in the asset value for the next 2 year became 400 % means 4 times more
  3. 3. than the asset value in year 1994. The liabilities of the Starbucks coffee industry in year 1994 were 50 percent of the total assets and also in year 1999 the liabilities of the company were more than 60 percent this shows that the company has liabilities for the expansion of the business as from the banks and also from the investors. 400000 350000 300000 1994 250000 1995 200000 1996 1997 150000 1998 100000 1999 50000 0 Assets Liabilities Fig: Balance Sheet for the 6 years from 1994 to 1999 (US $ Thousands) 3. Performance Net Margin 10 Net Margins 5 0 -5 -10 -15 Brothers Net Margin Coffee People Diedrich -14 1.7 Green Starbucks Mountain 1.2 3.3 6 Cara Van House Second Cup 5.8 4.7 -3.7 Fig: Net margins of the Starbucks in respect to the other coffee industries in US and Canada
  4. 4. As shown in the above chart the net margins of the sale to the coffee industries, is higher for the starbucks than other coffee industries as the net margins for starbucks is 6.0 % and the lowest is -14.0 % . This indicates that the profit of the starbucks coffee industry signify about the growth and customer data base as much higher. 400 350 1994 300 1995 250 1996 200 1997 150 1998 100 1999 50 0 Total Cash Investment ROI Fig: Return on the invested Cash for the 6 years from 1994 to 1999 (US $ Thousands) The starbucks industry’s total invested fund for the six years from 1994 to the year 1999 has been shown in the above figure. The highest total invested fund was in year 1995 and the lowest investment was in year 1999 this means that the asset value got reduce over the time but the return on the invested fund over the time got increase that means the projected fund for the firm was up to the expectation in coming years. The higher return value suggests that the customer satisfaction was good and also the increase in sell was higher. 4. Shareholder value Shareholder value for the starbucks company got increase by many folds over the six years time duration from year 1994 to year 1999. The below chart for the shareholder value shows that in year 1994 it was less than USD $100,000 (in thousands) but in the six years gap the value got increase 5 times more than the earlier value. So it shows that growth of the company increased by 5 times.
  5. 5. 800000 700000 600000 1994 500000 1995 400000 1996 1997 300000 1998 200000 1999 100000 0 Shareholder Equity Fig: Shareholder Equity for the 6 years from 1994 to 1999 (US $ Thousands) 5. Management financial preferences, objectives and strategies The financial preferences for the firm were not increase the sales and also increase in the customer base. The basic objective of the firm is to serve the quality coffee products to the customers across the world. For this the firm developed number of strategies to achieve this. Business Competitive Environment 1. Identification of stakeholders and competition The stakeholders of the starbucks coffee industry include of all the people irrespective of their category to the closeness to the company. There are number of competitors in the market such as Costa Coffee, Nescafe, Boss Coffee, and Maccona etc. These coffee brands are also expensive and highly used in the different countries across the world so it seems as having the good competitor in the coffee chain industry. Mainly the competition is of two different kinds such as product based competition and another is retail based competition. Starbucks’s strong competition is with the Costa Coffee and with the Second Cup as these two industries retain the more than 80 percent market in the coffee industry. 2. Target customer-or-client to industry-level business connections analysis
  6. 6. Starbucks is the largest coffee industry with 19555 stores in the 58 countries. Starbucks sell cold drinks, soft drinks, coffee beans, salads, cold and hot sandwiches, sweet pastries and snacks etc. More than this the firm also has coffee house chain across the world. 3. Quantifying market, segment The company’s market size is bigger than the other coffee producing firms. Only in USA the purchase of the coffee is around 20 percent. The reports say that the coffee consumption pattern has changed and now the daily consumption is 1.7 cup per day per person. Population demographics are necessary to analyze by the firm because it helps in targeting to the customers. Age Group Distribution 18-24 25-34 35-54 >55 Fig: Age wise group distribution for the starbucks coffee Customer Profile College Students 30% Urban Areas 14% Rural Areas 5% Stay at home 1% Single People 24% Mothers at home 26% Fig: Customer Profile who purchased coffee from Starbucks
  7. 7. Mostly the coffee is used by the people who are under the age group from 35 – 54 and also 18-24 but the percentage is much higher for the college group students as they purchase coffee more. In families the percentage that purchased coffee is very less. The coffee is purchased for more than 58 countries in the world but mostly in Europe areas. 4. Market and technology life-cycles Starbucks have only concern of the brand equity because Starbucks is not only a place of coffee chain but also for the place and experience. The strategy is to develop brand beyond the preferred outlet and also increase in the number of retail stores. The aim of the firm is to retain its core coffee brands across the world. Starbucks always go for improvement of the technology as internet its first priority. The first generation of the ecommerce website was launched on 1998 and then it upgraded the servers of the IT channel to distribute and speeding up the work. The main challenge for the firm is to define its brand image over the years and the development of technology that can assist to increase the technological flexibility over the internet. New material processing, research and development, and software up-gradation are also core need to enhance the production, operation facilities and quality of the coffee. 5. Five-forces analysis and industry value chain The industry structure of the Starbucks Company can be analyzed with the help of five force model analysis. It will help in identifying the competitive environment. The threat of entry: Because of being a more hectic competition in the coffee chain market, the new entrants can easily enter. This will not create any issue to the Starbucks because it already has a large share of the coffee market in the world. The power of buyers: The volume purchase for the coffee is higher so it increases the concentration of buyers. Powers of buyers is higher where the large players in market are less. Switching cost of the suppliers for the starbucks is low. The power of suppliers: In the coffee chain industry, the market is dominated with the big players so the power of suppliers as bargaining power is higher. In case of Starbucks the coffee brands are directly purchased from the production countries like Brazil etc.
  8. 8. The threat of substitutes: It will only happen in case if the large customer base shifts from coffee to the tea. There are few strong factors that help starbucks to retain its core coffee brands in the market. Competitor Analysis: Each year there is significant increase in the coffee shops and coffee chain industries. The price cuts, increase in aggressive products are few activities which will make Starbucks coffee industry in trouble. Percentage 6. Industry experience curve and company learning curve 90 80 70 60 50 40 30 20 10 0 Industry Experience Learning Before 1990 After 2010 For period of 20 years Fig: Industry experience and learning curve for starbucks It shows that for the last 20 years the company has learnt a lot and that learning has been converted in to actions as industry experience. Industry experience definitely helped to the firm to grow in to a giant in the coffee industry chain. Business Mission, Objectives and Strategy 1. Management preferences, mission statements, objectives and strategies The firm has strong management structure to take the lead and making the business strategies so that the brand can be build and also the customer database can be captured at a large scale. The mission of the firm is to nurture the human spirit as one person, one cup and one neighbored at a time. The objectives of the firm are to deliver the coffee to each customer with the help of the partners in the firm and are fully engaged with the customers by connecting and laugh with them and try to uplift the
  9. 9. live of the customers. The main objective is to create a human connection with the customers. 2. General business competitive strategies The business competitive strategies include the leadership, technological advancement; sales operations and supply chain management for the competitive environment because there are number of coffee firms emerging in the market so the price cut and also the quality of the coffee are the two main strategies for the business environment. The firm has maintained the culture and experience on all retail stores and this differentiated it from the other coffee chain companies. Functions/Operations and Organization 1. Company internal functional/operational value chain The internal functionality or the operational value chains of the firm have some struggle because it is difficult to manage the each individual links to have higher customer value. The marketing mix of the firm is very suitable for the customers. Product are of good quality, price of these products are very cheap in accordance with the other firm’s products, the firm has number of retail stores in the 58 countries and for promotion the firm used number of strategic approaches to reach its customers. 2. Company resource and capability profile The company has its own retail stores, vehicles for transportation, the production centers, online ecommerce system and delivery to the customers on time. The capabilities include the number of employees and strong leadership and management which makes strategic plans for the firm to grow. 3. Organization analysis and culture The organization’s culture is very friendly and it has maintained the six guiding principles to retain the best culture. Every employees of the firm get the health, economic and cultural development with the loyalty to the customers and encourage them to grow themselves and for the firm too.
  10. 10. ANALYTICAL PROJECTIONS INTO THE CHANGING FUTURE Projected Future Changing Business Competitive Environment The increasing number of the competition in the coffee chain industry needs to think about the future strategies and also need to analyze the future projection of the growth and investment. It is expected that the future growth of firm will increase by 400 percent and also need to revise the production environment to retain the core coffee market for the lower prices. Projected Future Environment versus Continuing Present Business Functions/Operations and Organization The future environment of the firm from the case study can be identified as the increase in revenue and customer base because the customers are really liking the Starbucks coffee so the competitive environment will not be too much typical but yes the entering of the new firms in the coffee industry with the high price cut may lead to the trouble for the firm. Also the environment of local business is being captured by other firms in that case it will be difficult to enter in the local business market. Projected Future Environment versus Continuing Present Financial Position and Performance Measures The present financial environment of the firm is stronger and better than other coffee chain industries. As mentioned in the case study that the future environment for the coffee industry is going to very competitive in that case the customer may deviate to the other products and the sales of the firm may reduce if the firm didn’t integrate the new methodologies for the quality of the products, reduction in the prices and also the maintaining the retail culture. The revenue may decrease by 30 percent in the near future if the diversities of the products and new technologies are not implemented.
  11. 11. FUTURE DESIRED STRATEGIC POSITION — COMPETITIVE STRATEGIES AND IMPLEMENTION PLANNING For the implementation of the new strategies to have the growth of the firm rapidly and maintain its customer database, there is need of developing the customer value based strategic activities and also the leading team which can take thing forward. The main strategies need to develop for the competitive environment as new entrants are reducing the price of the firms and diversifying the range of the coffee products to attract to the customers. Based on the current scenario and reputation among the world customers it can be said that the desired strategic position for the firm will be on top still. The other future strategies include loyalty programs, cultural and business environment, brand building and current digital marketing strategies. Also the integration of the new technology development and ecommerce are also necessary to be in competitiveness because the future market is totally based on the retail ecommerce and online ecommerce. CONLCUSION Starbucks is one of the world’s largest coffee producing industry and coffee house chain industry. The leading team and winning market strategies shows that the firm will grow rapidly in the future. The impact on the customers may lead to the future brand in the coffee industry. REFERENCES 1. Starbucks Official Website, 2012 [http://www.starbucks.com/] 2. Adamy, Janet (January 28, 2009). "Starbucks to Close More Stores". Wall Street Journal 3. Michelli, Joseph A. (2006). The Starbucks experience: 5 principles for turning ordinary into extraordinary 4. Behar, Howard with Janet Goldstein. (2007). It's Not About The Coffee: Leadership Principles from a Life at Starbucks 5. Causeway Press Genus A (1996) Flexible Strategic Management (2nd ed) 6. Chapman & Hall Johnson G Scholes K (2002) Exploring Corporate Strategy (6th ed)
  12. 12. 7. Paul G. Patterson, Jane Scott, Mark D. Uncles(2010) Australasian Marketing Journal (AMJ),Pages 41-47 8. Peter S.H. Leeflang, Dick R. Wittink (2000), International Journal of Research in Marketing, Pages 105-126 9. Zabihollah Rezaee (2005) Critical Perspectives on Accounting,Pages 277-298 10. Ashiq Ali, Krishna R Kumar (1994) Journal of Accounting and Economics,Pages 89-114

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