Starbucks Final

Michel, Kozak, Knoll, Robben
2 |
Table of Contents
Busines Model Analysis ................................................................................................................. 3
Competitive Profiling.................................................................................................................... 15
Management...................................................................................................................... 22
Products & Services.......................................................................................................... 28
BCG Matrix....................................................................................................................... 31
Marketing.......................................................................................................................... 32
Operations ......................................................................................................................... 34
Strategies........................................................................................................................... 36
Financial............................................................................................................................ 41
Current Events................................................................................................................... 43
Financial Analysis......................................................................................................................... 45
Social Media Analysis & Key Findings........................................................................................ 61
Indicators Analysis........................................................................................................................ 72
STEEP Analysis............................................................................................................................ 73
Porter’s Five Forces ...................................................................................................................... 81
Industry Activities......................................................................................................................... 85
Strategy Models ............................................................................................................................ 90
Business Planning Scorecard ...................................................................................................... 105
Annex 1: Dining Debacle............................................................................................................ 107
Endnotes...................................................................................................................................... 116

Starbucks Business Analysis
| 3
Business Model Analysis
STEP 1:ARTICULATE THE VALUE PROPOSITION
Starbucks’ value proposition is focused on the company’s strong brand image and quality
products. Offering high quality products and friendly, reliable customer service creates a strong
brand image and customer loyalty. The customer service not only creates the rich coffee culture
atmosphere within each location but can be found online as well. Starbucks commitment to
social media outlets as a customer service avenue further illustrates its dedication to consumers
as well as advancing technology. The company actively maintains Twitter and Facebook
accounts which serve as a place where customer issues may be resolved and new products are
advertised. On Twitter, Starbucks social media team maintains its personal touch by responding
to almost every tweet posted about
the company. This is part of the
company’s goal to create meaningful
interactions and personalization with
its customers.
Starbucks’ quality products
and elite image create a strong brand
loyalty, as its products are often
perceived as an elite status symbol.
This loyalty and elitist image are a
result of the coffee culture and
atmosphere that are found at
Starbucks. Store layouts are inspired
by local culture and art and serve as
the third place consumers can go between home and work. Starbucks focus on corporate social
responsibility also contribute to their elitist image. According to a survey conducted by Lab42,
84% of consumers would pay more for products by companies that participate in forms of
corporate social responsibility. Starbucks is currently committed to buy all of its coffee from
sources which utilize coffee and farmer equity (C.A.F.E) practices by the year 2015. Last year
95% of its coffee came from these C.A.F.E sources.
The quality of Starbucks products are a result of strategic acquisitions which allows for
product diversification and reliable sources of coffee and other goods. Through acquisitions,
Starbucks maintains superior control of its supply chain as it collects coffee beans from more
than 30 countries. The company has acquired ten companies within the last ten years, and
continues to seek new opportunities for growth within the organic food industry. In addition to
acquiring food and beverage companies, Starbucks partners with technology companies such as
Square and Apple in order to enhance its iPhone app and adopt Apple Pay.
Starbucks quality is at the forefront of its marketing campaigns.
(Starbucks.com)

4 |
STEP 2:SPECIFYTHE TARGET SEGMENT
Starbucks’ key customer segment is
adults between the ages of 25 and 40. An
analysis of the amount of in store purchases,
social media and recent product releases
suggest that adults are the primary segment for
Starbucks. A study done by Demand Media
suggests that adults who are involved in a
professional career, earn a relatively high
income and share an interest in social welfare
account for approximately 49% of in store purchases. Expanding into alcohol sales and reserve
coffee roasteries illustrates Starbucks targeting efforts towards the adult segment. Starbucks hotel
partners Hyatt, Radisson, Hilton, Sheraton and Westin also indicate Starbucks adult, higher
income target segment. Within the adult segment, woman consumers demonstrate a higher
priority for Starbucks. Various items on the menu such as the Oprah Winfrey Chai Tea and
acquisitions such as Tazo and Teavana illustrate Starbucks large women segment.
Young adults represent an increasing target market for Starbucks. Starbucks’ strong
online presence is a key aspect of its marketing because its target market is young adults, who
are constantly on the Web. This segment is primarily young adults aged 18-24 who are college
students, technologically focused and share an interest in social networking. According to social
media analysis, most consumers who actively follow Starbucks on social media outlets are
young, college educated women. The Demand Media study shows that approximately 40% of
Starbucks in store purchases come from this segment. Teens 13-17 are the next target segment as
they are more likely to be involved in social media and technology than older generations.
Starbucks’ Internet audience is primarily women.
(Alexa.com)
Starbucks in store purchases by sex and age.
(DemandMedia.com, Stata)

| 5
STEP 3:DETERMINE COMPETITORS
The US coffee and snack shop
industry is comprised of about 55,000
locations.1 Of these, Starbucks
accounts for 12,000.2 Starbucks has
five main types of competitors:
coffeehouses, snack shops, fast food,
fast casual, and retail competitors.
Starbucks competes with these
companies not just for customers, but
for retail locations, and skilled
employees.
Snack shop competitors
include Smoothie King, Cinnabon,
and Jamba Juice. Starbucks
dominates the competition against coffeehouses, which are its most direct competitors.
Competition in this field includes Dunkin’ Donuts, Tim Hortons, and McDonald’s McCafe
brand. Fast casual competitors include Subway, and Panera Bread. Fast food and presents the
fiercest competition, with major competitors like McDonald’s, Taco Bell, and Burger King.
Starbucks Channel Development segment offers coffee and tea products through retailers.
Through its partnerships with PepsiCo and Keurig, Starbucks also supplies beverages and ground
coffees to retailers through various brands, including Starbucks Double Shot, Refreshers, and
Starbucks K-Cups and Via. Competitors in this segment can include the Coca-Cola Company,
Monster Energy Corporation and Dr. Pepper Snapple.

6 |
STEP 4:EVALUATE THE VALUE CHAIN AND COST MODEL
Starbucks has developed
cost-efficient value chain activities
which have reduced the average
store opening costs and reduce day
to day costs. The company created
economies of scale by using
centralized buying and developing
standard contracts and fixed fees, as
well as using highly regarded
contractors who displayed good
cost-control. Additionally, the company is nearly vertically integrated.
The company sources their beans from a number of areas due to their contracts and
vertical integration. Therefore, their logistics are impacted less by bad weather, price, and
volatile economic and political conditions in coffee growing countries. Furthermore, the
company has created value for their customers by creating a comfortable inviting ambiance in
their locations as well as adding a personal touch to each geographic location. The company has
strived to make every location into its own entity as far as design and atmosphere. They have
successfully integrated cultural norms and perceptions accompanied by the typical Starbucks
atmosphere to try and create the “my Starbucks” appeal. This is also known by the company as
the third place. The third place idea consists of the creation of a place for individuals to meet
between home and work where customers can come and relax. They want their customers to use
their stores to meet friends, read a book, surf the internet, or listen to the company’s in-house
music.
Additionally, Starbucks has created a powerful and well-known brand name that is easily
transferable to other business; therefore, making it easy for the company to pursue joint ventures
to diversify their portfolio.

| 7
STEP 5:DETERMINE THE REVENUE MODEL FOR THEFIRM
Starbucks operates with relatively high profit margins. The company’s profit margin has
remained between 10.5% and 11% for a three year period. In comparison with the two
competitors analyzed, the Starbucks revenue model is far superior. Panera Bread operates with a
3 year average of 7.9% and Einstein’s Bagels is roughly earning a profit of 3.1%. However, in
2013 Starbucks faced a staggering litigation, which resulted in a $2.78 billion dollar fee. This
short term debt has altered the averages of Starbucks financial ratios for the 2013 reporting
period. But, the company has bounced back from this short term set back. The company’s
performance in 2014 has not reflected any disturbance in consumer confidence due to the
litigation fee in 2013. Moreover, the company’s stock did not fluctuate due to the fee; instead it
has increased since 2013. Additionally, the company proved to have a strong revenue model
when faced with this litigation charge. The company paid off the 2.78 billion through their cash
flow activities. They did not sell off any assets to cover this debt, in fact the company’s assets
increased in the 2013 reporting period. The company paid their debt through the means of cash
earned from their everyday store operations and through moneys lent to the company through
their short term lenders and investors. The 2014 reporting period is still ongoing, the financials
associated with the company’s yearly performance cannot be analyzed at this time; however,
analyst in the industry are expecting strong gains from the company.

8 |
STEP 6:DETERMINE THE STRATEGYFOR STARBUCKS
Starbucks became the country’s #1 coffeehouse through a differentiation strategy
emphasizing quality products at premium prices. The restaurant industry and retail soft drink
industries are both highly competitive. Starbucks has achieved great success in these markets
through its commitments to corporate social responsibility, product quality, local culture and
store atmosphere, global expansion, and providing strong employee benefits, which, in turn, pays
off in customer service. Its success has allowed it to grow exponentially since 1982.
Critical Success Factors Includes CSF Area
Enhancing product quality
by using finest ingredients
available
Using high quality raw materials,
employee training, researching
new products
R&D, Purchasing, Operations
Continue expanding in global
growth markets
Employee training, long-term
growth strategies, smooth supply
chain operations
Strategy, Finance, Executive
Management
Enhance customer service by
promoting employee
training/benefits
Customer satisfaction, employee
satisfaction, employee benefits,
training
Human Resources,Operations
Incorporate local culture into
store atmospheres
Discovering Local Culture,
Keeping up with regional
consumer trends while
maintaining Starbucks Image,
Creating “my Starbucks”
Research and Development
Marketing
Strategy
Financing
Operations/logistics
Continued corporate social
responsibility programs
Green initiatives, public image,
advertising campaigns, employee
engagement
Marketing, Operations, C-Level
Executives
Starbucks faces a variety of challenges over the next coming years, including:
 transparency in nutrition facts
 Millennials’ preferences shaping the restaurant industry
 touch-screen kiosks and online ordering
 stronger demands for a higher minimum wage
 opposition to GMOs
 greater competition in Canada
 new products and differentiation

| 9
Starbucks is already well-positioned to handle these threats. Its continued growth strategy
includes opening more stores, expanding its current day parts, and opening more drive-thrus.
Starbucks will use its strong brand name combined with foreign partnerships and acquisitions to
fuel foreign expansion. It can deal with other coming controversies and challenges by
emphasizing healthier products, including introducing GMO-free products to its Starbucks
stores, and expanding its Teavana, and Evolution Fresh brands to satisfy customers looking for
healthy options at grocery retailers. Expanding these product lines, along with the Fizzio and
Keurig Cold product lines, would also reduce Starbucks’ reliance on the saturated coffee market.

10 |
STEP 7:BUSINESS MODEL ANALYSIS GRID
The business model analysis grid compares Starbucks to two other restaurant companies
in the fast casual industry; Panera and Einstein Bagels. Each company is ranked on a scale of 1-
5, where 5 is the best and 1 is the worst. This analysis looks at five factors that are important to a
company’s success; value proposition, target markets, value chain, revenue model, and strategy.
The ranking that each company receives can then be used to determine areas of strength or
weakness and what strategies may be appropriate to pursue.
Business Model Analysis
Starbucks Panera Einstein Bagels
Value Proposition 5 4.5 4
Target Markets 4 4.5 2.5
Value Chain 4 5 3.5
Revenue Model 4.5 5 2.5
Strategy 4.5 4 4
Starbucks and Panera ranked highly in all five factors, while Einstein ranked lower. This
shows that Panera is more likely to be competitive with Starbucks than Einstein. Starbucks has
the highest ranking in both Value Proposition and Strategy. Starbucks high value proposition
comes from the company’s high quality products and elite image. This high value proposition
allows Starbucks to charge premium prices for their products, giving the company and edge over
their competition. Starbucks’ strong strategy capability means that Starbucks is more capable of
creating and maintaining successful strategies than their competitors. This gives Starbucks a long
term advantage, especially in the growth of new products and in expansion into foreign markets.
A strong strategy also means that Starbucks is more capable than its competitors in dealing with
evolving challenges such as GMO controversies, increased competition, and the changing
restaurant preferences of the Millennial demographic.
Starbucks’ weakest factors are Target Markets and Value Chain. Starbucks key customer
segment is adults ages 25 to 40. One of Starbucks’ biggest challenges in this factor is appealing
to men. This is especially true in Starbucks’ significant online presence, where women are more
likely than men to discuss Starbucks. Starbucks can improve this factor by finding ways to
appeal more to men. Finally, Starbucks’ Value Chain is strong but not as strong as the value
chain of their competitor, Panera. In particular, Starbucks’ value chain is vulnerable to variable
milk and sugar prices. From 2013 to 2014 milk prices rose 33% and sugar prices rose 13%.3 This
puts a major strain on Starbucks’ value chain. To deal with this weakness, Starbucks can attempt
to institute price controls similar to those they use in their coffee purchasing. Starbucks can also
benchmark against their competitors, such as Panera, to help find ways to drive down costs and
improve their value chain.

| 11

12 |
Porter’s Four Corners
COMPETITOR RESPONSE
Continue opening new stores in Asian
markets
Seek acquisitions to expand product
diversity
Create a niche market for luxury coffee
Utilize partnerships to advance
technology integrations
FUTURE GOALS
Expand globally, especially in China,
Brazil, and India
Create new store types
Integrate cutting-edge technology
Improve products and product
diverisity
CURRENT STRATEGY
Push for interational storefronts
Continue partnering with tech
companies
Focus on strong customer service
and company image
Focus on new products
ASSUMPTIONS
Globalization effort will pay off
Apple will remain a strong partner
Economy will remain strong enough
to justify high prices of products
Price of coffee beans will reamin
stable
CAPABILITIES
21,000 stores in 65 countries
Financial situation allows for expansions
and acquisitions
Strength: Strong brand name
Strength: Loyal customer base
Weakness: Expensive products
Weakness: Poor reception of Starbucks
coffee culture in foreign countries

| 13
COMPETITOR RESPONSE PROFILE
Starbucks is likely to increase financial gains over the next five years through continuing
growth in Asia, integrating advanced technology and creating a niche market for luxury coffee.
As Starbucks continues to expand throughout Asia, corporate partnerships and acquisitions will
allow them to diversify their product offerings. Starbucks’ partnership with Tata Global
Beverages in India is one example of this. The addition of the reserve coffee roaster stories to the
market is also likely to create a niche for gourmet coffee which will increase profits and drive
demand for luxury coffee. In addition to creating a luxurious appeal for coffee, the use of
partnerships to integrate technology will also benefit Starbucks in the long run.
FUTURE GOALS
Starbucks continues to focus
heavily on international expansion. Growth
remains greatest in Asia. But EMEA
(European, Middle Eastern, and African)
countries are key components in the global
expansion strategy as Starbucks seeks to
expand their global footprint. They plan on
opening more reserve roasteries and taste
rooms across the U.S. to maintain their
competitive advantage and position as
industry leader. Expanding their
involvement with social media outlets and
providing mobile payment options while seeking new technologies to advance the customers
experience will also further Starbucks’ market share.
CURRENT STRATEGY
Starbucks is focused on globalizing, with strong results in Asia leading their globalization
effort. Due to slower growth in North America, Starbucks will continue pursuing this
globalization effort to continue hitting its growth targets. To accommodate these new countries’
needs and stay competitive domestically, Starbucks is always working to improve their product
quality and diversity. They are also working to partner with technology companies, such as
Apple, to integrate Starbucks’ products with emerging technological trends, such as Apple Pay.
Finally, Starbucks is always trying to maintain its reputation of good customer service and its
strong company image.
CAPABILITIES
Starbucks currently has over 21,000 locations across 65 countries. Starbucks generates
roughly $15 billion in sales per year, which gives them the opportunity to expand while seeking
acquisitions to diversify their products.
Starbucks currently has over 1,900 location in EMEA, with
another 150 planned for 2014.(Fool.com)

14 |
Starbucks’ strong brand name is at the core
of their strengths. The company’s strong reputation
comes through a strong focus on customer service, a
high-quality product line, and a rich coffee culture
atmosphere. Starbucks’ focus on customer service
and atmosphere creates a loyal customer base, which
is the foundation of Starbucks’ success. While loyal
customers are willing to purchase Starbucks’
expensive products, poor economic conditions and
shifting preferences may hamper the demand for
Starbucks products. While Starbucks plans to gain
financial value by expanding into foreign countries, the coffee culture the company provides may
not be well received in various global cultures. Starbucks may incur additional costs by adapting
their business model to suit each country’s culture and preferences.
ASSUMPTIONS
Starbucks assumes their current globalization strategy is financially sound one. This
assumption is critical to their future success. Starbucks pays close attention to cultural values and
analyze current economic and social trends to determine the feasibility of expanding into a
foreign market. Starbucks assumes Apple will remain a strong partner, which is currently an
uncertainty due to the poor reception of iPhone 6. A strong, stable economy provides Starbucks
the luxury of offering high-priced coffee products, which could be threatened by declining
economic conditions. In addition to relying on current economic standards, a change in the price
of coffee beans could adversely affect Starbucks’ business model and product pricing.
Starbucks’ high-quality product line is the
foundation of its strong reputation.
(ContactMagazine.com)

| 15
The History of Starbucks
Executive Summary: Starbucks Corporation was founded in 1972 with a far different vision
than it has today. Starbucks’ history demonstrates how powerful Howard Schultz’s impact was
on the company’s success. He altered Starbucks’ course, changing it from a slow-growing
company that sold coffee grounds to an exponentially-growing company that brews coffee
drinks. Starbucks today is based on the coffeehouse culture he witnessed during a vacation in
Italy. It currently features about 22,000 stores worldwide, and an extensive line of retail
beverages, and opens another two to three daily. It has expanded its market share through
partnerships, joint ventures and strategic acquisitions, such as Teavana.
From left to right, Starbucks founders Jerry Baldwin, Gordon Bowker, and Zev Seigel at the original Pike Place
location in 1971. (ThinkAnalytic.com)
ORIGINS
Starbucks started in 1971 in Pike Place, Seattle, Washington. Starbucks was founded by a
pair of teachers and a writer who were enthusiastic about selling coffee grinds, teabags, and
various spices, but didn’t believe in building a restaurant. Initially the company sold premium
coffee beans to customers who would, in turn, brew them at home. Its founders were coffee
enthusiast Jerry Baldwin, an English teacher, Zev Seigel, a history teacher, and Gordon Bowker,
a writer. Starbucks’ name was based on the idea that words beginning in “st” are powerful.
Starbucks was named after Melville’s first mate in Moby Dick, Starbuck, a character who loved
coffee.4 The three opened the first Starbucks with a $9,000 investment ($51,000 adjusted for
inflation), and over the next 10 years, the store, the store opened an additional four stores.5

16 |
Before joining Starbucks, Schultz worked for a Swedish coffee distributor that sold
coffee beans to Starbucks. Howard Schultz visited Starbucks because he was curious that they
were buying so many drip coffee makers. Schultz went to Pike Place in Seattle and was
immediately impressed with the ambiance, aroma, and the enthusiasm of the company’s
employees.6 Schultz met Bowker and Baldwin in 1981. He impressed them with his energy, his
marketing skill and his business sense. Baldwin and Bowker at the time lacked the deep business
background that Schultz had and saw his potential value to Starbucks.7 In 1982, Howard Schultz
joined Starbucks as its head of marketing and retail. The founders of Starbucks initially thought
hiring him was risky, but Schultz was passionate and persistent.
Following a trip to Italy in 1983, Schultz was
full of new ideas for the company to create an
American version of the Italian espresso bar culture.
He believed the company should sell brewed drinks in
addition to coffee beans. . He wanted Starbucks to be
an experience, one that captures the company’s
ambiance, comfortable atmosphere, friendly
employees, and then brew quality coffee. But the
owners of Starbucks did not want the company to
leave the retail business behind and take the risk of
entering a new market. In 1985, Schultz left the
company to found Il Giornale, based on his vision of
importing Italy’s coffeehouse culture.8
Coincidentally, Bower and Baldwin decided to sell the business in 1986. Shultz acquired
Starbucks in 1987 with the help of Seattle investors.9 Under his leadership, Starbucks began
pursuing the brewed coffee market using a differentiation strategy based on high quality products
and premium pricing. This new coffee shop experience created new demand. Starbucks drew
customers in because the quality and ambiance were unlike their competitors.
EXPANSION
After successfully expanding Starbucks throughout Seattle, Schultz boldly opened a store
in Vancouver, Canada, to test the market and determine how well his business model worked
internationally and outside the West Coast.10 Starbucks expanded to Chicago and Vancouver in
1987,11 Portland, and Los Angeles. The move to Chicago and Los Angeles were both strategic
maneuvers. Chicago was a testing ground for eastward expansion and Los Angeles has been
known as a trendsetting city. The Los Angeles Times named Starbucks the best coffee in America
before the store opened.
Continued expansion of the company became increasingly difficult. To control the
quality and character of its products, Starbucks chose to avoid franchising and maintain only
company-owned stores. Expanding into new markets requires an increase in venture capital, so
The original Starbucks logo from 1971. When
founded, Starbucks was a store for coffee
grinds, teabags, and spices—not a restaurant
where baristas brewed coffee.
(TripAdvisor.com)

| 17
Schultz had to maintain investor support despite continued losses due to expansion. Luckily,
Starbucks was good at identifying optimal locations for their new storefronts.12 The company
Starbucks experienced exponential growth after Schultz took charge of the company. (Statista, Starbucks.com)
Always had prime locations in densely populated areas, positioning itself well in the market to
deter the threat of potential competition. This ability to achieve prime locations directly impacted
the company’s ability to gain a competitive advantage in the coffee service industry.
International expansion was (and still is) Starbucks’ major strategic goal. Starbucks, in many
cases, licensed out to local retailers to open its international stores. The company’s international
expansion embodied the culture as well as buyer tastes and
preferences while adapting its ambiance and décor to fit new
market segments.
Starbucks’ value chain approach through the years
embodied nearly backward vertical integration.13 While
Starbucks’ competition uses wholesalers to attain its coffee
beans, Starbucks made a series of strategic acquisitions to
allow the company to bring in coffee beans from more than
30 countries. Furthermore, with the growth of the company’s
portfolio, Starbucks has achieved considerable buyer power
through relationships with suppliers, growers, and exporters.
The company has developed many lasting arrangements that
keep costs down and safeguard the company from sudden
price jumps from implications. However, coffee suppliers
still retain some power over the company because Starbucks
has quality assurance to uphold. The company only pursues
exporters and growers who have met its quality standards.
Starbucks (SBUX) had its IPO in June
1992.$10,000 invested then would be
worth about $1.5 million in 2014.
(ThinkAnalytic.com)

18 |
Under Schultz’s management, Starbucks attempted many strategies to improve the image
of the company and develop brand recognition and loyalty. It approached many avenues to
promote its product. For example, the company increased marketing through new market
segments while innovating and diversifying its product line. The company partnered with airlines
such as United and Horizon to serve its coffee in flight. It also approached hotels by entering
agreements with Hyatt, Radisson, Hilton, Sheraton, and Westin to offer its coffee in hotel
rooms.14 Additionally, the company worked with food distributors such as Sysco Corporation,
Kraft Foods Inc., and U.S. Food service to have its coffee distributed in restaurants, offices,
grocery stores and institutions like hospitals and universities.
GROWTH AND DIVERSIFICATION
The Company has also pursed a number of joint ventures to achieve further portfolio
diversification. The primary objective was to make its product more accessible to current
customers while also reaching new ones. The company entered a joint venture with PepsiCo in
1994,15 and created a product line of ready-to-drink coffees which PepsiCo distributed through
its channels. In 1999, Starbucks acquired Tazo tea, which PepsiCo also incorporated into its
distribution channel. Starbucks also partnered with Dreyer’s Grand Ice Cream in 1995 and began
supplying extract for coffee-flavored ice cream. Their coffee ice cream became the number one
selling super premium coffee ice cream in that segment. Furthermore, the company entered into a
partnership with Unilever, whose brands include Ben and Jerry’s, Breyers, and Good Humor.
Starbucks was successful in pursing new markets because it pursued ventures in closely related
markets and avoided unreasonable costs.
In 2005, Starbucks acquired Ethos Water, further expanding the company’s product line.
This acquisition was important due to the social responsibility attached to this acquisition. Ethos
Water was known for donating $0.05 of every bottle the company sold to a charitable
organization which funded development and clean drinking water for countries in Africa and
Asia.
Starbucks has maintained a good stance on the changing technology and product
innovations by implementing a reloadable card in 2001. This card ultimately became a mobile
app now comparable to Apple iPay. Furthermore, the company has kept up with the trends of the
decade; it continued to focus on social responsibility by launching the industry’s first paper
beverage cups containing recycled fiber in 2006. The following year, the company eliminated all
artificial trans-fat from its drinks and made milk the new standard for espresso beverages.16
In 2009, emerging from financial losses, the company employed a wide-scale marketing
strategy, putting up posters in six major cities, and a national ad campaign that used TV ads, a
Webisode series, and taste tests across the country to convince customers were unable to
distinguish between Via and Starbucks regular coffee to promote the instant coffee Via.
Starbucks produced Via to combat McDonald’s and the company’s McCafe, in response to

| 19
McDonald’s heavy advertisements of its McCafe. Starbucks spent over $25 million of its $94
million marketing budget on promoting Via.17 Likewise, the company further innovated in
October 2012 when it came out with its Verismo System. The Verismo was created to compete
with further home coffee makers such as Keurig, Tassimo, etc. This machine allowed users to
make a single-serve Starbucks latte, espresso, and filter coffee at home. This was the only home
machine with this capability. The company promoted Verismo as the perfect gift for the
holidays.18 The campaign included primetime TV spots, presence on Univision and Telemundo,
print ads, social media and digital marketing. Moreover, in 2011, Starbucks launched K-Cup
portion packs and later in 2012 announced the expansion of Green Mountain partnership for the
purpose of Keurig implementation.19 Starbucks acquired Teavana in 2012 to transform the tea
category.
Starbucks has often been the innovator in popular
business trends. It has been the forerunner in the coffee
industry to tap these new markets. Similar to previous
maneuvers, Starbucks entered an agreement with Danone
in 2013 to expand their portfolio.20 In 2014, it announced
collaboration with Oprah Winfrey to co-create Teavana
Oprah Chia tea. The company then partnered with
Square in 2014, enhancing its iPhone app and reloadable card.21 More recently, the company
adopted Apples iPay and developed three different storefront models to use in different markets.
Starbucks is evolving annually, allowing it to remain current with economic trends. The
company has undergone a serious transformation since inception in 1971 while remaining true to
its core values.

20 |
Strategic Acquisitions
1995-1999
•1998: Acquired Seattle Coffee Company in the U.K.
•1999: Acquired Hear music and Tazo LLC
2000-2004
•2003: Acquired Seattle Coffee Company
2005-2009
•2005: Acquired Ethos Water Company
•2006: Acquired Coffee Partners Hawaii & Cafe del Caribe
•2008: Company’s subsidiary,Starbucks CoffeeCanada,Inc.entered agreement
to acquireall assets fromCoffee Vision,Inc.and Coffee Vision Atlantic,Inc.
•2009: Company acquired full ownership of Starbucks Coffee FranceSAS
2010-2014
•2010: Acquired Cafes Sereia do Brasil Participacoes S.A
•2011: Company acquired the remaining30% ownership of its business in
southern China
•2011: Acquired Evolution Fresh, Inc.
•2012: Acquired Bay Bread, LLC and its La Boulangebakery brand
•2012: Acquired Teavana HoldingInc.

| 21
Timeline
This time line shows major events in Starbucks’ history with the Company’s stock price in the background.

22 |
Management
Executive Summary: Starbucks President, Chairman, and CEO Howard Schultz is the
company’s center of gravity. He bought Starbucks from its original owners in 1987, and
developed its major strategic vision of replicating the Italian coffeehouse social experience.
During a lecture at UCLA in 2008, Schultz explained his vision for Starbucks went beyond the
pursuit of profit – it included a strong commitment to social responsibility. As of March 2013, he
held about 18.58 million shares and owned another 295,000 through a family-owned limited
liability corporation. His current stake in the company is about 2.4%.22 Starbucks’ management
team is highly experienced and tends to be middle-aged, with most executives ranging in age
from 45 to 60. Starbucks’s executive management includes many people who have been at the
company for decades, as well as a variety of people who transferred to Starbucks from other
companies in the last five to 10 years. While this type of executive management often comes
with new ideas and innovations, it can also lack a top-to-bottom understanding of the company
that comes from years of experience. Starbucks restructured its management team in May 2014
to put more emphasis on its emerging markets, such as China, Channel Development segment,
which consists of retail drinks like Refreshers. This restructuring included promoting Troy
Alstead to COO, reducing Schultz’s day-to-day management of the company.23
Howard Schultz
Chairman, President,
and CEO
Age: 61
Career:
1975 - Sales & Marketing, Xerox Corp.
1979 - VP & General Manager, Hammerplast USA
1982 - Head of Marketing & Retail, Starbucks
1986 - Founder & CEO, Il Giornale
1987 - President & CEO, Starbucks
2000 - Chairman, Starbucks
2008 - Chairman, President & CEO, Starbucks
Education:
BA in Communications, Northern Michigan University,
197524
Salary:
Salary - $1,500,000
Stock awards - $5,999,987
Option awards - $7,276,587
Other compensation - $2,465,933
Total Compensation - $17,242,50725
Schultz joined Starbucks when it had only four stores operating throughout the Seattle area in
1982. A year later, he traveled to Italy to learn about their coffee culture so he could bring the
Italian coffeehouse experience to Seattle. He realized coffeehouses in Italy were a social
experience, whereas Starbucks at the time was primarily a retail shop. Trying to replicate this

| 23
experience, he talked to the then-owners of Starbucks, Gerald Baldwin and Gordon Bowker,
about shifting their business model. They said no. Taking matters into his own hands, Schultz
left the coffee company and founded his own, Il Giornale (“The Daily”), seeking to replicate the
Italian coffee social experience. A year later, in 1987, the owners of Starbucks put the company
up for sale. He bought it with the help of local Seattle investors, merged it with Il Giornale, and
reshaped the company in the image of Italian coffeehouses. He continued managing it for the
next 13 years, aiding its exponential growth into the business it is today. In 2000, he resigned as
CEO and assumed the role of chairman. The company continued its aggressive expansion
throughout the 2000s, to the point where Starbucks said it had lost sight of its original vision. In
January 2008, with sales in decline and the company beginning to feel the effects of the
economic downturn, he returned to the role of president and CEO. Schultz has provided the
strategic vision of Starbucks, helping it grow into the global corporation it is today, running over
21,000 stores in 65 countries.26
Clifford
Burrows
Group President,
Americas
Age: 55
Career:
1982 - Habitat Design Limited
2001 - Managing Director, UK, Starbucks
APR 06 - MAR 08 - President, Starbucks Europe, Middle
East, and Africa
MAR 08 - OCT 11 - President, Starbucks Coffee U.S.
Operations
OCT 11 - MAY 13 - President, Starbucks Coffee Americas
Operations
MAY 13 - Group President, Starbucks27
Education:
Left college after one term28
Salary:
Salary - $733,838
Stock Awards - $874,976
Option Awards - $751,631
Other Compensation - $1,186,089
Total Compensation - $3,546,53429
Burrows is on the short list of potential replacements for Schultz. He played a large role in
overseeing Starbucks’ turnaround in 2008.30 He had an international upbringing, growing up in
Zambia and going to school in Wales.31 Since joining the company in 2001, Burrows has played
a critical role in expanding Starbucks internationally. He is currently responsible for Starbucks
operations throughout the Americas, and is overseeing the incorporation of Teavana’s retail
products into Starbucks stores.

24 |
Troy Alstead
Chief Operating Officer
Age: 51
Career:
1992 - Joined Starbucks
SEP 04 - AUG 07 - Senior Vice President, Corporate
Finance
AUG 07 - APR 08 - Senior Vice President, Global Finance
and Business Operations
APR - OCT 08 - Chief Operating Officer, Starbucks
Greater China
NOV 08 - SEP 2013 - CFO & Chief Administrative
Officer, Starbucks32
Education:
BBA in Finance, University of Washington, 1985
Salary:
Salary: $741,058
Total Compensation: $3,022,29833
Alstead joined Starbucks in 1992, when the company stores numbered a little over 100. He
oversees daily operations and manages Starbucks’ investments. This requires him to collaborate
with the company’s finance, supply chain, and technology leaders around the globe. He has
played an important role in Starbucks Coffee International, developing the brand in Europe, the
Middle East, Africa, and China. 34
Annie Young-
Scrivner
President, Teavana
Executive VP,
Starbucks
Age: 4535
Career:
OCT 06 - Region President, China Foods, PepsiCo
DEC 08 - CMO & Head of Sales, Quaker Foods & Snacks,
PepsiCo
SEP 09 - Global Chief Marketing Office & President of
Tazo Tea, Starbucks
SEP 12 - APR 2014, President, Starbucks Canada
APR 14 - President, Teavana & EVP of Global Tea,
Starbucks36
Education:
BBA, University of Washington, 1991
MBA, University of Minnesota, 200337
University of Virginia
Yale University
International IMD Business School, Switzerland
Salary:
Salary: $514,885
Young-Scrivner has a wealth of international experience from working in 26 countries, going to
business school in Europe, and growing up in Seattle, a metropolitan melting pot, where she

| 25
currently lives today. One of her main areas of focus is developing markets, she explained in an
interview, “where our footprint is small, where we’re beginning to create the third-place
experience for our customers.”39
Adam Brotman
Chief Digital Officer
Age: 45
Career:
AUG 95 - FEB 97 - Attorney; Heller, Ehrman, White, &
McAuliffe
OCT 96 - FEB 06 - CEO & Co-Founder, PlayNetwork
JUL 06 - SEP 08 - SVP, Corbis Corp.
OCT 08 - JAN 09 - CEO, Barefoot Yoga Company
APR 09 - Chief Digital Officer, Starbucks40
Education:
BA, Classical Civilizations, Business Administration,
University of California Los Angeles, 1991
JD, University of Washington, 1987
As Chief Digital Officer, Brotman is in charge of developing Wi-Fi, e-commerce, apps, mobile
payments, Web site, and Starbucks Digital Network. He brings in a variety of experience from
the fields of law, business management, and technology. Born and raised in Seattle, he continues
to call it home.41 In an interview with the Puget Sound Business Journal, he stated the digital
unit at Starbucks is “relatively small. Our charter at digital ventures is to be entrepreneurial and
be innovative and be nimble.” He plans to continue developing the Starbucks Digital Network,
which offers free, unlimited Wi-Fi to customers in stores. As the network expands, it could
potentially begin offering discounts and coupons and selling online games.42
Arthur
Rubinfield
Chief Creative Officer
President of Global
Innovation
Age: 60
Career:
FEB 08 - President of Global Development, Starbucks
2002 - Founder & CEO, AirVision
JAN - JUN 02 - Executive VP
MAY 92 - DEC 99 - Senior VP of Real Estate, Design &
Construction
Salary:
Salary: $484,058
Education:
BA, Environmental Design, University of Colorado Boulder
MS, Architecture & Urban Design, University of Colorado
Denver
Executive Program in Finance and Accounting, University
of Washington44

26 |
A registered and accredited architect, Rubinfield leads Starbucks’ store design strategy. His
design strategies include reducing environmental impacts through green initiatives, and
incorporating the local culture of each Starbucks location’s surrounding city and neighborhood.
He helped define the ambiance of Starbucks as the chain grew from just over 100 stores to 4,000
worldwide from 1992 to 2002. After leaving in 2002 to found the advisory firm AirVision, he
returned to Starbucks in 2008 at Schultz’s request.45
John Culver
Group President, China
& Asia Pacific
Career:
AUG 02 - Joins Starbucks as VP & GM of Foodservice
2007 - FEB 09 - Senior VP & President, Starbucks Coffee
Asia Pacific
FEB 09 - SEP 09 - President of Global Consumer Products,
Foodservice & Seattle’s Best Coffee, Starbucks
SEP 09 - OCT 11 - President of Global Consumer Products
(CPG) and Foodservice, Starbucks
OCT 11 - MAY 13 - President of Starbucks Coffee China &
Asia Pacific, Starbucks
Salary:
Salary: $582,054
Education:
BBA - Hotel & Restaurant Administration Concentration,
Florida State University
Culver is overseeing Starbucks’ growth in China and the Asia Pacific region which includes,
among others, Australia, India, Indonesia, Japan, and South Korea. He brings over a decade of
experience in retail and packaged goods. He also currently serves on the Florida State University
Foundation’s Board of Trustees.47
Matthew
Ryan
Global Chief
Strategy Officer
Career:
1988 - Vice President & Account Director, Armando Testa
1991 - Senior VP of Strategic Planning, Hal Riney & Partners
1998 - Senior VP, Brand Franchise, and Customer
Relationship Management, Walt Disney
2013 - Global Chief Strategy Officer, Starbucks
Education:
AB, History, Harvard, 198448

| 27
Ryan’s roles include overseeing Starbucks’ long-term planning, streamlining its monetization
process, and enhancing its customer loyalty and relationship management.49 Before coming to
Starbucks, he worked for Disney in areas including the Disney Rewards Visa card, character
franchise development, and long-term strategic planning.50
Other Starbucks Executives:

28 |
Products & Services
Executive Summary: Starbucks products include coffee, tea, bakery items, juices, and pre-
packaged drinks. Starbucks’ best cash cow is its basic coffee, while Starbucks’ primary dog is its
Verismo coffee maker. Currently, Starbucks’ biggest question mark is adding alcohol to their
menu. The primary differentiator of Starbucks’ products is their high quality. Starbucks has six
different brands which are all related to coffee, tea, bakery items, or pre-packaged drinks. The
company attains coffee through high quality growers and utilizes approximately thirty sources to
ensure the quality of its product. In addition to the quality coffee, Starbucks offers several other
quality products from tea and juices to bakery items and snacks. Through strategic acquisitions
such as Teavana, Tazo and Evolution Fresh, the company is able to diversify its products and
attract more consumers. Starbucks commitment to quality is also demonstrated in the level of
customer service which adds significant value to company. The stores chic layouts, friendly
customer service and vibrant atmosphere encompass the company’s tradition of quality products
and services as well.
PRODUCT QUALITY & VARIETY
The quality and variety in Starbucks’ products allows the company to stay ahead of the
competition. Starbucks boasts six brands which offer unique food and beverage additions to their
coffee culture model.51 Product diversification is important not only to the company’s business
model, but to the value and application of services.
Starbucks offers a distinctive culture and image which stem from the services it provides.
The use of technology is at the forefront of
the company’s services. These services
include options such as free in-store Wi-Fi,
smartphone apps, and mobile phone payment
options. The company’s recent partnership
with Apple will further promote Starbucks’
value of technology with the release of
Apple Pay.52 The partnerships the company
holds also displays strong social
responsibility. Starbucks is currently part of
33 partnerships, ranging from social service
programs, sustainable energy, fair trade, and
workforce development initiatives.53 The
following is a current list of the various Starbucks brands:
Starbucks’ personalized service adds value to
consumers’ coffee experience. (EliteDaily.com)

| 29
PRODUCTS
 Evolution Fresh
o Offers cold pressed fruit and vegetable juices.
 La Boulange
o Starbucks sells La Boulange French pastries and breads.
 Teavana and Tazo
o Offer consumers a variety of
high quality tea options.
 Starbucks VIA ready brew
o Provides customers with
quick, convenient ready to
make coffee packets.
 Starbucks Refreshers
o Energy drinks using green
coffee extract and real fruit
juice.
 Seattle’s Best
o Provides coffee roasting
and other services to
Starbucks.
 Torrefazione Italia Coffee
o Former coffee roaster and
café franchise was acquired
along with Seattle’s Best in
2003. Offers high quality
bagged coffee beans.54

30 |
SERVICES
 Customer Service
o Personalized service
o Reserve coffee tasting rooms
 Technology
o Apple pay
o Mobile apps
o Wi-Fi
 Convenience
o Drive-thru
o Express stores
Starbucks’ revenue by product type over the last five years. (Statista.com)

| 31
BCG Matrix

32 |
Marketing
Executive Summary: Starbucks’ success can be attributed to its marketing and elite image.
Marketing is the activity, set of institutions, and processes for creating, capturing,
communicating, delivering, and exchanging offerings that have value for customers, clients,
partners, and society at large.55 Just like its products, Starbucks’ marketing focuses on quality.
This is because part of Starbucks’ value proposition, and the reason Starbucks can charge
premium prices, is the company’s image. Starbucks creates this image with its marketing.
Starbucks relies heavily on social media marketing and a generally strong online presence to
promote its brand.
QUALITYAND SERVICE
Starbucks’ goal is to create value through its goods and services while structuring an
atmosphere to satisfy customer needs. Starbucks structures its brand image and marketing to
exemplify
quality and
service. Its
2009 marketing
remade its
image: “If it’s
still not perfect,
you must not be
in a Starbucks.” Furthermore, the Starbucks “siren” logo is unique but classic. Because the logo
is widely recognized, the company
simplified it by dropping the company name
from the imagery, allowing a broader
spectrum of products beyond just coffee;
they have increased the company’s services,
and product offerings.56
The company determines price by
how much customers are willing to pay and
assessing whether a profit can be made at
that point. Starbucks’ customers are willing
to pay higher prices than that of other coffee
retailers, such as Dunkin’ Donuts or
Starbucks’ College Achievement Plan demonstrates how the
company leads by example in social responsibility.
(Starbucks.com)
Evolution of the Starbucks logo. (TheDragonite.com)

| 33
McDonald’s, in part because of the company’s elite image that is created in Starbucks’
advertisements. In addition, Starbucks practices corporate social responsibility, and many
customers see value in that and want to support efforts to help the environment, and the
community, as well as ethical business practices.
Starbucks successfully uses and integrates its social media to engage customers.57
Starbucks has over 6.68 million followers on Twitter58 and over 37.5 million likes on
Facebook.59 Starbucks uses these sites to answer customer questions, promote events, and
increase brand loyalty by re-tweeting what people are saying about the brand.60 The company
also uses its YouTube channel to show commercials, educate consumers on different blends and
their origins, and emphasize the company’s social responsibility through charity work videos.
Furthermore, the company offers free in-house Wi-Fi service to customers. This service has
helped with consumer retention and increased the overall brand image of the company.
Starbucks’ strong online presence is a key aspect of its marketing because its target market is
young adults, who are constantly on the Web. Consequently, Starbucks lets customers know the
company cares about customers’ wants and needs, while also creating a Starbucks community
online.61 Finally, the company has a rich history of social responsibility to the community as well
as a benefits program for the company’s part time and full time workers. Starbucks exemplifies
service and ethical frameworks as they continue to give back to the community and to the
company’s employees.62
More recently, however,
Starbucks has employed new store
layouts and targeting key segments to
branch out and achieve more market
share. Recently, Starbucks opened a new
type of store in Colorado without an
indoor space and unlike its usual store
designs. This new model is a drive-thru
and walk-up shop idea.63 This new idea is
still in its testing phase so its benefits are
still unknown, however, it should be
noted that the company is continually innovating to reach more consumers and stay a step ahead
of its competitors. Similarly, the company has been trying to get immersed with business
professionals concluding the average work day. The company has taken two approaches to this:
it has tried implementing alcohol and appetizers at select locations as a test. It is said that more
locations will be receiving the new menus and offerings this coming year.64 Additionally, the
company has copied a similar model of local beer and wine companies by offering tasting events.
These events will allow avid coffee drinkers to explore their taste preferences.65
A Starbucks alcohol & appetizer location. (Fool.com)

34 |
Operations
Executive Summary: Starbucks conducts its operations through five different operating
segments: the Americas, EMEA (Europe, Middle East, and Africa), China/Asia Pacific (CAP),
Channel, and Other. The most important of these is the Americas segment, which produces 74%
of the company’s revenue and features 68% of Starbucks stores. It operates eight major
manufacturing centers, all of which are located in the U.S., and 60 other smaller distribution
centers. It currently has 182,000 employees worldwide and made Fortune’s list of the 100 Best
Companies to Work For in 2012 and 2013. Starbucks has made two major acquisitions in the last
two years: Bay Bread LLC, a bakery company that holds the popular La Boulange brand, and
Teavana Holdings Inc., an artisanal tea company. Both acquisitions show Starbucks’ desire to
expand its product lines beyond coffee.
OPERATING SEGMENTS
Starbucks’ five operating segments are divided mainly along geographic lines.66 The
Americas, EMEA, and CAP segments are company-operated stores and licensed stores. Channel
is the company’s whole bean and ground coffees, single serve products, and ready-to-drink
beverages, including Tazo teas and Starbucks Refreshers. The other segment categories include
Starbucks’ Teavana, Seattle’s Best Coffee, Evolution Fresh brands, and the company’s Digital
Ventures business. The Americas makes up the largest percent of Starbucks’ total net revenue,
with 74% while EMEA, CAP, and Channel make up 8%, 6%, and 10% of Starbucks’ total net
revenue respectively. The Other Segments makes up the smallest percent, with only 3%.
LOCATIONS
Starbucks was founded in Seattle, Washington and this is where the corporation’s
headquarters continues to be located. As of
the end of Q3 FY14, the company operated
20,863 stores across 64 countries. 52% of
these stores are company-operated and 48%
are licensed. The Americas has the majority
of Starbucks locations, with 68% of all
stores.67 Starbucks is currently focused on
globalizing the company. Explosive growth
in China has led this globalization effort.68
Starbucks expects China to overtake Canada
as its second largest market by the end of 2014. Starbucks operates eight major manufacturing,
roasting, and distribution plants where Starbucks roasts all of its coffee and manufactures its
various packaged products.69 These plants are all located in the U.S. Five are on the West coast,
and the other three are on the East. Alongside these major plants, Starbucks operates 60 other
Starbucks’ eight manufacturing and distribution plants.
(Starbucks.com)

| 35
distribution centers across the world. It has placed a major emphasis on these centers in the last
few years after some supply issues surfaced in 2008 in response to the company’s rapid
expansion.70 In 2010, these distribution centers made over 2.7 million deliveries to Starbucks
stores.
Starbucks “partners” at an event in Los Angeles. (Starbucks.com)
EMPLOYEES
As of September 2013, Starbucks’ employs approximately 182,000 people worldwide. Of
these, about 137,000 work in the U.S. and 45,000 work outside of the US. There is currently no
significant union presence among Starbucks workers. Starbucks’ appears to have a strong
relationship with its employees, with a GlassDoor rating of 3.7 stars and 75% of employees
saying they would recommend the job to a friend.71
MERGERS AND ACQUISITIONS
Starbucks made two major acquisitions in 2012. The first was Bay Bread LLC, a bakery
company that owns the popular La Boulange bakery brand.72 Starbucks completed this
acquisition in July 2012 for $100 million. Bay Bread allows Starbucks to centralize its product
line and offer a wider range of higher quality pastries in the U.S. market. The other major
acquisition Starbucks made was of Teavana Holdings Inc.73 Starbucks completed this acquisition
in December 2012 for $598 million. Teavana produces artisanal teas and tea-related
paraphernalia. This acquisition has been very profitable for Starbucks. Analysts credit Teavana
as an important part of Starbucks’ improving revenue numbers in 2014.74 Both acquisitions show
Starbucks commitment to expanding its product line beyond coffee.

36 |
Strategies
Executive Summary: In its 2013 annual report, Starbucks stated its growth strategy is to open
new stores, and increase sales in current stores, while fostering its strong image and its
relationships with employees and customers. Thus, Starbucks’ long-term strategy has three main
pillars:
 US expansion through adding new stores and boosting individual store sales
 Opening new stores internationally
 Maintaining a strong image through corporate responsibility.
U.S. EXPANSION
In April 2014, CEO Howard
Schultz stated the company is
“significantly under-stored in many
markets, including North America.”
Part of this U.S. expansion strategy
goes hand-in-hand with the
company’s plan to expand its day
parts by offering more lunch and
dinner options, such as wine, beer,
and soda, essentially turning
Starbucks into an all-day
destination. 75 Currently, its stores’
peak business hours are during the
early morning. Schultz stated the
company’s expansion will not
mirror its earlier, far more
aggressive expansion strategies
from the ‘00s, when the company
expanded from 3,501 stores to 16,858.76 “This is not 2007 when we were going to grow the
company in an undisciplined way.”77 Echoing this sentiment, Starbucks specifically uses the
word “disciplined” in reference to the company’s strategy for expanding global market share.
In a 2013 interview with The Motley Fool, CFO Troy Alstead said, “we are a long ways
from saturation” and that “we have years and years and years of growth left in the U.S.” The
company plans to roll out 1,500 stores worldwide, including 600 in North America, by year’s
end. Part of this strategy includes opening more drive-thru stores: while about 40% of its stores
now feature drive-thrus, among new stores opening, about 60% will have a drive-thru. The
Despite common jokes about Starbucks’ market saturation, as seen
here in a 1998 episode of The Simpsons, CEO Howard Schultz says
the company has more growth potential in the US. (Flickr.com)

| 37
company is also looking to boost sales at current stores by adding drive-thrus when and where
they can. Compared to the rest of the world, the US, Alstead said, “Is more of a mature drive-
thru market.”78
INTERNATIONAL GROWTH
Starbucks’ global footprint as of October 2013. (Washington Post)
With the U.S. market becoming more crowded, Starbucks is looking toward strong
expansion opportunities internationally. Company executives specifically highlight China,
Brazil, India, and Russia for their strong growth potential.
In China, Starbucks opened
its 1,000th store in fall 2013 and it’s
currently on track to reach 1,500 by
2015. Starbucks’ footprint in China
is expected to surpass its footprint in
Canada sometime this year,
becoming Starbucks’ second-largest
market.79 Starbucks stores have a
more open design and more
comfortable furniture in the
People’s Republic, with an
architectural style that blends East
and West. Some stores will be
almost 3,800 feet, compared to about 2,200 for the average American Starbucks.80 The company
is also experimenting with new products to appeal to Chinese consumers, like the Thai-style
prawn wrap or the Hainan chicken and rice wrap.81
To draw more customers to its stores in China, Starbucks has
launched a variety of discounts and promotions, including a
discount for inviting a friend to Starbucks. (Examiner.com)

38 |
Potential barriers to market growth include the fact that the average person in China earns
only $500 a month, and the coffee costs 10-20% more in China than it does in the states.
Furthermore, the average Chinese man drinks only three cups of coffee per year. Customers in
China are more likely to use Starbucks as their third place whereas in the U.S., they are more
likely to grab a cup on their way to school or work.82 The recent revelations about tainted meat at
the Shanghai Husi may also hinder Starbucks’ growth. The company used the plant for meat in
its Chicken Apple Sauce Paninis.83
In Brazil, Starbucks’ growth has been less rapid than in other countries – opening about
60 stores in eight years – perhaps because the country already has a strong coffee culture. As one
analyst put it, “An American Corporation trying to sell coffee to Brazilians is almost as
ambitious as trying to sell sand in Sahara.”84 The South American country is the world’s top
coffee bean producer, and already features a number of coffeehouse franchises. Thus, Brazilians
generally see coffee as a cheap, easily available drink, not a $4 luxury. Consequently, Starbucks
drinks are priced more cheaply in Brazil. The country’s average price for a cup of espresso is
$0.68. Starbucks sells theirs for $1.27. Local menu items include Brazilian cheese bread, and
muffins with mozzarella, arugula, and tomato, while Starbucks cappuccinos feature doce de leite,
a cream popular in Brazil.85
In India, Starbucks has only
been operating since 2012, but is
already seeing rapid growth. As of
April 2014, the coffee giant had
established 43 stores in India, which
included seven opened in just the prior
six weeks. Cafes in India generally
function like bars in the US, where
customers hang out for hours instead
of employing the frequent grab and go
habits of Americans. The idea of cafes
as a third place is already well-
established in India. Hence, the stores
have to be more lavish than those
found in the US. Starbucks is
expanding throughout India in collaboration with Tata Global Beverages, a company
headquartered in West Bengal, India, and culturally influential throughout the region.86
GLOBAL RESPONSIBILITY
In its 2013 10-K filing, Starbucks cited corporate responsibility as a vital part of its global
strategy. “Global responsibility strategy and commitments are integral to our overall business
strategy. As a result, we believe we deliver benefits to our stakeholders, including employees,
Howard Schultz with Tata chairman Ratana Tata, at the first
Starbucks in India, Oct. 19, 2012. (India Express)

| 39
business partners, customers, suppliers, shareholders, community members and others.” In
addition to its annual 10-K, Starbucks also puts out a Global Responsibility Report every year
informing investors of how it gives back. As part of its commitment to social responsibility, the
company cites ethical sourcing, environmental impact, and community improvement. 87
Ethical sourcing is one reason Starbucks’
coffee is more expensive than its competitors. As of
2013, the company ethically sourced 95% of its
coffee, and its goal is to reach 100% by 2015.88 Over
the last 40 years, the company has invested $70
million in collaborative farming programs, loans, and
support centers. Starbucks says its goal is to improve
farmer livelihood while maintaining a long-term
supply chain. The company maintains a farming
R&D center in Costa Rica where agronomists test out different growing practices in hopes of
making research discoveries and developing best practices.89
Starbucks is addressing environmental challenges by building greener stores, employing
water conservation, supporting renewable energy, encouraging recycling, and reducing cup and
packaging waste.90 Starbucks offers customers a $0.10
discount on their order for bringing in a reusable cup,
reducing environmental impact. Since the cups cost $1,
they pay for themselves after 10 orders. It hopes to have
5% of customers bringing in reusable cups by 2015,
down from its earlier, more optimistic assessments of
25%.91 The company is also addressing environmental
challenges by building greener stores, employing water conservation,
supporting renewable energy, encouraging recycling, and reducing cup and packaging waste.
Starbucks’ community improvement plans include local
volunteering and generous health care benefits for employees. Starbucks’
employee benefits include health care for part-time and full-time
employees, and tuition reimbursement plans. This commitment requires
the company to spend more on health care than on coffee beans.92 In
2010, Schultz says he told one shareholder who advocated Starbucks
cutting health care benefits, “I could cut $300 million out of a lot of
things, but do you want to kill the company, and kill the trust in what this
company stands for? There is no way I will do it, and if that is what you want
to do, you should sell your stock.”93 As part of its commitment to its workers, Starbucks calls its
employees “partners” just as Walmart calls its employees “associates.” One of the company’s
goals is to increase community service globally to one million hours. It encourages community
(Starbucks.com)
(Starbucks.com)
(Starbucks.com)

40 |
members to sign up for projects through its Web site, which includes food donations, school
improvement projects, rebuilding after disasters, gardening, and neighborhood cleanup.94
According to business analyst Simon Sinek,
Starbucks is able to sell $5 coffee because people don’t buy
what you do – they buy why you do it. Sinek alleges
Starbucks’ greatest period of struggle – in 2007 – was due to
the company forgetting its original culture and strategic
vision: by focusing too much on the what (coffee) and not
enough on the why (culture and image). “Shultz went to
Italy on holiday and found this coffee culture – not coffee
drink – in Italy and wanted to bring this culture back to
America. And this is the idea around which he formed
Starbucks.”95
VALUE CHAIN ANALYSIS
Starbucks has developed cost-efficient value chain activities which have reduced the
average store opening costs and reduce day to day costs. The company uses economies of scale
by centralizing its purchasing and developing standard contracts and fixed fees, as well as using
highly regarded contractors who display good cost-control. For example, Starbucks used fixed
price agreements to guarantee the prices for all of its coffee purchases in 2014 and 40% of its
purchases for 2015.96 Starbucks also purchases coffee from over 30 different countries, which
minimizes the impact a disaster in a coffee growing region will have on Starbucks.97
Additionally, the company uses vertical integration to drive down prices. The primary example
of this vertical integration is that Starbucks has its own coffee roasting facilities and does not
need to outsource its roasting.
While generally strong, Starbucks value chain has some weaknesses. In particular,
Starbucks’ value chain is vulnerable to variable milk and sugar prices. From 2013 to 2014 milk
prices rose 33% and sugar prices rose 13%.98 This puts a major strain on Starbucks’ value chain.
To deal with this weakness, Starbucks can attempt to institute price controls similar to those they
use in their coffee purchasing. Starbucks can also benchmark against their competitors, such as
Panera, to help find ways to drive down costs and improve their value chain.
Simon Sinek, author of Start With
Why. (TheArtOf.com)

| 41
Financial
Executive Summary: Starbucks continues to experience tremendous gains in stock value as it
carries out plans to expand and enter new markets. Its current stock price, as of Sept. 23, 2014, is
$73.96, and is projected to rise as net earnings increase. Starbucks’ 2014 Q3 report indicates an
11% increase in revenue along with a 22% rise in earnings per share. Over the last five years, the
company has seen a 291.9% increase in total returns.99
2014 Q3 SUCCESS
According to the Wall Street Journal, Starbucks reported third quarter profits at $512.9
million, per-share earnings at $0.67, up from $0.55 last year.100 Starbucks’ stock continues to
rise due to Starbucks’ expansion strategy, 344 new stores have been opened globally, bringing
the net total to 20,863 stores in 64 countries in the 2014 third quarter. This expansion brought
Starbucks an increased 6% sales, marking the 18th consecutive quarter of growth 5% or
greater.101 Increased net sales have allowed Starbucks to offer greater dividends. According to its
Q3 report, dividends are now at 1.34% and predicted to be at least 1.5% by the end of Q4 2014.
In 2011, dividends grew 55% year over year, and in 2013 grew by 24%. This gives Starbucks a
high dividend coverage ratio, which allows them to expand operations by reinvesting income
into more store units.
Starbucks’ financial success is due to a number of strategic movements, one of the most
critical being international expansion. Expanding into Chinese markets has proven very
successful for Starbucks. Analysts at Reuters predict per-share earnings growth of 15% to 20%
and revenue growth of at least 10% within the next year, as Starbucks plans to open 1,600 more
stores globally.102
Starbucks’ increase in stock value over the last five years in comparison to the Dow Jones and NASDAQ.
(Google Finance)

42 |
Starbucks also reported capital expenditures growth of 3.46% for the Q3 2014.103 Capital
expenditures were $1.2 billion, roughly 8% of the company’s revenue in 2013. This is a 4%
increase from the previous year, most likely due to continued store growth and advances in
technology. Although Starbucks has seen growth in revenues and capital expenditures, it
incurred a large loss because of a recent lawsuit from shareholders over a breach of contract with
Kraft Foods. Last November, Starbucks was ordered to pay Kraft $2.75 billion due to a
distribution issue of its packaged coffee to grocery stores.104 Despite the loss from the lawsuit,
Starbucks stock continues to gain value as it expands and diversifies it products.
Starbucks has acquired several major brands as part of its diversification strategy. (DividendLab.com)

| 43
Current Events
Executive Summary: Starbucks’ current events show two major trends; a focus on marketing to
the millennial generation and a focus on globalization. The company’s focus on millennials can
be seen in its focus on adopting the newest technological trends, such as Apple Pay, and in its
recent review of the company’s conservative dress policy to possibly allow visible tattoos. Both
of these moves are initiatives that resonate with the millennial generation. Starbucks’ focus on
globalization can be seen in the many news stories about the company coming out of Asia.
Starbucks is growing rapidly in China, and by the end of 2014, there will be more Starbucks
stores in China than there are in Canada. However, this globalization is not without issues as
food safety issues in Asia continue to damage the company’s reputation.
MILLENNIALS & THE ASIAN MARKET
One story that shows Starbucks’ continued
desire to appeal to the millennial market is the
company’s adoption of Apple Pay, a phone-based
payment platform that allows users to make
purchases using their phone instead of cash or card.
Starbucks plans to roll out its use of the product in
October, along with a number of other restaurants
such as McDonald’s and Subway. Starbucks already
has experience with this sort of technology, as the
company’s current smartphone app allows users to
pay from a gift card loaded onto their phone.105 In
fact, 11% of Starbucks’ sales is processed through
this mobile app. The adoption of this kind of new
technology may prove popular with the tech-driven millennial generation.
Another event that shows Starbucks’ focus on the millennial generation is its current
reevaluation and potential revision of its dress code. This will include a review of current
policies against workers having visible tattoos. It went into motion partly due to an online
petition that gathered about 23,000 signatures asking the company to change its tattoo policy.106
Allowing visible tattoos is very much in line with millennial thinking, as over a third of the
generation has tattoos.107 Reversing the current policy would not only appeal to Starbucks’
customers; many of the company’s employees are millennials themselves and would welcome
the change. Starbucks recognizes this. A spokesman for the company said, “We know the dress
code and tattoo policy is important to them, so we are taking a fresh look at it.”108
Starbucks is an early adopter when it comes
to mobile payment methods.
(BusinessInsider.com)

44 |
Starbucks today is very focused on
globalization, and in this area the company has
seen both success and setbacks. One of the
markets that Starbucks has been very successful
in is China. Starbucks has built over 1,000 stores
in China and the region is on track to take
Canada’s position as the second largest
Starbucks market by the end of 2014.109 Chinese
customers see Starbucks as a destination and a
place to meet for both business and pleasure.
John Culver, Starbucks’ president for China and
Asia Pacific, says, “What we’ve been able to do is build Starbucks into a lifestyle brand that
Chinese customers want to be a part of.” Whatever the reason, the numbers cannot be argued as
Starbucks’ China and Asia Pacific segment had a 35% operating margin in the third quarter of
2014, which represents 6.7% of Starbucks’ total year-to-date financials.110
While Starbucks is doing well overall in Asia, the company has suffered some setbacks.
The worst of these setbacks comes mainly at the hands of lax food safety and quality controls. In
July 2014 an undercover reporter discovered a Chinese meat supplier was selling expired and
improperly handled meat to many fast food companies, including Starbucks.111 Then in
September 2014, another food-safety scare emerged when regulators discovered a Taiwanese
bakery chain used potentially toxic “gutter oil” to fry its pineapple buns.112 These pineapple buns
were sold at a number of Taiwanese bakeries and fast food restaurants, including two Starbucks
stores. Clearly, food safety and cleanliness is a major issue in Asia. To maintain a positive
image, restaurants such as Starbucks must remain vigilant in quality assurance.

STARBUCKS’COMPETITOR COMPARISON
Figure 1 compares financial ratios between Starbucks, Panera Bread and Einstein Noah
Restaurant. This assessment looks at 2011-2013 for the three companies.
Activity/Efficiency Ratios
 Starbucks’ Asset Turnover Ratio is 1.78, up from 1.59 in the
previous year. Both their sales and total assets have been
increasing over the past three years. While Panera and Einstein
have higher Asset Turnover Ratios than Starbucks, the ratio
does not take into account the possibility of the competitors’
sales decreasing or the company having to sell off assets.
 Starbucks’ Working Capital Ratio has steadily increased over
the past three years and is 12.46. But Einstein’s has an
advantage over Starbucks with their working capital slowly
decreasing from 55.63 in 2011 to 41.1 in 2013, while both
companies have an advantage over Panera, who decreased in
2011 to 2012 from 15.87 to 10.58. Similarly, the company
provided no measure to calculate their working capital ratio for
2013 but based on the prior drop in performance, it’s likely no
higher than that of 2012’s performance.
 The Accounts Receivable ratio in which Starbucks has seen a steady increase since 2011.
Their ratio grew from 26.95 in 2011 to 34.3 in 2013. However, Einstein Noah Group still
maintains an advantage over Starbucks in the growth of their accounts receivable from
134.6 in 2011 to 287.5 in 2013. This shows a drastic increase in sales for the firm.
Additionally, Panera is the underdog in this category. Panera’s accounts receivable
decreased from 39.2 in 2011 to 27.9 in 2013.
Leverage/Solvency Ratios
 For debt to equity, Starbucks is at 37% for 2013 compared to 6.6% at Panera and 265%
for Einstein. Starbucks’ debt to equity increased to 37% in 2013 from 17.5% in 2012. An
increase in debt to equity is not desirable. Starbucks and Panera both saw increases in
their debt to equity from 2012 to 2013 while Einstein saw a decrease from 478% in 2012
to 265% in 2013. Despite Einstein being the only company out of the three to see a
decrease in their debt to equity ratio, Starbucks and Panera have more favorable ratios.
Panera has a competitive advantage over Starbucks and Einstein with its debt to equity
ratio of 6.6%.
 Starbucks debt-to-assets ratio is at 14.4% compared to Panera’s 41% and Einstein’s 52%.
Similar to the debt to equity ratios, Einstein was the only company to see a decrease in
their ratio from 2012 to 2013. A decrease in the debt to assets ratio is more favorable. But
(Wikipedia.org)

| 47
Starbucks maintains the advantage with their debt to assets here because the smaller the
number the better the outcome. This can be attributed to Starbucks’ vast asset base which
continues to increase year after year.
Liquidity Ratios
 Starbucks’ current ratio is 1.02 for 2013 compared to 1 for Panera and 0.94 for Einstein.
Starbucks and Panera both see negative trends for their acid test ratio. Starbucks fell from
1.83 in 2011 to 1.02 in 2013, whereas Panera fell from 1.48 in 2011 to 1 in 2013.
Einstein’s current ratio remained relatively constant from 2011 to 2013. Their current
ratio was 1 in 2011 and fell by .06 to reach a value of 0.94 for 2013. But Starbucks
maintains the advantage with its current ratio being higher than the two competitors. A
higher current ratio is more favorable and a ratio or minimum acceptance is 1:1. A 1:1
ratio suggests there are potential risks with the firm.
 Starbucks’ acid test ratio is 0.71 in 2013 compared to 0.93 for Panera and 0.43 for
Einstein. Both Panera and Starbucks saw a negative trend for their Acid-test ratio with
Panera falling from 1.65 in 2012 to 0.93 in 2013 and Starbucks falling from 1.14 in 2012
to 0.71 in 2013. Einstein Noah Group remained relatively constant from 2011 to 2013,
their acid test was 0.45 in 2011 and decreased by 0.05 to reach a value of 0.40 in 2013.
Having a higher acid-test ratio is seen as a favorable trait, therefore Panera has an
advantage with their acid-test ratio of 0.93. However, a 1:1 ratio is seen as a satisfactory
figure and all three companies are operating below the minimum average.
Profitability Ratios
 For 2013 Starbucks showed a severe disadvantage in profitability ratios compared to both
Panera and Einstein. The company saw a serious decline in all their ratios from 2012 to
2013. Starbucks’ Return on Assets dropped from 16.5% in 2012 to 0.1% in 2013. Both
Panera and Einstein saw an increase in their return on assets from 2012 to 2013. Panera
increased from 13.68% in 2012 to 16.61% in 2013 and Einstein saw an increase from 6%
in 2012 to 7.3% in 2013.
 Starbucks’ Return on equity was 0.02% in 2013. Panera saw a return on equity of 28.03%
for 2013 and Einstein has a return on equity of 37% in 2013. Panera was the only
company to see a positive trend for their return on equity increasing from 21.1% in 2012
to 28.03% in 2013. However, Einstein has the advantage with the highest percentage for
2013 despite it having a negative trend falling from 46% in 2012 to 37% in 2013.
Starbucks fell from 27.1% in 2012 to 0.02% in 2013.
 Starbucks’ Profit Margin was 0.06% for 2013 falling from 10.4% in 2012. Starbucks was
the only company out of the three to see a negative trend for the profit margin. Panera
increased from 8.1% in 2012 to 8.2% in 2013 and Einstein increased from 3% in 2012 to
3.4% in 2013. Panera seeing the highest percentage of profit margins for 2013 have the
advantage.

48 |
Starbucks has a slight advantage over Einstein overall when comparing the ratios, but as
of 2013, Panera has the overwhelming advantage. The drastic decline in Starbucks’ ratios from
2012 to 2013 lead to the competitive advantage Panera appears to have. But these ratios are not
the test of the company’s overall standing and performance. In 2013 Starbucks was involved in
legal proceedings with their partner at the time Kraft. Kraft and Starbucks had a partnership with
Starbucks coffee distribution and packaging segment. In order to pursue k-cups for the
company’s new products and stream line future growth Starbucks was forced to end their
partnership with Kraft. The company was forced to do so simply because they wanted to have
control of their distribution and packaging of coffee and tea for destitution amongst other coffee
and tea locations such as grocery stores and wholesale centers like Costco. As a result of these
legal proceedings, Starbucks had to pay $2.79 billion to Kraft for breaking their contract.
ACTIVITY AND EFFICIENCY
Figure 2 Activity/Efficiency Ratios SBUX
Asset turnover ratio
 This shows how efficient a company is using their assets to induce new sales revenue. The
formula for this ratio is Sales (Revenue)/Average Total Assets. A higher ratio is better
because that means the company is producing new sales from their existing assets. The
company is efficiently generating more dollars from what they already own, instead of
having to invest in more assets to continue produce sales.
 Starbucks’ current asset turnover ratio illustrates the company’s global expansion
strategy, as they continue to increase property, plant and equipment. By increasing their
assets, they can produce more sales from those additional assets, which increase their
asset turnover ratio. The asset turnover ratio starts at 1.4 in 2011and increases to 1.78 by
1.4 1.59 1.78
26.95
30.64
34.3
9.79
11.30 12.46
0
5
10
15
20
25
30
35
40
2011 2012 2013
Activity/Efficiency
Assset Turnover Ratio Accounts Receivable Working Capital Turnover

| 49
2013. Panera and Einstein Bagel are more successful at producing sales from their current
assets. Their asset turnover ratios grow from the 1.8 to 1.9 range.
Accounts receivable ratio
 This ratio measures the sales for which the payment has yet to be received by the
company. This ratio is calculated using the formula Sales (Revenue)/Average Accounts
Receivable. A higher ratio is desired because it illustrates that a company is strictly
operating on a cash basis. Or for most companies, the higher ratio illustrates their ability
to efficiently and effectively extend credit and collect their accounts receivable.
 Starbucks maintains a relatively low accounts receivable ratio when compared to
competitors Panera Bread and Einstein Bagel. Though lower than its competitors, this
ratio indicates Starbucks does not rely on cash operations nearly as much as Einstein
Bagel or Panera Bread. The increasing ratio also indicates positive financial growth.
Starbucks continues to operate more heavily on cash as they grow economically.
Working Capital Turnover Ratio
 A company’s working capital turnover ratio compares the depletion of working capital
(current assets – current liabilities) to the generation of sales which depicts how
efficiently and effectively a company is using its working capital to drive sales. The
working capital turnover ratio is calculated by Sales (revenue)/ Average Working
Capital. A higher ratio is more desirable because it illustrates how well a company is
generating sales from the money used to fund sales. This ratio highlights the relationship
between the money used to fund the operations and the sales stemming from those
operations.
 Starbucks’ working capital turnover ratio displays steady growth between 2011 and 2013.
This illustrates that Starbucks is effectively using its working capital to increase sales. An
overall increase in capital is likely to cause this ratio to increase as well.
 Implications: Starbucks’ increasing working capital turnover, accounts receivable and
asset turnover ratios imply Starbucks will continue to experience financial gains over the
next few years. By increasing the number of stores and using existing capital to increase
sales, Starbucks will maintain steady financial gains. Their expansion strategy includes
international growth, as well as opening new stores and drive-thrus in the US with new
day parts. The general activity and efficiency ratios support Starbucks strategy of
expansion and utilizing existing capital.

50 |
LEVERAGE AND SOLVENCY
Figure 3 Leverage/Solvency Ratios SBUX
Debt to equity
 This ratio measures the funds provided by the creditors compared to the funds provided
by the owners. A rising Debt to Equity indicates the company has increased their debt.
This ratio is calculated using the following formula: Total Debt (Long Term + Short
Term)/Total Stockholder’s equity. The more debt a company has, the higher the
company’s debt to equity ratio. For this reason, investors prefer lower ratios when it
comes to a company’s debt to equity ratios. Higher ratios indicate a company is
expanding aggressively which typically means a greater investment risk.
 Starbucks’ debt to equity decreased from 20.5% to 17.5% from 2011 to 2012 but took a
sharp increase to 37% in 2013. This indicates that Starbucks used more money from
creditors to fund new projects and also incurred a substantial amount of debt between
2012 and 2013.
Debt to assets:
 This ratio shows the percentage of the company’s assets that are financed by creditors
compared to the assets financed by the owners at any given time. Debt to Assets is
calculated by using the following formula: Total Debt (Long Term + Short Term)/Total
Assets. For Companies, a lower ratio is desired because it indicates that the company
owns most of their assets and doesn’t have to pay interest to creditors on them.
 Starbucks’ debt to assets ratio decreased slightly from 2011 to 2012, from 12.2% to
10.9%. But from 2012 to 2013, it increased to 14.4%. This indicates that as Starbucks
expanded during 2012, they incurred more long-term debt from acquiring new
storefronts. The increase is also due to litigation charges Kraft brought against Starbucks.
20.5%
17.5%
37%
12.2% 10.9%
14.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2011 2012 2013
Leverage/Solvency
Debt to Equity Debt to Assets

| 51
Although Starbucks showed an increase in the amount of assets that are financed by
creditors, they are much lower than the ratios of their competitors. In 2013, Einstein
Bagel maintained a debt to asset ratio of 52%, while Panera held 41%.
 Implications: From 2011 to 2012, Starbucks experienced a decline in their debt to equity
and debt to assets ratio. But in 2013, the company’s leverage and solvency ratios spiked,
implying several key indicators. Starbucks began to incur more long-term debt, most
notably in the form of expenses due to the Kraft litigation. Along with litigation
expenses, Starbucks secured funding to acquire more property and equipment to increase
assets and generate more sales. Due to the higher debt to assets ratio, Starbucks must
have utilized funding from creditors to purchase assets.

52 |
Liquidity
Figure 4 Liquidity Ratios SBUX
Starbucks’ liquidity showed a slight increase from 2011 to 2012, but decreased dramatically
from 2012 to 2013. This is the result of more assets or liabilities. In Starbucks’ case, the
aforementioned litigation charges likely damaged the liquidity of the company, in conjunction
with a strategy of rapid expansion and technological improvements.
1.83 1.9
1.020.99
1.14
0.71
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2011 2012 2013
Liquidity
Current Ratio Acid Test
Figure 5 Current Ratio of SBUX, BAGL, and PNRA (ycharts)

| 53
Current Ratio:
 A company’s current ratio measures their ability to pay off short-term obligations. The
current ratio is formulated by Current Total Assets/Total Current Liabilities. A higher
ratio is better because it illustrates how capable the company is of paying its obligations
using its short term assets. A Current Ratio of 2:1 is the desirable ratio meaning it has
twice as much short-term assets than short-term liabilities. A ratio of 1:1 is the minimum
ratio that should be accepted for a company. However, a ratio below one doesn’t mean
the company is performing badly, there are just more risks surrounding them.
 Starbucks’ current ratio is slightly higher than Einstein Bagel and Panera Bread.
Companies with an acid test ratio of less than 1 are risky investments, as they are
struggling to pay their current liabilities. Both of Starbucks’ competitors maintain a
current ratio below 1.
Acid-test ratio:
 The Acid-test ratio is considered the best measurement of company liquidity. A
company’s acid-test ratio measures its cash, short-term investments and net receivables
to its current liabilities. This ratio is calculated by adding up everything above inventory
(the most liquid items) on the balance sheet and dividing it by the company’s total
current liabilities. A higher ratio is better because this means the company has more
short-term assets to cover immediate liabilities without having to sell of their inventory
or less-liquid assets. A ratio of 1:1 is satisfactory, where as a ratio less than 1 means the
company can’t pay off their short-term liabilities with highly liquid assets.
 Starbucks’ acid test shows an increase from 2011 to 2012 and a sharp decrease from 2012
to 2013. The acid test ratio of .71 is relatively low and signifies that Starbucks is not
liquid enough to pay off short term liabilities due to the lack of highly liquid assets. But
between 2011 and 2012, Starbucks maintained a higher acid-test ratio than Einstein and
Panera Bread.
 Implications: Starbucks experienced a dramatic decline in liquidity ratios during 2013.
This is most likely due to the litigation expenses brought on by Kraft and an increase in
assets. Starbucks liquidity ratios imply a decreased amount of liquid assets that may be
used to pay off short term debt. It also implies that Starbucks has an increased amount of
long-term debt that may not be paid off as quickly.

54 |
PROFITABILITY
Figure 6 SBUX’s Profitability
Return on Assets:
 If a business is using its assets effectively to produce their income, the higher this ratio
will be. This ratio comes from dividing a company’s net income by its total assets. A
higher ratio is desired because ROA is an indicator of how profitable a company is
relative to its total assets and illustrates how efficient the company is at using its asses to
induce earnings.
 Figure 6 illustrates Starbucks ROA for the previous three fiscal years. The ROA was
14.9% in 2011, increased to 16.5% in 2012 and declined to a staggering 0.10% in 2013.
Low ROA in 2013 can be attributed to a dramatic decrease in Net Income for the firm. As
mentioned previously, this loss is directly related to the litigation charges brought on the
company in 2013 for not fulfilling the contract of a partnership.
Return on Equity:
 This quantifies how well a company is providing returns to their shareholders.
Companies want a higher ratio because ROE measures the amount of net income
returned to shareholder’s equity. This is a company’s net income divided by its
shareholders’ equity. This ratio measures a company’s profitability by revealing how
much profit a company generates with the money shareholders have invested.
 Figure 6 has Starbucks’ ROE for the previous three years. Their ROE was 28.4% in 2011
and 27.1% in 2012. For FY2013, similar to ROA, Starbucks’ ROE decreased
14.90%
16.50%
0.10%
28.40%
27.10%
0.02%
10.65%
10.40%
0.06%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2011 2012 2013
Return on Assets
Return on Equity
Profit Margin

| 55
substantially to 0.02%. ROE is directly related to the return on assets for the firm. But the
overall net income for 2013 was streamlined in paying off the company’s litigation fees,
thus affecting overall ROE figures for the year.
Profit Margin:
 This shows how much profit a company generates per each dollar of sales over a given
period of time. The profit margin ratio for a company is calculated by taking the
company’s net income and dividing it by its sales (revenue). This ratio measures how
much the company actually profits from every dollar of sales. A higher ratio is more
desired because this indicates a more profitable company as well as a company with less
risks to cost increases that are out of their control.
 Figure 6 has Starbucks’ Profit Margin for the previous three years. Starbucks’ profit
margin was 10.65% in 2011 and 10.4% in 2012. Starbucks’ profit margin decreased in
2013 to 0.06%. Starbucks’ profit margins for 2011 and 2012 are higher than that of
Panera Bread and Einstein Bagel. But in 2013, the company’s profit fell far below that of
both companies due to the previously stated loss in net income.
 Implications: In 2011 and 2012, Starbucks’ profit margin remained relatively constant;
but in 2013, the company saw a dramatic decrease in their profit. The litigation charges
were a major factor. Similarly, the company saw a major decline in Return on Equity and
Return on Assets because the company recorded the litigation fees as an expense on the
income statement, therefore directly impacting these ratios and the overall performance
numbers of the company. The company was able to do this by using their available cash
and funding capacity.113 But Starbucks ended its relationship with Kraft as a strategic
maneuver: the company saw an opportunity to prioritize the use of K-cups for their coffee
and tea. At the time Kraft, was in charge of Starbucks’ in-store distribution network and
the company had to separate itself and regain control of their package coffee business to
expand into the K-cups business.114 The separation from Kraft gives Starbucks more
control over their in-store products. This control allows Starbucks to move into the
lucrative market for K-cup coffee which should be very profitable in the long term.

56 |
Capital Market and Shareholders Return
Figure 7 SBUX’s Value Ratios
Earnings per Share
 A company’s earnings per share ratio is one of its most important indicators of a
company’s profitability. This ratio indicates the portion of a company’s profit allocated
to each outstanding share of stock. The Higher ratio is more desirable because it
indicates the profitability of a company.
 Figure 7 shows Starbucks EPS for the previous three years. In 2011, their EPS was $1.67.
The company’s EPS increased to $1.86 in 2012 and decreased even further in 2013 to
$0.70 according to NASDAQ.com.115
Figure 8 EPS and P/E Data PNRA & BAGL (Ycharts.com)
1.67 1.86
0.7
25.18 24.63
34.02
0
5
10
15
20
25
30
35
40
2011 2012 2013
Earnings Per Share
P/E Ratio

| 57
P/E Ratio
 The price to earnings ratio indicates the market price per each $1 of earnings the
company generates. A higher P/E ratio is better because the company has a higher
projected earnings. This ratio is calculated by dividing the EPS by the current market
value per share.
 Figure 7 shows Starbucks’ P/E Ratio over the past three years. Their P/E ratio for 2011
was 25.18. It decreased to 24.63 in FY2012 but increased to 34.04 in FY2013 according
to NASDAQ.com.116 As shown in figure 8, Panera Bread and Einstein Bagels operate
with relatively similar P/E ratios to that of Starbucks prior to 2013.
 Implications: As shown in figure 7, Starbucks operates with a similar P/E ratio to Panera
Bread and Einstein Noah Restaurant, considering the P/E ratio provided by
NASDAQ.com. The three restaurants have P/E ratios between 20 and 30. But the P/E
ratio and EPS provided for Starbucks by NASDAQ.com does not reflect the actual
figures for the company. When computing the ratio from the company’s income
statement and balance sheet, the value for 2013’s EPS was $0.01 and their P/E ratio was
7,176.08 (seen in figure’s 9 & 10 below). As mentioned previously, this is due to the
litigation charges the company paid in 2013.117 In 2013 Starbucks ended their partnership
with Kraft before the expiration of their agreement. The company was taken to arbitration
and lost with a heavy penalty of $2,784.1 (million). Therefore, the company’s net income
was impacted severely. Their net income went from $1,383.8 (million) in 2012 to $8.3
(million) in 2013. Given the actual P/E ratio for the company being incredibly high
despite the lower EPS value one would think investors would be more attracted to the
stock. The higher the P/E ratio for a company means the company has a higher the
projected earnings.
Figure 9 SBUX’s Actual EPS and P/E Ratio
0.01
7176.08
0
1000
2000
3000
4000
5000
6000
7000
8000
Earnings Per Share P/E Ratio
2013 Anomaly
This is by no means a
typical P/E Ratio. This
anomaly occurred
because of the Kraft
Litigation Charge.
Starbucks generally
operates with a P/E
Ratio of 23-26

58 |
Figure 10 SBUX Actual PE Ratio relative to PNRA & BAGL (2014) (ycharts.com)
Cash Flow Analysis
Figure 11 SBUX’s Cash Flow Analysis
Free Cash Flow:
 Is a measure of financial performance calculated as operating cash flow minus capital
expenditures. Free cash flow (FCF) represents the cash that a company is able to
generate after laying out the money required to maintain or expand its asset base.
 Starbuck saw an increase in their free cash flow from 2010 to 2013. A firm’s ability to
generate cash from its operations is important because it allows a company to pursue
opportunities that enhance the company’s portfolio and shareholder value. Without cash,

Starbucks Final

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (20)

Similar to Starbucks Final

Similar to Starbucks Final (20)

Starbucks Final