2. Introduction
• An American coffee company and coffeehouse chain.
• Founded in Seattle, Washington, in 1971.
• Operates over 30,000 locations worldwide, as of early 2019.
• Founded : March 31, 1971; 48 years ago, Pike Place Market, Elliott Bay,
Seattle, Washington,
• U.S.
• Founders : Jerry Baldwin, Zev Siegl, Gordon Bowker.
• Has been described as the main representative of “second wave coffee,” a
retrospectively termed movement that popularized artisanal coffee,
particularly darkly roasted coffee.
• First became profitable in Seattle in the early 1980s.
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3. Mission
“To inspire and nurture the human spirit – one person, one
cup and one neighbourhood at a time.”
• Environmental Mission Statement:
• Understanding of environmental issues and sharing information
with our partners.
• Developing innovative and flexible solutions to bring about change.
• Striving to buy, sell and use environmentally friendly products.
• Recognising that financial responsibility is essential to our environmental
future.
• Instilling environmental responsibility as a corporate value.
• Measuring and monitoring our progress for each project.
• Encouraging all partners to share in their mission.
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5. Vision:
“to establish Starbucks as the premier purveyor of the finest coffee in the
world while maintaining their uncompromising principles while they grow.”
This corporate vision statement has the following components relevant to
the business:
• Premier purveyance
• Finest coffee in the world
• Uncompromising principles
• Growth
• Aiming to be the premier purveyor means that Starbucks Coffee wants
to achieve leadership in providing its products, especially coffee of the
best quality. The company achieves this component of its vision
statement by continuing its multinational expansion as one of the largest
coffeehouses and coffee companies in the world
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6. Strategies used by Starbucks
INTEGRATION STRATEGIES
Vertical Integration: Starbucks has successfully integrated backwards through its company owned stores that
sell food, drink, coffee beans, appliances and accessories.
INTENSIVE STRATEGIES
• Market Penetration: This strategy is being employed to increase the market share of products which are
currently offered.
• Market Development: Starbucks created specialty coffee market in US by educating consumers and creating
trends.
• Product Development : secondary intensive growth strategy which involved creating new products to gain
more revenues.
DIVERSIFICATION STRATEGIES
• Concentric Diversification: to generate more revenue and high sales, Starbucks increased its product ranges
mere quickly and without diverting from its main products.
• Conglomerate Diversification: vigilant to sought new opportunities that are unrelated to its traditional
product offerings.
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7. Partnerships
• Starbucks has partnered with KEXP to support the local community through meaningful music
experiences.
• Mary’s Place provides safe, inclusive shelter and services that support women, children and families on
their journey out of homelessness
• Starbucks and the Seattle Sounders FC have teamed up in support of all things soccer. Scarves up
Seattle.
• Through a longtime partnership with STG, Starbucks helps to create opportunities for young people to
grow their artistic talents.
• Starbucks is honored to partner with the University of Washington which helps in economic
development of Seattle and also provides community service.
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8. Mergers and Acquisition
• Improve Public Image
• Increase Media coverage
• Boost Employee Engagement
• Attract and retain investors
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STRENGTHS
Strong brand image
Extensive global supply chain
Moderate diversification
Quality, Taste and Standardization
WEAKNESS
High prices
Imitability of products
Reach
OPPORTUNITY
Expansion in developing markets
Introduction of new products
Partnerships or alliances with other firms
Environmental Awareness
Technological
THREATS
Competition with low-cost coffee sellers
Competition with big outlets
Imitation
Rising labour cost
Economic Conditions
10. PESTLE ANALYSIS
POLITICAL:
• Government support for infrastructure leading to more expansion and better access to markets
• Regulatory pressures varies from country to country
• Sourcing strategies varies across countries influenced by political factors
ECONOMICAL:
• Local currency exchange rates
• Local economic environment in different markets
• Taxation level
• High growth of developing countries (opportunity)
• Declining unemployment rates (opportunity)
• Rising labor cost in suppliers’ countries (threat)-It increases the company’s spending
• Studies have shown that consumers instead of cutting down on their coffee consumption are shifting to lower priced alternatives
which is an opportunity for Starbucks.
• Company has to contend with rising operational and labor costs as the inflationary macroeconomic environment coupled with the
falling profitability is squeezing the company from both ends of the spectrum.
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11. SOCIO- CULTURAL:
• Changing family patterns in USA and Europe
• Consumer preferences
• Changing work patterns
• Changes in lifestyles of population
• The level of education of the population in local markets
• Changing values among population
• Growing coffee culture (opportunity)
• Increasing health consciousness (opportunity)
• Growing middle class (opportunity)
• Starbucks has opportunity to increase its revenues based on increasing demand for specialty coffee, which is
due to a growing coffee culture and a growing middle-class ,widen its array of more healthful products to
attract health-conscious consumers to Starbucks cafés.
Technological Factors:
• Smartphone technology
• Internet connectivity
• Specialty coffee machines
• Technology helping in agriculture related to coffee
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VRIO Framework
Value:
1) Brand Image-
•strong brand image (based on ethics and quality)
•Coffee & Starbucks are used synonymously
•exhibits strong TOMA(Top of Mind Awareness)
2) Customer Service-
a)They meet their customers where they want to be met:
• 35 million likes on its Facebook page
•8 million followers on Twitter
•4.8 million followers on Instagram
• constantly engaging in conversation & improving customer service
b) Thinking mobile, mobile, mobile:
•18 percent of Starbucks Card transactions come through its mobile app
c) Friendly Environment-
• known for creating the "third place" concept between work and home
•a place for meetings, group work, dates etc
13. VRIO Framework
Rarity:
1)Focusing on personalization:
•same look and feel, yet is personalized to the geographic area serves coffee by customer’s name
•has a deal with Spotify (to make personalized playlists for each store location.)
2) Global Impact-
• largest coffeehouse company in the world
• 30,626 retail locations (as of the third quarter of 2019 )
3)vertically integrated supply chain
•Integrating all the way from the coffee bean to the cup of coffee sold to consumers
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14. VRIO Framework
Imitability:
• 1)Supplier Relationship Management:
• established Coffee and Farmer Equity (CAFE) sustainability standards for third-party suppliers
• Follows SRM strategy for better collaboration &communication
2) Strict Supplier Vetting:
• Has very strict guidelines(formal buyer-vendor relationship)
• Need to meet Starbucks’ social responsibility
• allow Starbucks to ensure a “green and sustainable supply chain” according to UFSCA.
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15. VRIO Framework
Organization:
1) Supply Chain-
• uses simple “scorecard system” to evaluate its supply chain efficiency
• use four high-level categories to assesses:
-Safety in operations
-On-time delivery & order fill rates
-Total end-to-end supply chain costs
-Enterprise savings
2) Leveraging Digital Technologies-
• uses an automated information system(to monitor demand in real-time)
• using ERP since a long time.
3) Innovation-
• purchased farm in Costa Rica(to deal with fungal attacks on coffee plants)
• spends one fifth of its annual income on innovative strategies
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17. IFE Matrix
Weight Rating Weighted Score
OPPORTUNITIES
1. Expansion in developing markets: 0.1 2 0.2
2. Partnerships or alliances with
other firms:
0.17 4 0.68
3. Introduction of new products: 0.1 2 0.2
4. Environmental Awareness: 0.15 1 0.15
THREATS
1. Competition with low-cost coffee
sellers:
0.2 4 0.8
2. Competition with big outlets: 0.1 2 0.2
3. Coronavirus
(China)
0.16 3 0.48
4. Imitative Business Model- 0.02 1 0.02
Total 1.00 2.73
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18. Porter’s 5 forces
• Large number of
firms
• Diverse in terms of
specialty and
strategy
• Local brands are
cheaper and more
aware of the
culture of the
country
• Strong force
• High availability of
substitutes
• Low switching cost
• High affordability of
substitute products
• Weak force
• Low switching cost
• High number of
substitutes available
• Small number of
individual purchases
• Strong force
• Moderate size of
individual suppliers
• High variation in
number of suppliers
• Large overall supply
• Weak force
• Moderate cost of
doing business
• Low supply chain
costs
• Brand development
is costly
• Moderate force
Competitive Rivalry: Bargaining power of
customers:
Bargaining power of
suppliers:
Threat of
substitutes:
Threat of new
entrants:
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24. Starbucks’ failure
Starbucks occupies more than 30,000 outlets worldwide and is famous for its
market share and robust expansion policies. It is a brand-name loved by all.
Here are some countries where it failed to establish itself, and why.
• Australia(2000)
rapid expansion growth strategy
competition from independent shops and laneway expresso bars
high quality food and hospitable atmosphere
• Israel(2001)
stuck in one city- Tel Aviv
coffee not tasty
did not match culture as coffee is considered to be no-rush experience
high price
close to Italy
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25. Starbucks’ failure(contd..)
• Vietnam(2013)
traditional coffee (cafe da)
abundance of robusta with higher caffeine content (arabica- 1.5%, robusta- 2.7%)
second-largest producer of coffee worldwide
restricted the menu to Western culture
Local competition controls 80% of restaurant business
• South Africa(2016)
slow economic growth
15-25% more expensive than others
very less disposable income in the society
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26. Effect Of Coronavirus
• China’s 4,292 Starbucks stores brought 10% of the company’s
revenue.
• They expected full year revenue growth of 6-8% range ,after
coronavirus same-stores sales growth fell to 3-4%
• Starbucks Closes Half of China Stores Amid Coronavirus Outbreak
• Coronavirus preventative policies are bound to slow Starbucks’ role in
its leading international growth market
• At one point they had lost more than 9% of their value on fears of the
coronavirus.
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27. RECOMMENDATIONS
• Expand Internationally
• Franchising
• Introduce Loyalty Cards
• Corporate Theme Stories
• Leisure Theme Stories
• Continuous Improvement of their Stories
• Employee Training & Motivation
• Corporate Social Responsibility
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28. WAY FORWARD
• operating in a relatively stable external environment(operates in the
Food and Beverages space.)
• lower costs and increase the value
• retains its consumer base and attracts consumer loyalty
• Become more flexible with company’s culture (when operating in
different geographic locations)
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Vertical Integration
1. Purchase Agreements with Coffee Growers
2. Company Owned Bean Roasting Plants
3. Company Owned Warehousing & Distribution Facilities
4. Coffee Bean Farm in Costa Rica & China
Market Penetration
focused heavily on the developing quality experience of its product and service range.
also sought various methods to deliver its products outside its store front outlets.
opened licensed retail locations inside grocery stores and formed alliance with Pepsi C., U.S. foodservice, and Kraft foods to distribute products to grocery store and other food retailers.
Market Development
essentially transformed a commodity into specialty item in such a way that consumers were willing to pay top money for it.
developed its market from scratch and continued developing into various demographics and geographic market segments.
Product Development. : continues innovating its product mix.
For example, after the firm acquired The Coffee Connection, it started offering Frappuccino at Starbucks cafés. The company also introduced sodas in 2014. Through such new products, Starbucks grows through this intensive strategy. For example, after the firm acquired The Coffee Connection, it started offering Frappuccino at Starbucks cafés.
The company also introduced sodas in 2014. Through such new products, Starbucks grows through this intensive strategy
DIVERSIFICATION STRATEGIES
Concentric Diversification: Starbucks new product ranges were related with each other and thus giving consumers a presentation of strongest of brand of specialty in its products.
Conglomerate Diversification: The Hear music campaign in alliance with ITunes and XM satellite radio offered music produced for Starbucks, alleah and bee as its first film production helped company to develop more stronger branding strategy.
Starbucks has partnered with Wellspring Family Services which is a nonprofit, multi-service agency serving low-income and vulnerable individuals, children and families in Seattle and King County. For more than 125 years, Wellspring has been a source of opportunity for children and families to win their resilience, triumph over trauma, and reach their full potential.
It has nine emergency family shelters in Seattle and King County, which help to keep struggling families together, inside, and safe when they have no place else to go providing shelter, services, resources, community, and hope.
. Companies that demonstrate their commitment to various causes are perceived as more philanthropic than companies whose corporate social responsibility endeavors are nonexistent
. It doesn’t matter how much your company is doing to save the environment if nobody knows about it.
. When companies show that they are dedicated to imp roving their communities through corporate giving programs, they are more likely to attract and retain valuable, hardworking, and engaged employees
When companies donate money to nonprofit organizations and encourage their employees to volunteer their time, they demonstrate to investors that they care about more than just profits.
Current Ratio: Current assets in 2015 was $3.97B and current liabilities was $3.65B. Both increased to be $4.76B and $4.55B respectively, in 2016. In 2017, current assets became $5.28B and current liabilities became $4.22B. It did not affect the ratio much. Current assets in 2018 were $12.49B and liabilities were $5.68B. Drastic increase in current liabilities has caused the ratio to decrease significantly. In 2019, they were $5.9B and $8.68B respectively. Hence, because of the combination of both increase in current liabilities and decrease in current assets, the current ratio decreases.
Debt-Equity Ratio: In 2015, long-term debt was $2.35B and shareholders’ equity was $5.82B. Debt increased to $3.19B and shareholders’ equity had a minor increase of $0.07B to $5.89B, thus increasing the ratio from 0.40 to 0.54, in 2016.In 2017, the ratio was 0.72 as the long-term debt was $3.93B and shareholder’s equity was $5.46B. Long-term debt in 2018 was $9.09B which increases to $11.17B in 2019. On the other hand, shareholder’s equity decreases from $1.18B to -$6.23B in 2019 which causes the debt-equity ratio to decline. Due to low leverage ratio, Starbucks is more likely to have lower probability of financial distress costs. The debt equity ratio has declined drastically over the years implying the company dependency on debt to finance its growth has decreased over the years.
P/E Ratio: 2015 stock price and EPS were $53.27 and $1.82 respectively. There has been minor increase in EPS to $1.90 and decrease in EPS to $51.43, in 2016. EPS and stock price of Starbucks both increased by minor values to $1.97 and $51.94 respectively, in 2017. In 2018, EPS went higher to $3.21 and stock price was $56.24 which caused the drop in P/E ratio. In 2019, EPS was dropped to $2.81 but the stock price was $88.42. There has been a steady rise in the stock price of Starbucks that has caused the P/E ratio to indicate that the investors expect a high return from the company.
ROE: In 2015, EAT was $2.76B and shareholders’ equity was $5.82B. EAT had a minor increase of $0.06B to $2.82B and equity was $5.89B, thus increasing the ROE by a mere 3.4% in 2016. 2017 net income of Starbucks was $2.89B and equity was $5.46B. ROE was almost stagnant in these 3 years, but in 2018, the ratio became 115.48% as the net income was $4.52B and equity was a quarter of it with a value of $1.18B. In 2019, equity was -$6.23B and net income was $3.6B and the ratio took a negative
value of -77.99%. This means that the liabilities of the companies has increased drastically.
Inventory Turnover ratio: In 2015, COGS was $7.78B and average inventory was $1.3B making the ratio to be 5.96. Inventory in 2016 was $1.38B and COGS was $8.5B increasing the ratio to be 6.17. In 2017, COGS decreased to $7.06B and inventory was $1.36B and in 2018, they were $7.9B and $1.4B, respectively. In 2019, COGS was $8.3B and inventory $1.52B.
ROA: Net income in 2015 is $2.76B and total assets is $12.42B and in 2016 both increase to become $2.82B and $14.31B respectively. In 2017, net income is $2.89B and total assets is $14.37B. There is a raise in both EAT and assets in 2018, they are $4.52B and $24.16B respectively. In 2019, net income drops to $3.6B and assets decrease to $19.22B bringing down the ROA.
Operating Margin: Total revenue in 2015 was $19.16B and operating income was $3.60B. Both increase to become $21.32B and $4.17B, respectively, in 2016. In 2017, revenue and operating income are $22.39B and $4.14B, respectively. Revenue increased in 2018 to $24.72B and operating income decreased to $3.88B. In 2019, both increased in terms of 2018 to be $26.51B and $4.08B respectively.
Net Profit Margin: Net income in 2015 was $2.76B and revenue was $19.16B. Both increased to $2.82B and $21.32B respectively, in 2016. In 2017, both increase minorly to become $2.89B and $22.39B, respectively. The 2018 values of net income increased drastically to $4.52B to push the net profit ratio to 18.27 and revenue in this time had an increase to $24.72B. Net income dropped to $3.6B and total revenue increased to $26.51B driving the ratio down to 13.57 in the last quarter.
ROI: Investment in 2015 was $8.17B and net income was $3.6B. Both increased to $9.08B and $4.17B, in 2016, respectively. In 2017, investment increased to $9.39B and net income also increased minutely to $4.14B, bringing the ROI down. In 2018, the ratio dropped yet again, as the net income dropped to $3.88B and investments increased to $10.27B, to 37.30%. The value of net income did not increase much, it was $4.08B and investments dropped to $4.94B which shot the ratio to 73.70%.
Expand Internationally: The one of the major problem Starbucks face continuous declined in the sale of in stores. The main reason for this is Starbucks is self-cannibalizing its ownbusiness in the United States. Cannibalization is the negative impact of acompany’s new product on the sales performance of its existing related products. Therefore Starbucks should focus more on opening stores in growing economies such as BRIC nation where the product purchase power is high among the people of India and the Middle Eastern countries, Brazil and Russia rather than on just concentrating on US market.Starbucks should have to think about international expansion primarily for tworeasons. The first reason being that because many developing economies lack the penetration of specialty coffee chains.
Franchising: Starbucks should have concentrate on the franchising model like McDonalds is doing in to expand whole over the world. Most of the Starbucks stores are company owned company operated stores. This strategy is good but not good to survive long term profitability this increases the cost of control, it he case of franchising they can minimize control and concentrate more on building up their quality and maintain their high brand image, something similar to whatMcDonalds, pizza hut and Dominos have done over the years in US market andglobally.
