Starbucks grew rapidly from 1971 to 2007, increasing revenue fivefold and opening over 16,700 stores worldwide. However, from 2006 to 2008 Starbucks lost 74% of its stock price and 8% of sales as competition grew. McDonald's saw an 8.2% increase in sales in 2008 as competitors like Caribou Coffee and Panera Bread entered the market. In response, Starbucks rehired its founder Howard Schultz as CEO in 2009 and closed 900 U.S. stores. The document recommends Starbucks stay the course as its market share continues to decline due to competitors and the weak economy.
1. Is the Coffee War Over? Actual vs. Sustainable Growth Brian Ramos
2. CompanyBackground Founded in 1971 in Seattle. Created a niche for specialty coffee shops. 16,700 stores worldwide Average of two new stores every day! (1987-2007). Known for having a location “on every corner.” Increased revenue by $2.5b (5x) from 1999 to 2007.
3. Lost Market Share Starbucks: 74% decline in stock price (2006-2008). 8% decrease in sales (2008). Competition: McDonalds: 8.2% increase in sales (2008). Caribou & Panera Bread enter market. 2009 Response: Rehired Founder Howard Shultz as CEO. Closed 900 U.S. stores.
6. Recommendations STAY THE COURSE Reasons: Market share continues to decline due to competitors. Economy still weak. Unemployment remains at 10%. Financial resources are not currently available.
8. Sources Starbucks Annual Report 2009 http://investor.starbucks.com/ Morningstar http://quicktake.morningstar.com/stocknet/Profitability10.aspx?Country=USA&Symbol=SBUX Y Charts: Starbucks http://ycharts.com/companies/SBUX Starbucks vs. McDonald's: The Coffee War Begins to Percolate http://www.gurufocus.com/news.php?id=21677 Newsweek: The Latte Wars http://www.newsweek.com/id/91497 No Latte for Moody’s http://cfo.com/article.cfm/11691859?f=search Coffee Yes, Starbucks No http://www.forbes.com/2008/11/10/starbucks-mcdonalds-coffee-biz-commerce-cx_tvr_1110coffee.html
Editor's Notes
Good ___________ and welcome to our Executive breakfast/luncheon.My name is Brian Ramos and I am the CFO of Starbucks.Howard Shultz, our CEO, has asked me to provide you with some important financial information as we enter the second quarter.
Since some of you are relatively new to the Starbucks’ family, let me begin by providing you with some background about our company.We were founded in 1971 in Seattle, Washington.
After difficulties in FY2007 and FY2008, FY2009 ended with near record revenue.Shareholder’s equity is again on the rise and currently holds the highest rate in company history.Liabilities have dropped by $500m while assets have begun to rebound.Given these results, Mr. Shultz has asked me to address the following questions:Have we recovered enough to begin opening new stores?What is our future forecasted growth outlook?Essentially, is the coffee war over?
To answer those questions, our finance department has constructed a chart that shows sustainable growth compared to actual/projected growth for the FY 2007 – 2010.The sustainable growth rate is the maximum rate of growth in sales that can be achieved given our profitability, asset utilization, debt, and desired dividend payout.A closer look at 2007 indicates that we took the eye off the ball as actual growth exceeded sustainable growth by 6.25%. The store closures of 2009 were therefore a delayed response to this significant financial oversight.While the end of 2009 yielded a strong fourth quarter, actual growth for the year was barely 2%.Financial projections for 2010 suggest growth of 2.5% while the sustainable growth rate is projected at over 8%.