This document provides an analysis of the coffee and snack shop industry and the company Starbucks. It begins with a brief history of Starbucks and an overview of the industry. It then discusses the external factors like the general economic environment, socio-cultural trends, and technological changes that influence the industry. An analysis of Porter's Five Forces shows the bargaining power of suppliers and buyers is low, while the threat of substitutes and rivalry among competitors is high. The document also examines Starbucks' strategies, SWOT analysis, and recommendations for the company's future direction.

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Starbucks Coffee:
An Industry and Company Analysis
Todd Bailey
William Duncan

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Table of Contents:
Brief History & Introduction…………………………………………………………………………….......3
External Analysis:
Industry Overview…………………………………………………………………………………….4
General Environment……………………………………………………………………………..4-6
The Industry Environment……………………………………………………………………...6-9
Competitive Forces & Advantages…………………………………………………….………10
Opportunities & Threats…………………………………………………………………………..10
Internal Analysis:
Financial Analysis……………………………………………………………………..………..12-13
Core Competencies……………………………………………………………………………..…...13
Starbucks’ Strategies………………………………………………………………………..…15-17
SWOT Analysis………………………………………………………………………...…………17-18
Starbucks’ Future Strategies……………………………………………….………………18-19
Porter’s Five Forces…………………………………………………………………..………..19-20
Appendix……………………………………………………………………………………………………...21-23
Bibliography…………………………………………………………………………………………….......24-25

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Brief History & Introduction:
Starbucks Coffee
Originally founded by college friends, Gerald Baldwin and Gordon Bowker,
Starbucks Coffee was purchased by Howard Shultz in 1982 in order to improve
retail sales and marketing performance. Since then, Starbucks has become a
household name and a leader in the Coffee and Snack Shop industry. Starbucks
became the first private company to offer stock options to its employees and
released its Initial Public Offering in 1992 as the company began licensing its stores
out to other firms. Expansion continued as the company grew from over 300 outlets
by the end of 1993 to 10,789 U.S. outlets in 2011 (Grant, 454).
Even a company as well known as Starbucks was not safe from the recession
of 2008. After seeing consistent growth over 100% total net revenues from 2005 to
2008, the recession took its toll, resulting in a 5.86% decline in the same statistic.
The work Howard Shultz did to refocus and reenergize the company can be
considered as an entrepreneurial stroke of genius. Shultz, who returned as CEO in
2008, “growth had been rekindled, operating profits and margins hit new records,
and on April 13, 2012, Starbucks’ shares closed at an all-time high of $62” (Grant,
445).
Now, Starbucks is available in a wide array of options. The company has
expanded from a few company-owned outlets to licensed stores in bookstores and
colleges and to having a fair share of the grocery sector. Starbucks has grown
internationally as well, with new outlets opening in Canada, the United Kingdom,
China, Germany, and many more countries around the world.
This analysis will take you through the state of the Coffee and Snack
Shop industry as well as the firm of Starbucks. Specifically, it will detail the traits of
the company and the strategies and actions of CEO, Howard Shultz, which he
developed to reverse the company’s downward trend in 2009 and strengthen its
grip as a leader in the industry. Finally, we will offer recommendations of the

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strategies we would implement for Starbucks for the future.
External Analysis
Industry Overview
The Coffee and Snack Shops industry has seen consistent growth barring the
setback in 2009. Cumulative revenue in the industry has increased from 24.08
billion U.S. dollars to $27.84 billion in 2012 (Revenue of the Coffee and Snack Shops
Industry in the United States from 2002 to 2016 (in Billion U.S. Dollars)). The
industry has seen a steady influx of new entrants in a populated market. In 2012,
there were a reported 50,123 firms in the Coffee and Snack Shops industry, up from
42, 909 in 2005 (Number of Establishments in the U.S. Coffee and Snack Shops
Industry from 2002 to 2016*). Coffee and snack shops are expected to continue to
increase as the global and domestic economy improve and socio-culturally,
mindsets are shifting towards the consumer experience and healthy snack
alternatives.
The General Environment
The general environment consists of six generic elements – economic, socio-
cultural, global, technological, political/legal, and demographic – all of which set the
conditions to which an industry and company react. First, along with the low
unemployment rates, we predict that the business sector will see a trend of
increased wages, which will allow companies to reduce employee hours. Reduced
hours allow firms like Wal-Mart to cut its benefits to balance the costs of higher
wages and increased employees. Cut benefits will lead to unhappy workers, who will
see that benefits are important; therefore, companies will drop their wage levels to
increase benefits.

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Economic:
As of 2010, the United States had seen a 360-degree spin in the economy. The
recession of 2008 took its toll on the U.S., causing a major dip in annual GDP growth
percentage (2.7% in 2006 to -2.8% in 2009 to 2.5% in 2010) (GDP Growth (Annual
%)). According to the Bureau of Labor Statistics, the unemployment rate increased
from 4.9% in 2005 to 9.9% in 2009. That rate did not dip below 8.5% until 2012
(7.9%) (Unemployment Rate). By 2012, the U.S. was still fighting to recover from the
recession, but was making tangible progress.
Socio-cultural:
First Lady Michelle Obama was one of many who saw the growing issue of
obesity in the U.S. As a reaction to socio-cultural concerns, First Lady Obama began
the “Lets Move” campaign in an effort to raise awareness and fight childhood
obesity. As a whole, society began to be concerned with not only the state of the
environment as seen through a trend of more environmentally friendly vehicles, but
also the health of fitness issues that plagued the U.S. The health concerns include
food as well, which presented opportunities for the food industry to promote local,
organic products that are grown close to where they will be sold, which could cut
shipping costs.
Technological:
The post 2000’s was a huge era for technological innovation. One of the most
influential additions was the explosion of social media and hand-held devices. Social
media websites such as Facebook and Twitter gave companies a huge opportunity
to exploit free advertisement as well as connect with their consumer base. People
were now carrying around devices that allowed them to access these social media
and other Internet sites. The constantly increasing access to more and more data
created an opportunity to better understand a company’s customers and how to
market to them.
Political/Legal:
In this time period that we are analyzing, the U.S. changes presidents and is
in a “war on terror” in the Middle East. Traditionally, war is good for the economy,
increasing jobs and production needs. However, this war was compounded by the

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collapse of the housing market bubble and the Recession of 2008. President Barack
Obama vowed to return troops home, which he did increasingly from 2009 to 2012
(Belasco, Amy. "Troop Levels in Afghan and Iraq Wars."), but there has been a
“significant increase in the number of soldiers who have spent two or more years
cumulatively deployed (Baiocchi, Dave. Measuring Army Deployments to Iraq and
Afghanistan).
Demographic:
As the Baby Boomers reach the age of retirement, a generation referred to as
the “Millenials” start to grow up and create a demographic shift in the U.S. This
creates an opportunity for companies to focus on youth and activity, which
correlates well with the growing enthusiasm for health and fitness.
The Industry Environment
In the industry of coffee and snack shop industry, there are key conditions
that are out of each individual company’s control. Two of these forces include the
climate and the global and domestic economy. Climate forces such as El Niño have
the potential to wipe out crops, severely limiting a company’s resources. Also, global
and domestic economic downturns promote saving money by not spending it on
specialty foods and beverages that might be more expensive than their generic
counterparts.
In the coffee and snack shop industry, the bargaining power of buyers is a
relatively low threat due to the large quantity of buyers who generally purchase
small amounts of goods. However, there is generally little tradeoff between
competitors and the product is readily available to be made in-house, which gives
power to the buyers.

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Since the inputs for suppliers are relatively standard, the bargaining power
of suppliers is essentially nonexistent. Suppliers are essentially required to be
married to a specific company in the coffee and snack shop industry.
The threat of new entrants to the Coffee and Snack Shop industry is also
relatively low. There are already many well-established companies that have a cost

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and performance advantage over new entrants. They also already have brand
recognition and large market shares. However, due to the minimal tradeoff between
stores, new entrants have opportunities to enter and thrive in the industry.
Due to the aforementioned minimal tradeoff between companies, there is an
extremely high threat from substitutes in the Coffee and Snack Shop industry. There
are many recognizable firms already thriving in the industry that customers can
switch back and forth from with little differentiation between products and prices.
Also, due to the ease with which consumers can make the products at home, there is
little to no costs in switching products.

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Since the Coffee and Snack Shop industry is considered to be a mature
market, there is high rivalry among existing players in the industry. There are
multiple established companies with high brand recognition such as Starbucks, Tim
Hortons, and Caribou Coffee that are direct rivals of each other. Since these
companies have essentially identical products, brand recognition and customer
interaction are huge factors in coming out ahead in the rivalry.
(Porter’s Five Forces).

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Competitive Forces & Advantages
In the Coffee and Snack Shop industry there are multiple strategic groups.
The first would be the strategy of focusing on the experience of drinking coffee.
Starbucks, for example, falls under this strategic group due to its focus on the
environment and experience its customers have while at its outlets or while
consuming its products.
Another strategic group would include companies like Caribou Coffee who
implement a specialty food and drinks strategy. However, with the success of firms
such as Starbucks and Tim Hortons, many firms in this industry are seeing
opportunities to combine specialty food and drinks with high production.
A major advantage in this industry is brand awareness. Established
companies like Starbucks and Tim Hortons have a highly recognizable brand that
allows them to sit firmly on top of a mature industry.
Opportunities & Threats
The Coffee and Snack Shop industry is a mature market with many well-
established firms. This industry can be relatively attractive for a company who can
differentiate its products and have a long-term strategic plan due to the essentially
non-existent bargaining power of suppliers and extremely high threat from
substitutes. A company that differentiates its product and experience has the
opportunity to find success in this industry by well-timed expansion or selling its
name to a larger company in the industry.
This market has its threats, however. The high brand awareness and
knowledge of previously established firms creates a difficult uphill climb for new
entrants who are just figuring out the logistics of the industry. Yet all the success for
these established companies is a threat as well. New entrants see the growth of
these firms and want to emulate that success. Established firms must always be
aware of new entrants (Koomsub, Duangphat. CASE STUDY Starbucks Corporation).

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Internal Analysis
When analyzing Starbucks’ case, the internal analysis part required that we
distinguish between Starbucks’ tangible and intangible resources. The first major
step was to determine Starbucks’ major tangible resources: property plant and
equipment “that are held by an entity for use in the production or supply of goods
and services, for rental to others, or for administrative purposes and that are
expected to provide economic benefit for more than one year; net of accumulated
depreciation” (NASDAQ). In a report "Starbucks Global Responsibility Report –
Goals and Progress 2011 ", Starbucks was operating in more than 55 countries, with
more than 17,000 stores globally, which represents an enormous part of Starbucks
tangible resources. 82% of total net revenues during fiscal 2011 came from
company-operated stores, representing a huge chunk of tangible resources. Other
tangible resources are Starbucks’ product mix of high-quality whole bean coffee,
beverages, food, and coffee-making equipment and merchandise. Retail sales mix by
product type for company-operated stores are 75% for beverages, 19% for food, 4%
for coffee making equipment and merchandise, and 2% for whole bean coffees
(Grant 456-57). Lastly, Starbucks reported in the article "We Have Always Believed
The Way To Build A Great, Enduring Company Is To Strike A Balance Between
Profitability And A Social Conscience" that it employed roughly 150,000 people as
of 2011.
The next step in our Internal analysis of Starbucks’ was to determine the
intangible resources: technology, skills, brand, and reputation. Starbucks’ intangible
resources are key in distinguishing Starbucks from other competitors. Starbucks has
a training program which “extended beyond basic operational and customer-service
skills and placed particular emphasis on education employees about coffee” (Grant,
448). The education allowed employees to possess the skills needed to roast and
brew coffee. Starbucks’ customer and employee relationships are intangible
resources that cannot be overlooked because they are fundamental in running a
successful corporation like Starbucks. Starbucks’ employee involvement plays a
fundamental role for the Starbucks’ Experience. In order for employee involvement

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to be successful, Starbucks required its employees to be “committed and
enthusiastic communicators of the principles and values of Starbucks” (Grant, 448).
In order to fully implement employee involvement, “Starbucks’ human resource
practices were tailored, first, to attracting and recruiting people whose attitudes and
personalities were consistent with culture of the company, and, second, to foster
trust, loyalty, and a sense of belonging” (Grant, 448), which would maximize
employee involvement for the Starbucks’ Experience. Not only does Starbucks’
customer relationship depend greatly on employee involvement for the Starbucks’
Experience, but Starbucks reputation for having the finest products, coffee beans of
a high, consistent quality places their brand and reputation as one of the highest in
their industry. By including technological advancements, Starbucks has improved
their corporation by including free Wi-Fi in their stores to bring a social/work
atmosphere. Another intangible resource to acknowledge is Starbucks’ acquisitions
including Tazo® Tea, Seattle’s Best Coffee®, and Starbucks VIA® Ready Brew, now
included in its portfolio. This increases its products brand awareness and equity. All
the above intangible resources have helped shaped Starbucks become who they are
today as a corporation (Grant 448, 456).
Financial Analysis
Starbucks financials are a key component on internally analyzing Starbucks
and how well they are performing, and the ratios can help compare against
competitors to see how they stand. For Starbucks, we analyzed its financials and
compared it to competitors using NASDAQ. We analyzed Starbucks’ financials by
using profitability ratios: return on assets, return on equity, operating profit margin,
and net profit margin, and we compared them to its competitors by using
information from NASDAQ which can be seen in appendix 1. We also analyzed
Starbucks financials by using a liquidity ratio: current ratio. After analyzing the
current ratio and comparing it to its competitors, we calculated leverage ratios: debt
to assets and debt to equity, also comparing it to its competitors. Finally, we
compared and analyzed activity ratios: inventory turnover and accounts receivable

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turnover. When analyzing the profitability ratios, we saw a decline in all ratios:
return on assets, return on equity, operating profit margin, and net profit margin,
from 2005-09 because of the financial crisis of the recession, but saw great
improvements from 2009-11 by setting new highs. The current ratio saw a slight
decline from 2005-08, but it sharply rose from 2008-11. When we analyzed the
leverage ratios, we saw a sharp increase in the percentages of debt to assets and
debt to equity in 2007-08, mainly due to the recession, but it leveled out in 2011 to
be similar to the percentages in 2005. Finally, we analyzed the activity ratios by
comparing them to competitors.
Core Competencies
The core competence of Starbucks is its ability to diversify its strategy by
continuously innovating its product mix of high quality beverages and snacks. The
CEO of Starbucks, Shultz, said, “We’re not in the coffee business serving people, we
are in the people business serving coffee” (Grant 447). Shultz demanded its
employees to not just serve excellent coffee, but also engage the customers in an
emotional level, giving them the Starbucks’ Experience. Shultz thus provided his
employees with training, greatly improving its customer relationship by
implementing a strong customer service. Another core competence is Starbucks
strategic store locations and its layout and design because they were seen as critical
elements of the Starbucks’ Experience. The store locations, designs, and employees
combine to provide Starbucks with very strong customer loyalty. Lastly, Starbucks
global responsibility of reducing environmental impacts and contributing positively
to communities and its business ethics help build a strong internal and external
relationship with its suppliers, helping ease international expansion into markets
(Grant 448).

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Starbucks’ Strategies
Starbucks’ core strategy is “to inspire and nurture the human spirit—one
person, one cup and one neighborhood at a time” (Grant 447). Shultz felt a need to
build a strong customer relationship and thought it was instrumental6 to engage
customers on an emotional level, as well as serve high quality coffee. Shultz
combined several elements in order to achieve the Starbucks’ Experience -
somewhere where people can socially enjoy the experience of drinking coffee while
away from home and work.
One element needed in order to fully achieve the Starbucks Experience was
the requirement of the use of coffee beans of a high, consistent quality and the
careful management of activities, transforming them into the best possible espresso
coffee.
Another key element needed for the Starbucks Experience surrounds
employment involvement. Shultz knew early on that “if Starbucks was to engage
customers in an experience which extended beyond the provision of good coffee,
then it was going to have to employ the right store employees who would be the
critical providers of this experience” (Grant 448). Starbucks thus looked for
employees who were committed and enthusiastic communicators of Starbucks core
principles and values. Starbucks tailored its human resource practices for
recruitment to attract people whose attitudes and personalities were consistent
with the culture of the company and to foster trust, loyalty and a sense of belonging.
Shultz required its new employees to be trained particularly on the education about
coffee. By implementing a strong employee involvement with proper employee
recruitment, Starbucks was able to build a strong employee relationship.
Shultz also strengthens the employee relationship by treating them as
business partners and providing health insurance for almost all regular employees,
including part-time employees, which built created unbelievable trust in its people.
The next key element in implementing the Starbucks’ Experience was its
community relations and social purpose. “[Shultz] wanted to build the kind of
company [his] father never had the chance to work for, where you could be values

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and respected wherever you came from, whatever the color of your skin, whatever
the level of education” (Grant 448). Also, Shultz felt a need to do good in the world,
so he started at the local level by establishing that every store is part of the
community in which they take a responsibility to be good neighbors. By doing so,
Shultz brought forth positive action that helped bring together Starbucks’ partners,
customers, and community to contribute in the world every day. Shultz brought this
aspect to the global level by continuing to help the community.
The last two elements of the Starbucks’ Experience was its location strategy
and its layout and design. Shultz’s location strategy was a clustering of 20 or more
stores in each urban area, eventually adding drive through windows and building
new stores adjacent to major highways to expand the sales of coffee-to-go. The
layout and design of Starbucks is a key element in the Starbucks experience because
“the design of the store is intended to provide both unhurried sociability and
efficiency on-the-run, and appreciation for the natural goodness of coffee and the
artistry that grabs you even before aroma” (Grant 449).
Shultz has a store design group that is responsible for the design of furniture,
fittings, and its layout. Shultz hoped that unifying the following elements would help
further his success and bring a Starbucks’ Experience to all its customers. Starbucks
had to adapt to help bring the Starbucks’ Experience by broadening its product
range by responding to customer demands. Starbucks diversified and began adding
food, music, books, and videos to its stores. Starbucks also began to diversify its
business model and other ownership formats, additional products, and different
channels of distribution. Starbucks had the desire to reach customers in a variety of
locations, which caused Starbucks to abandon its policy of selling only through
company-owned outlets, opening up licensed coffee shops in kiosks. Starbucks
starting distributing packs of Starbucks coffee through supermarkets and other
retail food stores. The company diversified itself even more with its involvement in
financial services by beginning with its Starbucks prepaid store card, later combined
with a Visa credit card. The diversification of distribution and ownership helped
meet customer demands (Grant 447-49).

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After 20 years of continuous growth and expansion and rising profits,
Starbucks was hit with and unexpected, rapid downturn. In the beginning of 2008,
Howard Shultz returned as CEO of Starbucks hoping to return Starbucks to its
pristine company it once was and to renew its compromised core values that had
resulted from the company’s growth spurt (Grant 450).
In order to get Starbucks back on track, Shultz based his turnaround strategy
on two thrusts: retrenchment and reaffirmation of Starbucks’ values and business
principles. After his reappointment, Shultz issued a cutback in planned US new store
openings and revised operational practices to improve cost efficiency. Also, in the
summer of his reappointment as CEO, Shultz issued a closure of 600 US stores, as
well as the majority of its stores in Australia.
The second thrust of Shultz’s turnaround strategy resulted in a company-
wide reconsideration of Starbucks’ missions statement and its commitment to
corporate social responsibility. In order to improve their community responsibility,
10,000 Starbucks employees helped in community project cleanups in New Orleans
after Hurricane Katrina. Also, Starbucks launched Starbucks’ Shared Planet: and
environmental sustainability and community service program. The improvement of
community responsibility helped revamp their image and brand.
Shultz also made changed to the operating practices by returning to hand-
made coffee and by replacing its La Marzocco espresso machines with automatic
Verismo machines, sped up the coffee making process. Shultz also saw a need in
adjusting the food menu; a key change being the withdrawal of toasted breakfast
sandwiches because the sandwiches’ aroma masked that of the coffee, ultimately
taking away from the Starbucks’ Experience. “By re-emphasizing Starbucks’ core
values, reversing store expansion, eliminating non-core products, and returning to
the quality of the coffee and customer service, Shultz viewed his role as putting
Starbucks on the right road” (Grant 451).
After implementing Shultz’s turnaround strategy, Starbucks slowly shifted its
emphasis back to disciplined growth opportunities, specifically in the grocery trade
and international markets. Starbucks wanted to grow its brand and product
positioning within the grocery sector. With the introduction of Via, a new type of

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instant coffee, in 2009, Starbucks was allowed to replicate the taste of their coffee,
and in less than two years, Via’s sales reached $200 million. Starbucks also
produced new product such as serving K-Cups for the use of Keurig coffee makers
and its own Verismo coffee pod espresso system. The increased strategic focus on
grocery trade led to the decision to withdrawal from its agreement with Kraft Foods
for the distribution of its packaged coffees. In 2011, Starbucks acquired premium
juice maker Evolution Fresh Inc. with the hope to expand retail distribution of fruit
juices and open its own stores. Starbucks also felt a need to push for International
Expansion, specifically in China and soon India (Grant 451-52).
SWOT Analysis
Strengths of Starbucks are important in its success. Starbucks has a strong
employee foundation and they value them to a great extent. Starbucks also has
maintained a strong relationship with its suppliers by operating Farmer Support
Centers to help promote best practices in coffee production designed to improve
coffee quality and yields. Starbucks has a strong foundation with its customers by
committing itself to help communities where they do business around the world.
Another strength is Starbucks location strategy by placing them into high trafficked
areas. They have a strong customer based loyalty by constantly innovating and
providing its customers with a Starbucks Rewards card. Lastly, they have a strong
portfolio with strong financials.
Weaknesses are detrimental in holding Starbucks back. One key weakness is
the prices of Starbucks items. Even though they are affordable, they are higher
priced than their rivals such as McDonalds and Dunkin’ Donuts, making them less
appealing. Another weakness is Starbucks overdependence in US markets and rapid
expansion, which has diminished long-term growth targets for Starbucks, ultimately
having to close 600 US stores in 2008. Because Starbucks has built itself to become
such a large corporation, it has to build and invest in a strong corporate social
responsibility to maintain its loyalty and reputation.

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Opportunities for Starbucks is great. Starbucks has the opportunity to expand into
international emerging markets. Because of the size and financial strength
Starbucks possesses, they can leverage themselves to become prominent in the
international emerging markets. Starbucks also has the opportunity to expand their
product mix, with their recent venture into fruit juices and tea. As technology
advances, Starbucks has the opportunity to capitalize since they already are using
reward cards, Visa credit cards, and mobile phone apps to help increase customer
loyalty. Also, Starbucks could revamp its pricing strategy to become more appealing
to customers. Lastly, because of Starbucks strong portfolio and financials, it could
potentially make future acquisitions and form new joint-ventures in International
markets.
Threats to Starbucks needed to be treated with caution. Serious competition
has increased against Starbucks such as McDonalds and Dunkin’ Donuts. Also, a
decline in consumption of coffee is potential with people becoming more aware of
health facts and issues. Another threat is the increased price of coffee beans that
could potentially force Starbucks to withdrawal specific coffee blends. Another
threat could be the harming of Starbucks’ reputation and brand from actions taken
by third-parties out of their control.
Starbucks’ Future Strategies
Future strategic strategies for Starbucks are designed to drive long-term
shareholder value. Starbucks should increase its expansion in emerging
international markets such as India and China, where there is a lot of untapped
potential. Because Starbucks has become so large, it should transfer its core
competencies country to country to help better integrate themselves and serve a
part in the community. With this being said, Starbucks should implement strategic
management teams for each country to help adapt to customer demands and
innovate its product mix. With the acquisition of tea and fruit juices with great
growth opportunities, we recommend Starbucks build the product lines of the juices
and teas to match that of their core coffee products because more people are

19. 19
becoming health conscious, and we believe there is great opportunity in this market.
Because of society becoming more health conscious, we recommend Starbucks
revamp its menu to add healthier food snacks and beverages. With Starbucks
starting to focus more on growth in international markets and grocery trade, we
recommend that Starbucks build better relationships with big retailers in order to
maximize shelf space and increase sales in the grocery trade. With technology
increasing, we recommend that Starbucks make use of a mobile phone app that
could decrease wait time in stores and improve overall efficiency. Lastly, we
recommend that Starbucks continues to build customer loyalty by the use of reward
cards and programs.
Porter’s Five Forces (Microeconomic Level)
Competitive Rivalry on the Microeconomic level for Starbucks is strong.
There are a large number of firms in competition with Starbucks and its coffee
business. Dunkin’ Donuts and McDonalds are among the top two competitors
competing with Starbucks. There is also a low switching cost from changing from
Starbucks to McDonalds, so customers have little incentive not to switch from
different companies.
Threat of new entrants on the Microeconomic level for Starbucks is weak.
Because of the portfolio Starbucks contains and its number of US outlets, new
entrants face little chance of competing with Starbucks. Also, with the saturation of
the coffee markets, there is little incentive for new entrants to spur.
Threat of substitute products or services on the Microeconomic level for Starbucks
is weak. Because Starbucks has a wide range of product mix including tea, sodas,
energy drinks, iced beverages, coffee blends and food snacks, there is little product
substitutes. Also, because they focus on being a place to relax away from home and
work, there is little service substitutes for Starbucks.
The bargaining power of suppliers on the Microeconomic level for Starbucks
is weak for the product side of coffee beans because of the enormous size of
Starbucks. Starbucks is a major demander for coffee beans that it account for a large

20. 20
percentage of a suppliers’ sales, and it has a variety of suppliers that it does not
focus on solely one supplier. The bargaining power of suppliers for cups and other
utensils is also weak because Starbucks has already contracted deals with
companies of such products. The only bargaining power of suppliers that has some
strength is that of technology innovators such as espresso machines because there
are not many suppliers for such equipment.
The bargaining power of buyers on the Microeconomic level for Starbucks
has increased over the past. Because McDonalds now offers a premium-roasted
coffee at a cheaper price than Starbucks, buyers now have a little more bargaining
power.

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Appendix 1
Starbucks Corp., ROA, long-term trends, comparison to competitors
Starbucks
Corp.
McDonald's
Corp.
YUM! Brands
Inc.
Oct 2, 2005 14.07% 8.68% 13.37%
Oct 1, 2006 12.74% 12.21% 12.97%
Sep 30, 2007 12.59% 8.15% 12.55%
Sep 28, 2008 5.56% 15.15% 14.77%
Sep 27, 2009 7.01% 15.06% 14.98%
Oct 3, 2010 14.81% 15.47% 13.92%
Oct 2, 2011 16.92% 16.68% 14.93%
Starbucks Corp., ROE, long-term trends, comparison to competitors
Starbucks
Corp.
McDonald's
Corp.
YUM! Brands
Inc.
Oct 2, 2005 23.65% 17.18% 52.59%
Oct 1, 2006 25.32% 22.93% 57.34%
Sep 30, 2007 29.45% 15.67% 79.81%
Sep 28, 2008 12.67% 32.23% –
Sep 27, 2009 12.83% 32.43% 104.49%
Oct 3, 2010 25.73% 33.80% 73.48%
Oct 2, 2011 28.41% 38.24% 72.35%
Starbucks Corp., operating profit margin, long-term trends, comparison to competitors
Starbucks
Corp.
McDonald's
Corp.
YUM! Brands
Inc.
Oct 2, 2005 12.26% 19.66% 12.33%
Oct 1, 2006 11.48% 20.59% 13.20%
Sep 30, 2007 11.20% 17.02% 13.03%
Sep 28, 2008 4.85% 27.39% 13.35%
Sep 27, 2009 5.75% 30.08% 14.67%
Oct 3, 2010 13.26% 31.04% 15.60%
Oct 2, 2011 14.77% 31.58% 14.38%

22. 22
Starbucks Corp., net profit margin, long-term trends, comparison to competitors
Starbucks
Corp.
McDonald's
Corp.
YUM! Brands
Inc.
Oct 2, 2005 7.76% 12.72% 8.15%
Oct 1, 2006 7.25% 16.42% 8.62%
Sep 30, 2007 7.15% 10.51% 8.73%
Sep 28, 2008 3.04% 18.34% 8.55%
Sep 27, 2009 4.00% 20.01% 9.88%
Oct 3, 2010 8.83% 20.55% 10.21%
Oct 2, 2011 10.65% 20.38% 10.45%
Starbucks Corp., current ratio, long-term trends, comparison to competitors
Starbucks
Corp.
McDonald's
Corp.
YUM! Brands
Inc.
Oct 2, 2005 0.99 1.45 0.52
Oct 1, 2006 0.79 1.21 0.52
Sep 30, 2007 0.79 0.80 0.72
Sep 28, 2008 0.80 1.39 0.55
Sep 27, 2009 1.29 1.14 0.73
Oct 3, 2010 1.55 1.49 0.94
Oct 2, 2011 1.83 1.25 0.95
Starbucks Corp., debt to equity, long-term trends, comparison to competitors
Starbucks
Corp.
McDonald's
Corp.
YUM! Brands
Inc.
Oct 2, 2005 0.13 0.67 1.28
Oct 1, 2006 0.32 0.55 1.58
Sep 30, 2007 0.55 0.61 2.82
Sep 28, 2008 0.51 0.76 –
Sep 27, 2009 0.18 0.75 3.19
Oct 3, 2010 0.15 0.79 2.28
Oct 2, 2011 0.13 0.87 1.82

23. 23
Starbucks Corp., Inventory Turnover
Oct 2, 2011 Oct 3, 2010
Selected Financial Data (USD $ in thousands)
Cost of sales including occupancy costs 4,949,300 4,458,600
Inventories 965,800 543,300
Ratio
Inventory turnover 5.12 8.21
Benchmarks
Inventory Turnover, Competitors
Delta Air Lines Inc. 39.08 54.58
McDonald's Corp. 127.04 118.83
YUM! Brands Inc. 33.48 42.96
Inventory Turnover, Sector
Travel & Leisure 27.03 38.07
Inventory Turnover, Industry
Consumer Services 8.58 8.53
Starbucks Corp., Receivables Turnover
Oct 2, 2011 Oct 3, 2010
Selected Financial Data (USD $ in thousands)
Net revenues 11,700,400 10,707,400
Accounts receivable, net 386,500 302,700
Ratio
Receivables turnover 30.27 35.37
Benchmarks
Receivables Turnover, Competitors
Delta Air Lines Inc. 22.47 21.81
McDonald's Corp. 13.71 13.77
Priceline Group Inc. 16.47 18.99
YUM! Brands Inc. 38.09 38.21
Receivables Turnover, Sector
Travel & Leisure 20.96 21.32
Receivables Turnover, Industry
Consumer Services 21.21 22.27

24. 24
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