This document provides an overview of Starbucks' strategic management presentation. It discusses Starbucks' history since being founded in 1971, its mission statement, industry, key financial statistics, competitors, and strategies for foreign exchange hedging, commodity hedging, and improving its cash conversion cycle. It also analyzes Starbucks' capital structure, free cash flow, liquidity ratios, same store sales, stock performance, marketing, R&D, personnel practices, and PESTEL factors. Finally, it outlines Starbucks' strengths, weaknesses, opportunities, threats, and strategies for expanding in the Americas, EMEA, and China-Asia-Pacific regions.

1. STARBUCKS STRATRGIC
MANAGEMENT
PRESENTATION
TIM BASTIAN, LANCE HEAPS, TYLER
STONE

2. • Founded in 1971 in Seattle, Washington
• In 1982 current CEO and chairman of the Board Howard Schultz
joins Starbucks as Director of Retail Operations and Marketing
• In 1985 Howard Schultz founds Il Giornale
• In 1987 Howard Schultz acquires Starbucks, and changes the
newly merged company’s name to Starbuck Corporation
Company History

3. • In 1992 Starbucks Corporation has it’s IPO
• In 2000 Howard Schultz leaves the firm as a manager, but
remains on the Board of Directors
• In 2001 ethical sourcing guidelines are introduced
• In 2008 Howard Schultz returns as CEO to a troubled company
• In 2014 Starbucks loses a $2.8 billion lawsuit to Kraft
• In 2015 Starbucks introduces the Race Together campaign
Company History (Cont)

4. • “To inspire and nurture the human spirit – one person, one cup
and one neighborhood at a time.”
• “Starbucks is committed to a role of environmental leadership in
all facets of the business.”
Mission Statement

5. • Starbucks is classified as part of the Specialty Eateries Industry
• Other firms in this industry include Aramark and Panera Bread
Industry

6. Starbucks Industry Average
Mkt Cap $80.9 billion Mkt Cap Total Industry $98 billion
P/E Ratio 30.69 P/E Ratio 35.3
Net Profit Margin 12.57% Net Profit Margin 7%
ROE 39.22% ROE 28.3%
Price/Book Ratio 15.6 Price/Book Ratio 119.3
Debt to Equity Ratio .3885 Debt to Equity Ratio .5994
Price to Free Cash Flow 28.85 Price to Free Cash Flow 186.2
Industry Key Stats

7. • Starbuck main competitors are Dunkin Donuts and McDonalds
both in the restaurant Industry
Competitors
0.367
0.246
0.13
0.257
Market Share
Starbucks
Dunkin Donuts
McDonalds
Everybody Else

8. Starbucks Dunkin Donuts McDonald’s
P/E Ratio 30.08 P/E Ratio 33.62 P/E Ratio 20.08
Price/Book 15.29 Price/Book 16.10 Price/Book 7.47
Total Asset Turnover 1.53 TAT .24 TAT .80
Net Profit Margin 12.57% Net Profit Margin 23.55% Net Profit Margin 17.34%
ROA 19.23% ROA 5.55% ROA 13.88%
ROE 39.22% ROE 47.98% ROE 37.02%
% of sales in Americas 82.95% % of sales in US 79% % of sales in US 31.53%
Key Stats Starbucks and Competitors

9. Starbucks McDonald’s Dunkin Donuts
MKT Cap $80.9 billion MKT Cap $92.18 billion MKT Cap $5.32 billion
# of Employees 191,000 # of Employees 420,000 # of Employees 1,134
Sales per Employee $86,114 Sales per Employee $65,336 Sales per Employee $660,237
Total Sales $16.45 billion Total Sales $27.44 billion Total Sales $748.7 million
Net Income $2.068 billion Net Income $4.758 billion Net Income $176.357 million
Market Share 36.7% Market Share 13% Market Share 24.6%
# of stores in the world 21,366 # of stores in the world 36,258 # of stores in the world 11,310
More Key Stats

10. FOREX Hedging Strategy
• In 2014 Starbucks hedged 10% of it’s foreign currency risk
measured as a % of total foreign sales
• Going forward we expect more and more of Starbucks revenue
streams to come from countries not using the USD
• More FOREX hedging activities or risk wider fluctuation in
earnings

11. Commodity Hedging Strategy
• In 2014 Starbucks hedged 1.25% of it’s exposure to commodity
prices measured as a % of cost of sales
• Starbucks currently hedges the following commodities diesel
fuel, dairy products, and coffee.
• As food offerings become more of Starbucks marketing mix they
must consider hedging wheat, poultry, and other food related
commodities.

12. Cash Conversion Cycle
• Starbucks had a Cash Conversion Cycle of 9.68 days
• McDonalds and Dunkin Donuts had CCC’s of -.85 days, and .69
days respectively
• Starbucks CCC was cut by just over 5 days from 2013 to 2014

13. Cash Conversion Cycle (cont)
• We believe Starbucks employing a neutral strategy should focus
on improving it’s CCC
• If the CCC had been 3 days instead of 9.68 days, 2014 FCF
would have been 28.15% or $787 million higher than it was
• We believe Starbucks should set an objective to lower CCC from
9.68 days to 3 days within 5 years

14. Capital Structure
• Starbucks current capital structure is 96.5% equity financed,
and 3.5% debt financed
• Starbucks weighted average after tax cost of debt is 1.51%
• Starbucks cost of equity is 7.07% (CAPM)
• Starbucks WACC with it’s current capital structure is 6.88%

15. Capital Structure Recommendations
• If Starbucks changed it’s capital structure to 80% equity 20%
debt Ceteris Paribas it would lower the WACC to 5.96%.
• This is nearly a 100 basis points reduction
• Lower of cost of capital means more new projects would become
profitable and be accepted meaning higher FCF.
• Higher FCF generation on current projects, and higher EVA.
• Very little additional risk with this proposed new capital
structure, and a very large potential return

16. Free Cash Flow
• In 2014 Starbucks generated $2.796 billion in FCF
• That was up 315% from 2012
• 2013 was not used because of lawsuit
• In 2014 Starbucks spent $643.3 million (net) buying back stock
• In 2014 Starbucks paid out $783.1 million in dividends
• In 2014 McDonalds generated $6.825 billion in FCF, and Dunkin
Donuts generated $275 million in FCF

17. Liquidity Ratios
• In 2014 Starbucks had a quick ratio of 1.01, which increased
from .811 in 2013
• In 2014 MCD and DNKN had quick ratios of 1.48 and 1.21
respectively
• In 2014 SBUX earned more in interest than they paid out
• MCD and DNKN had TIE ratios 13.77 and 5 respectively

18. Q3 15 Financial Breakdown
• Americas accounted for 70% of operating income
• China-Asia-Pacific accounted for 12% of operating income
• Europe-Middle East-Africa accounted for 11% of operating
income
• All other Segments 7% of operating income

19. Same Store Sales US

20. Stock Performance

21. Stock Performance
• SBUX is up 57.29% over 2 years light blue line
• S&P 500 is up 22.58% over 2 years red line
• MCD is down 1.87% over 2 years green line
• DNKN is up 22.71% over 2 years pink line

22. Marketing
• In 2014 SBUX spent $315.5 million on marketing, which equated
to 1.92% of sales
• DNKN 5% of sales 2014
• MCD 2.92% of sales 2014

23. R&D
• SBUX, DNKN, and MCD do not even list R&D Expense as
separate line item
• Starbucks main R&D activities focus on creating new blends of
coffee and teas, new brewing processes, and new
packaging/storage systems

24. Personnel
• Starbucks had an annual employee turnover rate of 50% versus
a 400% annual employee turnover rate for the coffee industry in
2009
• Starbucks calls their employees partners not workers, associates,
or employees
• Starbucks has also embraced promoting diversity in its
workforce. In 2009 31% of Starbucks managers were ethnic
minorities, and 66% were women

25. Ops
• Ultimately the success of Starbucks depends on the ability of the
retail stores to satisfy customers in terms of product delivery,
maintaining the proper store ambiance, and catering to customer
needs

26. • Economic recession of 2008
• Rising labor costs
• Rising operational costs
• Other issues
Economic Forces

27. • Political factors where Starbucks sources raw materials
• Monitoring political stability
– Operating countries
• Tax Policy
• Employment Laws
Government and Political Forces

28. • Population wants lower prices
• Older generation are retiring
• Family patterns are changing
• Level of education
• Consumer preference changing
Social Forces

29. • Innovation of technology
– New app capabilities
• Possible developmental technology for agriculture
Technological Factors

30. • Climate Change
• Environmental Disasters
– Coffee bean producing countries
Environmental Factors

31. • Laws and Policies for health authorities
• Customs
• Trade regulations
Legal Factors

32. • Strong Market Position
• High Quality
• Customer Loyalty
• Social Responsibility
Strategic Advantage Profile

33. • Coffee chain market is saturated
• Significant Capital Requirements
• Safe
– Against new entrants
Threat of New Entrants

34. • Increasing amount of energy drinks
• Other caffeinated beverages
Threat of Substitutes

35. • It is not costly to switch brands
– Either cheaper or same cost
• Many other options
• Variety
Bargaining Power of Buyers

36. • Coffee beans can only be grown in specific regions
• Farmers determine the price
• Starbucks wants quality
Bargaining Power of Suppliers

37. • Rivalry is very high
• Brand identity is used
– Want to portray a better image than competitors
Intensity of Competitive Rivalry

38. • Strong Customer Connect
• Technology Leverage
• Strong Financial Position
• Free Advertising
Strengths

39. • Product Recalls
• Tax Evasion
• Lawsuits
Weaknesses

40. • Entry into health and wellness market
• Growing presence in Asia
• M-Commerce
• Recycling
Opportunities

41. • Intense Competition
• Compliance Costs
Threats

42. American Starbucks and Food
• Bought out Bay Bread and La
Boulange in 2012 for $100 million
• From June 2015 Starbucks shows food
sales increase of 16% year-over-year in
its most recent quarter
• Sales of its new breakfast sandwiches
have contributed to a 35% jump in
breakfast sales.
• By the end of 2019 Starbucks plans on
doubling its food sales and growing
their food business in America from
18% to 25% of its revenues

43. EMEA Brand Immersion
• By end of 2014 Starbucks had 2,100 stores in 37
countries and plans to double their stores by 2019
• More drive thru locations and licensing with various
grocery stores
• Partnered up with Taste Holdings and plans to have
stores in South Africa by 2016
• With the agreement Starbucks can work with Taste
for 25 years and open more stores in African
countries where Taste delivers food

44. CAP Brand Immersion
• According to their last annual total from
2014 Starbucks has 80,000 partners in 4,600
stores in 15 countries with 12 million
transactions every week in this region
• They have been extremely successful at
catering to the local customer for example
size of Starbucks are larger in China
• Charges about 10% to 20% more for their
products
• As of March 18, 2015 Starbucks teamed up
with Tingyi Holdings Corp. which allows
them to use their manufacturing and
distribution centers

45. CAP (Cont)
• Starbucks plans on jumping from 1,600 stores in China to 3,400 by end
of 2019
• Outside of China the biggest markets in the CAP region are Japan,
India, Thailand, and Korea
• Japan Starbucks has over 4 million customers a week and 1.3 million
active My Starbucks rewards users
• In Korea there are 700 Starbucks stores and Starbucks plans to have
half of their next stores built over the 2015 year to be drive thrus
• In India there are over 60 stores in six major cities and that number is
expected to grow exponentially through the next 5 years
• Thailand has opened 200 stores and is home to the first Starbucks
store outside of the United States
• Starbucks expects there to be 10,000 stores in the CAP region by 2019.

46. Mobile App
• In the Americas, particularly the US, Starbucks wants more
customers ordering and paying through the Starbucks app
• This app allows you to browse through menus, check your
existing balance on your card and add funds to your Starbucks
card through debit or credit card, PayPal or Apple Pay
• You can also connect it directly with your bank and have
reoccurring payments come out and go to your Starbucks account
• This app also provides the ability to send gift cards as well as
download free songs, apps and more with Starbucks “Pick of the
Week”
• https://www.youtube.com/watch?v=BlQDttTWM6o
• https://www.youtube.com/watch?v=o7HrfxrebL8

47. • Mobile app encourages
spending to reach a
higher level of
exclusivity as well as
better perks and
rewards
• This encourages length
of stay which in turn
helps revenues as well
as enforces a stronger
brand loyalty

48. Delivery and Express Stores
• New emphasis on delivery programs in big
cities for offices and buildings by late 2015
• Express stores are also a new objective of
Starbucks
• The first express store was built in early
2015 and located in New York City
• Express stores are for in and out
customers in heavily populated areas and
are typically very small

49. Starbucks Reserves
• The first Starbucks Reserve is in Seattle and is a
15,000 square foot facility
• By the end of 2015 Starbucks plans on having more
than 100 Starbucks Reserve stores in major cities
around the United States including Chicago, Los
Angeles, New York, San Francisco, and Washington
DC
• Starbucks plans on having their first Starbucks
Reserve in Asia in 2016.

50. Starbucks Subscriptions
• Europe, the Middle East, and Africa are
responsible for half of the world’s coffee
consumption
• Starbucks wants to be preemptive and
have encouraged online shopping or retail
purchasing of their equipment such as
coffee and espresso makers and their K-
Cups
• Starbucks Subscriptions

51. CAP and Tazo Tea
• In China and the Asian Pacific Starbucks wants
to push their brands of tea primarily Tazo tea
• With the largest population and fastest growing
market Starbucks hopes to capture a market
share for tea as well by having it more
prominently displayed in their stores
• Starbucks also wants to have a stronger brand
presence in grocery stores throughout this
region as well in the near future

52. Environmental Strategy
• In 2005 Starbucks opened its first LEED (Leadership in
Energy and Environmental Design) store in Hillsboro,
Oregon
• Now Starbucks has over 650 LEED certified stores in 19
countries and they want to continue to make each new
store LEED certified
• Emphasis on recycling
• Discounts if you use tumblers
• Starbucks roasting and distribution center in York,
Pennsylvania was certified as 100% landfill diversion by
Underwriters Laboratory

53. Energy and Water
• In 2008 Starbucks set out to decrease their water usage by
25% by the end of 2015
• They have already decreased their usage by over 23% by
upgrading water filtration systems, installing efficient
fixtures, and monitoring consumption to identify spikes
and target leaks
• Starbucks has also installed energy management systems
in over 4,000 stores in order to see opportunities for
savings in the future
• Starbucks purchases and supports clean energy sources
like wind powered farms and offer them additional revenue
over electricity powered by fossil fuels

54. Worldwide and Community Strategy
• In the United States Starbucks and Youth Build USA provide customer service
excellence training, which allows young people from disadvantaged backgrounds
to train in retail and customer service
• Starbucks also pledges to hire 10,000 veterans and military spouses by 2018 to
help successfully transition veterans and their families to a civilian life
• Starbucks also provides .05 to .15 cents of every purchase to go to local partnering
nonprofits in order to give back to the community

55. Worldwide and Community Strategy
• The Starbucks Foundation gave 13.1 million in 2014 to causes like opportunity for
youth, community service, grants, access to clean water, and of course supporting
coffee, tea, and cocoa communities
• The Starbucks Foundation also provides money to RED an African program that
helps fund HIV/AIDS prevention
• Tuition for eligible ASU students
• Lyft rides

56. Strategic Alternatives
• Starbucks has implemented a strong aggressive growth strategy
by using diversification with its products varying from tea to
breakfast sandwiches as well as its stores with Reserves and
express stores
• Starbucks continues to use a mixed strategy however for its
global operations keeping a more neutral strategy for the United
States
• Starbucks will continue an aggressive strategy using intensive
growth overseas in order for a stronger brand recognition and
growth in revenues

57. Choice
• Continue expanding overseas while profit is high to build brand
recognition and buzz through these large countries and
communities
• Continue their environmental efforts and good practices so that
word of mouth can only be positive
• Alleviate some of the pressure of having the United States being
83% of your revenue by having more sales either in stores or
through online shopping or subscriptions in different countries
• Use a neutral harvesting strategy to avoid over saturation and
possibly self cannibalization of stores in the American market

58. Guidelines and Recommendations
• We recommend putting a stronger emphasis on advertising
overseas to further market their products and brand
• Starbucks should continue helping their employees because that
in turn retains valuable employees and establishes themselves
as a great place to work
• They should market their online store and encourage customers
to review their products maybe with a star or coupon