Starbucks: financial and management overview

Modified: 5th May 2017
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Starbucks Corporation is an international coffee and coffeehouse chain based in Seattle, Washington, United States. Starbucks is a multinational corporation because it has its facilities and other assets in at least one country other than its home country. The largest coffeehouse company in the world is Starbucks, with 16,635 stores in 49 countries, including 11,068 in the United States, nearly 1,000 in Canada and more than 800 in Japan. The stores all sell espresso drinks, drip coffee, blended drinks, tea, coffee mugs and other coffee accessories. Starbucks is famous for its skinny lattes, espressos, mochas and frappes.

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Starbucks founded in Seattle, Washington in 1971, the company began growing more and more rapid. During the 1990s, a new store was opening in the world every single working day. This continued into the new millennium, but domestic growth has since slowed down quite a bit. Abroad, however, the brand is still expanding very fast. (Jennifer Harris, 2007) From a single small store that opened in 1971 to its status as a 21st-century Gourmet coffee giant, Starbucks had led a coffee revolution in the United States and beyond.

With just 20% of the world’s coffee consumed in North America, Starbucks aggressively sells its offerings in countries that already have dedicated coffee or tea drinkers. International revenues jumped over 30% in 2006. While domestic growth also has been robust, revenues from U.S. operations have risen more slowly at 20%. Some 20% of total company revenues now originate outside America, up sharply from only 9% in 1997. Growth has been paced by new store openings around the world. In 2001 the company had 3,200 retail locations in America and about 400 outlets in 17 other nations

Financial Overview

Through Company-operated retail stores, the Starbucks United States operating store sells coffee and other beverages, whole bean coffees, complementary food, and coffee brewing equipment and merchandise primarily. Within the United States specialty operations include licensed retail stores, food service accounts and other initiatives related to the company’s core business.

Management Overview

Starbucks management has overseen one of the business phenomena of the millennium. Starbucks strategic management has grown the organization into a global concern which is influenced by Italian style espresso outlets. In the first two to four weeks, every Starbucks partner and barista at least needs to attend 24 hours training. They have to learn about the coffee history, drink preparation, coffee knowledge, and customer service and retail skills in the training. Starbucks’ trainers were all store managers and district managers with on-site experience. One of their major objectives was to ingrain the company’s values, principles, and culture and to impart their knowledge about coffee and their passion about Starbucks. Each time Starbucks opened stores in a new market, it undertook a major recruiting effort. The company placed ads to hire baristas and begin their training before opening eight to ten weeks.

Mission Statement

Starbucks mission is “To inspire and nurture the human spirit- one person, one cup, and one neighborhood at a time.” and “to establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow.”

Their guiding principles are:

Provide a great work environment and treat each other with respect and dignity.

Embrace diversity as an essential component in the way we do business.

Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.

Develop enthusiastically satisfied customers all of the time.

Contribute positively to our communities and our environment.

Recognize that profitability is essential to our future success.

Starbucks’ Value

To create an “experience” around the consumption of coffee, an experience that people would weave into their lives

To create an uplifting experience in “customer intimacy”

To create an “ambience” based on human spirit, sense of community, and the need for people to come together

Market Share

Mc Cafe is operating over 11,000 outlets and Dunkin Donuts with 6400 stores in US 2008. While Starbucks is still the bigger company with its totals 12,000 stores in US 2008. In addition, several restaurants were picking up on the growing popularity of specialty coffees and had installed machines to serve espresso, cappuccino, lattè, and other coffee drinks to their customers. However there is the threat for Starbucks since the competitors have become more and increase the number of stores may affect the consumer choices and frequency of customers visit stores.

Market Segmentation

Gourmet Coffee drinkers

Coffee drinkers’ age r between 18 to 35 years old, they look for something which coffee that is unique and different for examples Caramel Macchiato and Gingerbread Latter.

Regular drip Coffee drinkers

Brewed Coffee is for those older in age and for those people that are in a hurry. Generally they just want to fix their caffeine with a cup of coffee.

Bottled Coffee drinkers

Consumer can found bottled coffee for example Double Shot, Caramel Frappucino, Vanilla Frappucino and Mocha Frapuccino at any Grocery Stores, this is for people on the go and mid-day picks me up.

People on Diet

Starbucks had the coffees which are lower in calories likes only 90 calories per cup. It used sugar-free syrup, skim milk and no whip cream. For example, Skinny Cinnamon Dolce Latte, Skinny Mocha and Skinny Caramel Latte

Non-coffee drinkers

Starbucks do have drinks that are for non-coffee drinkers likes Green Tea Frappucino, Tazo Chai Latte, Blended Smoothies, Hot Chocolate and Iced Tea.

Target Marketing

Starbucks are more focusing on the niche market which is gourmet coffee drinkers because Starbucks coffees are unique and different and make their coffee stand out compared to others.

Starbucks targeted on office workers with middle to high incomes, who had a desire to purchase premium products. Starbucks CEO, Schultz wanted Starbucks to become the ‘Third Place’, the place where people can gather, relax and interact with one another besides home and work. So they were alert about their quality control to meet the high expectations.

Brand Positioning

After deciding its target markets, the company must decide what position it wants to occupy in their target market. A product’s position is the way the product is defined by consumers on important attributes such as price, quality, competitor, product class, application and so on(Kotler & Armstrong, 2004). Companies tried to position their products in such a way as to distinguish themselves from the competitors and give them the greatest strategic advantage in the target market. By the time Schultz acquired Starbucks in 1987; transactional marketing was being replaced by relationship marketing. Profit from retained long term customer relationship became the key of marketing and business. Relationship marketing aims at delight rather than satisfaction of customers. And Starbucks realized public opinion, even though it takes longer to cultivate, when energized can help pull the company into the market (Kotler, 1986). Fig. 1 shows the position of Starbucks on the perceptual map.

Quality, Aroma of the coffee, attractiveness

*Starbucks

* Coffee Bean

* San Francisco

* Gloria Jean

*Dunkin’ Donuts

*Mc Cafe

Expensive, Trend

Dull, Cheap Well-known brand,

Common

This figure show the quality and price of Starbucks and its competitors

PESTEL

POLITIC

Increasing tensions between the United States and the rest of the world, the business environment, especially in the Middle East and Southeast Asia, was becoming increasingly volatile. After U.S. declaration of war on Iraq in early 2003 matters became worse for the company. This creates serious problems for Starbucks. In July 2002, Arab students called for a boycott of American goods and services, due to the alleged close relationship between the United States and Israel. The boycott targeted U.S. companies including Starbucks, Burger King, Coca-Cola and Estee Lauder.

Possible threats could include a change in import laws because Starbucks only imports all their coffee beans. Several areas of production for the company affect by the changes in the status. if it costs more to import or the process is made more difficult the result could ultimately be a change in price, the level of consumption for Starbucks coffees may affect.

ECONOMIC

Consumers’ buying power affects Starbucks because the prices of their coffees are higher than the normal coffee which we can get it in other café.

In the early 2000, Starbucks faced economic recession in Switzerland, Germany and Japan. This caused a decline in sales and revenues of Starbucks.

Starbucks are affected by exchange rates when dealing with international trade. If the value of the currency falls in the country of a coffee supplier this enables Starbucks to get more for their money when importing the goods to their country. Exchange rates are forever

changing throughout the world in today’s market.

SOCIAL

The changes of consumers in lifestyle and occupation influence them stop purchase Starbucks coffee for example they may more concern on their health, not to take too much caffeine.

Coffee will no longer be a trend anymore in future. Consumers may change their favorite to other beverage.

Starbucks coffee is more of a luxury product so it is those people or places with

the most amount of disposable income to spend that should be targeted the most

intensely.

TECHNOLOGY

To improve their technology, Starbucks had launch Starbucks card so the company has created the opportunity to improve customer service, shorten lines and make a customer’s visit at Starbucks quicker and more convenient. All Starbucks location has free internet access due to consumer needs.

ENVIRONMENT

Weather patterns can intervene to lower yields the quality of the coffee to unacceptable level.

Starbucks customers create a lot of waste as they often leave the shop with their cup of coffee and then dispose of it in the street. The packaging for this cup must be carefully considered to make it as biologically degradable as possible. Certain other materials can be very harmful to the natural environment.

LEGAL

Starbucks may have to abide by local planning regulations when building

shops or altering purchased sites, as certain areas of land may be protected or

unsuitable. All matters would be addressed by the local government.

Each country has varying employment laws. Some may have a

Sabbath day, some may have a limit on the number of hours an employee may work

per week, and all will have varying levels of minimum wage. Starbucks should consider

these factors when deciding on relocation.

Competition

Gloria Jean is operating over 110 outlets and Coffee Bean with 441 stores in US 2008. While Starbucks is still the bigger company with its totals 110,000 stores in US 2008. On the other hands, some of Starbucks restaurants were picking up on to growing popularity of specialty coffees and had installed machines to serve espresso, cappuccino, lattè, and other coffee drinks to their customers.

Starbucks can compare the price of their products with Coffee Bean, Gloria Jean and other cafe. If the competitor provides new and different product then the organization should improve their product and make it more special and unique.

SWOT Analysis for Dunkin’ Donuts

STRENGTHS

WEAKNESSES

Dunkin’s Donuts has 6400 outlets in US

A well known brand in the coffee market

A disciplined innovator

Selling donuts and coffee

Price is cheaper than Starbucks

Dunkin’ Donuts mails coupons to their customers

Coffee choices is not as unique as Starbucks

Dunkin’ Donuts does not spend more in marketing its products and media advertisement like what Starbucks and Mc Café did.

OPPORTUNITIES

THREATS

Honest and real brand image

New product

Market expansion

Environmental friendly

Strong competitor like Starbucks and Mc Café

Rising dairy costs

Volatile coffee market

Not a healthy food, their products are high calorie and sugary food

SWOT Analysis for Mc Cafe

STRENGTH

WEAKNESSES

A well known brand in fast food

A disciplined innovator

Operate within McDonald’s restaurants, store-within-a-store strategy

Price is cheaper than Starbucks

New to coffee market

More famous on their fast food

OPPORTUNITIES

THREATS

Growth in coffee market

New product

Market expansion

Environmental friendly

Volatile coffee markets

Strong competitor like Starbucks, Dunkin’ Donuts

SWOT Analysis for Starbucks

STRENGTH

WEAKNESSES

Starbucks Corporation own 110,000 stores in US by 2008

It is a global coffee brand built upon a reputation for fine products and services.

Starbucks was one of the Fortune Top 100 Companies to Work For in 2005. The company is a respected employer that values its workforce.

Established logo, developed brand, copyright, trademarks, website and patents.

Starbucks has a reputation for new product development and creativity. However, they remain vulnerable to the possibility that their innovation may falter over time.

They are too much focus on expansion instead of internal focus.

The organization is dependant on a main competitive advantage, the retail of coffee.

In a growing market, there are number of competitors increasing.

The pricing of their product are expensive, middle to low incomes can’t really afford.

OPPORTUNITIES

THREATS

New products and services that can be retailed in their cafes, such as Fair Trade products.

The company has the opportunity to expand its global operations. New markets for coffee such as India and the Pacific Rim nations

Cooperate with other manufacturers of food and drink, and brand franchising to manufacturers of other goods and services both have potential.

New distribution channels for example, delivery service.

Consumer more concern about healthy food and beverage, so they might change coffee to other drinks to away caffeine.

Starbucks are exposed to rises in the cost of coffee and dairy products.

Strong competitor likes Coffee Bean and Gloria Jean

Ansoft’s Growth Matrix

Present Product

New Product

Present Market

Market Presentation

Hotel

University

Shopping mall

Airport

Product Development

New drinks for example fruit juice and teh-tarik

New Market

Market Development

To expand global operations. New markets for coffee such as India and the Pacific Rim nations.

Diversification

Music CDs, Clothing, Coffee Mugs, and. Chocolate

Financial Objectives

Increase sales 20% from 2010 to 2012.

Set an objective to grow by 20% year on year for the next five years.

Marketing Objective

Obtain 10% market share of the coffee industry by 2012.

To expand global operations. New markets for Starbucks coffee such as India and the Pacific Rim nations in 2013.

Society Objective

To be more environmentally friendly like make their cup into a fully recycle cup in next two years.

In 2011, sponsor charity program by partnering with the orphan house and making it their corporate philanthropy to raise money to donate to the orphan house.

To overcome the culture and political problem in other country by 2012

Marketing Mix

Product

Product is anything that can be offered in a market for attention, acquisition, use or consumption that might satisfy a need or want. Coffee classified as a product which majority of the office worker drink as breakfast every morning.

Starbucks’s coffees are expertly prepared by hand, made with the world’s best coffee machine and wonderful premium ingredients.

Officially Starbucks sell bottled drinks, brewed coffee, chocolate beverages, espresso beverages, Frappuccino blended beverages, Tazo tea and Vivanno smoothies.

Price

Price skimming

Starbucks enter the market by using market skimming. They are more targets on the middle to upper class like those office worker who had a desire to purchase a premium product. Even thought it’s a bit pricy, but their coffee are still worth to buy because the quality are high.

Premium pricing

Starbucks use a high price to enter the market because their products are high quality, unique and different from other.

Quality

Low ECONOMY PENETRATION

*Mc Café

Price * Dunkin’ Donuts

SKIMMING PREMIUM

High *Starbucks

Promotion

Promotion is the main tool to bring all coffee drinkers attention towards its delicious one-of-a-kind coffee.

Advertising-

Outdoor

Starbucks advertise its brand by placing the billboard at the roadside. The consumer will aware of the existence of their brand in the coffee market when they travel on the road. The billboard may get consumer to steer toward Starbucks.

Newspaper

Advertise in newspaper by printed gift certificate in the newspaper in every 31st of December a free coffee.

Sales promotion-

Stamp ($10= 1 stamp)

Customers who collect up to 10 stamps will get one free limited edition Starbucks note book.

Customers who collect up to 30 stamps will get one limited edition Starbucks cup.

Member card

Free member card

Can use it when purchasing at Starbucks for collect point ($5= 1 point)

When Member’s day, can earn double or even triple point.

The point can redeem for voucher

Contest

Ask the consumer to join Starbucks contest to win exclusive prizes. All they need to do is to snap a picture of them with a Starbucks coffee then upload it to the website, www.Starbucks.com and they are in the running to win up to $500 worth of cash and Starbucks voucher.

Starbucks tumbler

If u bring your own Starbucks tumbler, customer will get a rebate of $0.60

Public Relationship-

Charity

Starbucks will be partnering with the orphan house and making it their corporate philanthropy to raise money to donate to the orphan house. Customer who buy Starbuck coffee is also mean that they donating $0.05 to the orphan house.

Good relationship with the press

Sent most of the information of Starbucks to the public, for example Starbucks’ business card with contact information, press releases, copies of the logo and coupons for free samples of coffee.

Place

Starbucks is a ‘Third Place’ which mean the place where people can gather, relax and interact with one another besides home and work.

They combine with bookstore like MPH and Borders, they having a small coffee store inside the book store to convenient their customer, their customer can read their book while having a coffee in a nice and quite environment.

Besides that, they had one store in each of every shopping mall, so the customer can relax and have their drinks after shopping for the whole day.

Starbucks designed outlets and service around the different needs of their customer. So whether you are in a hurry and on the run, meeting with friends, recharging amidst a busy day or simply taking time out, the relaxed environment and superior quality coffee help you to relax, reflect and move on in a positive frame of mind.

Above diagram shown the 3 years forecast of Starbucks which is from year 2011 to year 2013. In year 2010, Starbucks actual existing sales are $10707.4 millions, cost is $8010.0 millions and the profit is $2697.4 millions. So from the existing fiscal, we assume that the sales will increase 10% every year as we mentioned in our financial objective that we will increase sales 20% from 2010 to 2012. Since the sales had increase, so we also assume that the expenses of the company also increase year by year because in the marketing objective we stated that the company will expand their business to other country, so the company need more cost to expand their business. So, we assume that the cost of expenses will increase 5% each and every year.

 

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