Starbucks final case study

Final Case Study and Strategic Plan: Starbucks’ Global Quest BUS 402 Strategic Management & Business Policy Executive Summary Here at Starbucks, we have had a very rewarding year thus far, and have been very successful since the beginning of our journey. As a matter of fact when you mention the name, Starbucks, people quickly think about that wonderful aroma and taste that is associated with the Starbucks’ name. This is truly what we are trying to create, a partnership with our customers, employees, and shareholders.

One article suggests that “Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world. In addition to its retail locations in North America, Europe, the Middle East and the Pacific Rim, Starbucks sells coffee and tea products through its specialty operations, including its online store at Starbucks. com” (Editors, 2002). What once began as a very small business for three men, Jerry Baldwin, Gordon Bowker, and Zev Siegel has now blossomed into a giant in the industry. Starbucks has also grown globally and is considered the king of coffee products.

This company has proven over and over to be the leading coffee retailer in the market. It is my pleasure as an executive of Starbucks to present you with our new three -year strategic management proposal plan for the years 2012-2014. While moving forward, I feel that it is also necessary to recognize what progress we have made over the past few years. The purpose of this report was to examine whether or not the best is yet to come for Starbucks. This report covers an economic assessment, marketing assessment plan including a market analysis and a marketing plan, a financial plan, and an organizational structure recommendation.

The most important findings in this report indicate that while we are doing well financially, we have to continue to strive for excellence in an effort to improve and have a competitive advantage over our competitors. Additionally, I have provided financial statements and graphs to display the company’s future growth over the next three years. To so eloquently answer the question from the case study, Starbucks’ Global Quest 2006: Is the Best Yet to Come, I would have to say yes, we have a great future ahead of us.

Company Description Starbuck’s entered the retail market in the seventies, as they opened their doors in 1971 in Seattle’s historic Pike Place Market. The company’s name was derived from Herman Melville’s Moby Dick, a classic American novel about the 19th century whaling industry (http://me. starbucks. com/en-US/_About+Starbucks/History+of+Starbucks. htm). In the beginning, the Starbucks’ company could only be found in Seattle which basically meant that it started off as what we call a Simple structure.

By the early 1980’s, there were a total of four stores that were opened and operated, but they were pretty much still stationed in one geographic location which was Seattle. In 1982, Howard Schultz joined the company, and he was able to add new products to their selection based on ideas that he had gotten from one of his business trips to Italy. Upon visiting Milan’s, a famous espresso bar, he decided that what Starbucks’ needed was to be revamped. He also understood that in order to see growth in this company, there would have to be a mutual respect between management and their employees.

Finally, in the 90’s, Starbucks expanded way beyond Seattle, and you could find plenty of Starbucks throughout the United States. Ultimately in 1999, Starbucks were even found in Middle East, and now in the 2000’s Starbucks stores are everywhere. Currently, there are approximately 17,000 locations in 55 countries, and the stores are now offering more products than just a cup of coffee. Recruitment and training has always been an important key factor for Starbucks. “We want passionate people who love coffee…We’re looking for a diverse workforce, which reflects our community.

We want people who enjoy what they’re doing and for whom work is an extension of themselves. ” (as cited in Thompson and Gamble. “Starbucks Corporation” http://www. mhhe. com/business/management/thompson/11e/case/starbucks-2. html). From the very beginning, Starbucks wanted to be different from other firms; we wanted to create a friendly atmosphere, one where we felt closeness with our customers. “Our mission is to inspire and nurture the human spirit-one person, one cup, and one neighborhood at a time” (http://www. starbucks. com/about-us/our-heritage).

There are numerous strengths present which are highly responsible for the upward direction that Starbucks is moving toward. Starbucks is the leading retailer of specialty coffee with a strong brand name image that is associated with high quality and customer loyalty. Not only can Starbucks be found all over the United States, but we have now globalized and are welcome in most countries. Our sales and services have made us land on the Fortune 500 list several times. We are truly committed to their customers and recognize their employees as partners which have made Starbucks a great place to work.

Economic Assessment The economy has definitely made it tough for us; in 2008 we felt the pressures from the recession but has since made some adjustments. However, since that time, we have once again made it to be a top competitor in the coffee business. Because there are not many other organizations who can offer what we can offer is great for business. Additional products have been added to the list of things that they sale. When purchasing your coffee or latte, now you can very well purchase other great products like pastries, different flavors of teas, cold beverages, and other breakfast foods.

We were forced to make changes and widening our selections in order to provide the customers with what they desired. In addition, Starbucks has made it possible for their customers to be able to surf the web while visiting their place of business. Based on the company’s strong ethical background which shows that they aim to please their customers, they have been around for a long time. We were able to sustain and our future is looking brighter. I expect revenue to increase significantly over the next three years. Right now, “Starbucks is on an international tear.

After building itself into the world’s largest coffee-shop chain through decades of high-octane growth in the United States, it’s now focusing more on global business” (Allison, 2012). The company plans to open up 1,200 stores beginning in October which they estimate to be about three shops being opened each day here in the United States and globally around the world. Again, the answer to the question is yes, the best is yet to come for Starbucks. The Starbucks Company faces challenges and threats to its business just like many others.

Knowing what these weaknesses and threats are, Starbucks can work on those areas to make them strengths and opportunities. The company’s success can now be measured based on what we have examined in doing a SWOT analysis of the firm. As long as we continue to look at our company inside and out and continue to ensure that each area is being examined, we are sure to continue to rise. Continuous planning is the key and should be a priority for the key players of the organization. It is necessary for us to adhere to much needed changes like adding healthier food items and low fat items to the menu for those of us who are on a health kick.

Also, they need to add more reasonable products for those of us who are trying to spend less because there is less. Now that we have identified that there are some areas that need to be improved such as diversification, we can make adjustments to the market. Based on the complete SWOT analysis, Starbucks has a promising future ahead of them. Market Analysis As of right now, there is no doubt that Starbucks is selling more coffee than its competitors, but what is not clear is for how long will the coffee trend last. There is no certainty as to how long we will be able to hold on to what we have.

Initially during the recession, we were forced to close down some of our locations, but now we have recovered and are making great strides. Our target customers are still adults, young adults, and teenagers which we plan to capture more college students. McDonalds and Burger King are two of our competitors who we lost some of our business to during those tough economic times. What makes us different than the lower priced competitors is our great customer service and top of the line premium coffee. We offer the customers the best products which is what sets us apart from the other guys.

In the future, we may look into speeding up the pace by offering drive thru services like McDonalds. Many people are falling for the convenience that the fast food restaurants offer. Some of our customers are busy and always on the go, so this will definitely be a plus for us. Marketing Plan Let us take a closer look at the marketing plan; we need to examine our marketing mix. The marketing mix consists of what we call the 4 p’s, product, price, place, and promotion. The products that we offer on behalf of what the customers are asking for are expanding.

We have added more variety to our menus. By adding more breakfast food items, I’m sure we will continue to capitalize on our current target market. I expect for the customer base to increase or double perhaps. We are competing against McDonalds and their sausage and chicken biscuits, so we must offer more similar items. Now since America and other countries are on a health kick, we can add healthier items to the list, such as turkey and veggie products. During the summer months, we can offer smoothies, seasonal fruits, yogurts, and parfaits.

The price of our sandwiches will differ than those of McDonalds and Burger King. Because we are offering higher quality food items, we will have to price the breakfast items accordingly. In order to please the customers, we can attempt to save them as much as we can while simultaneously offering the great services. The customers are not only paying for coffee products, but they are paying for quite an experience. Place, the third p is we offer is over eight thousand stores in the U. S. and abroad. We have multiple locations to fit the needs of our billions of customers.

We are trying to have it where on every corner there is a Starbucks. We are trying to make it as convenient as we can. You can now find our products in grocery stores and mom-and-pops stores. Lastly, promotion, we let our customers promote for us by offering quality customer service to every employee. Positive word of mouth is one of the best marketing promotions there is. Additionally, let’s take a closer look at what we found out during the SWOT analysis as it relates to strengths and weaknesses of Starbucks. Internal Strengths

The strengths of a company is very important, and they should be recognized. The strengths that the company has are responsible for the direction that we are moving in. We have a strong brand loyalty, and we are loyal to our customers. They are like family to our corporation; without them, there will be no us. For that reason, we are the leading retailer in the specialty coffee business. We have globalized and expanded into new territories, and we are not finished yet. Our sales and services have made us land on the Fortune 500 list several times over the last few years.

We have made a commitment to our clients and employees. We value any input that the customers and employees have to offer because this is their business too. By adding new products to our growing menu is an incentive for us and the increase in sales shows it. Personally, I do not see us going away anytime soon, but for the sake of the overview of the evaluation, we will now look at some of the internal weaknesses that Starbucks has. Internal Weaknesses On the other hand, just as there are strengths, there are also weaknesses.

Some weaknesses that were quickly identified were the high price of their products, and other companies who have tried to imitate what Starbucks stands for. Even though Starbucks has introduced other items on their menu, they are still highly focused on the coffee products which may phase out eventually. Starbucks Company was on the all time rise until they hit a downfall in 2008 due to the recession. There were probably many external factors that forced sales to decline including outside competition and cheaper competitive rates of products and services.

Price, one of the four p’s of the marketing mix is a big issue for Starbucks because not everyone can afford the expensive rates. There are other companies who are now offering similar products at a less expensive price that fits the needs of people who are struggling due to the economy. What is going to happen when people do not want expensive coffee any longer? They now sell the same thing in the stores now packaged in Starbucks wrapping and sold to millions of people. It should be the goal of Starbucks to constantly survey their customers, so they can find out what the customers want.

In order for Starbucks to remain profitable, they may need to adjust their costs to match the slumping economy. Many companies are forced to do this until the economy recovers. Strategic Recommendations As I suggested earlier, we can take a look at drive-thru services as opposed to just dine-in services. We have to be aggressive and take risks if we wish to sustain. Diversification is also something that we must continue to look at. We have to attempt to reach urban communities as well by adjusting our prices to fit their needs during tough economic times.

Now that we have looked at the internal strengths and weaknesses, let us take a look at the external opportunities and threats of Starbucks. External Opportunities Fortunately, there have been a lot of opportunities available for Starbucks which has allowed them a lot of room for growth and expansion. We are not just restricted to the United States; they are worldwide which is great for business. Starbucks should continue to market their products globally. Remaining ethically has been instrumental so far, therefore many opportunities will present themselves as long as the company is run on good ethics.

There are a lot of investment opportunities available which can be used for the financial support for the company. Acquisitions and mergers could possibly lead Starbucks to collaborate with other large organizations like Apple or Microsoft which they have done in the past with HP. Working with large retail companies would be great as well. Lately, we have been offering Starbucks products in grocery chains such as Kroger in Atlanta, Georgia. Their market now appeals to more than just adults and college students.

Now the teenagers and younger children are asking for more products such as cold ice coffee which is sold in the grocery stores. External Threats Increased competition from other restaurants and small coffee shops has posed some threat to the organization. The struggling economy has definitely put a damper on business because now not everyone has extra money to spend on unnecessary things. The financial crisis has caused people not to spend money but to save. Healthy initiatives that give coffee drinking a bad reputation because of all of the caffeine that is associated with Starbucks’ coffee.

Women and men are trying to stay away from these types of products which could be a huge threat for the company. This type of negative publicity is bad for business. Places like McDonalds and Burger King has coffee on their menu for a lesser cost than what one will pay at Starbucks. All of these things that I have mentioned can all be considered a threat to the organization. Others entering the market seem to be the number one problem. Due to the economy, some of the stores were forced to close. Organizational Structure There are six types of Departmentalization that were mentioned in my previous textbook.

Departmentalization by function happens to be the function that is most commonly used, because most companies are smaller and offer one main product or service (Reilly, M. , Minnick, C. , & Baack, D. , 2011, section 3. 3). Starbucks should continue to use the Functional departmentalization since they offer single product services. In stores offering food products and lunch, the form should be changed in order to make management’s job a lot easier. As Starbucks begin to add new products to their menus, departmentalization by products will allow products or services to be under one wing.

Departmentalization by geographic region may also be necessary since all managers perform the same duties even if they are in different regions. This will help modify management efforts that concentrate on any territorial differences they may have. The author of our text states, “As companies add products, services, and additional specialists and activities, the degree of complexity rises. Departmentalization by products, customers, geographic areas, and strategic business units helps the manager adapt to increasing complexity” (Reilly, M. , Minnick, C. , & Baack, D. 2011, section 3. 2). Centralization may work well when the companies are doing well financially, but when the company begin to experience financial problems, the leadership should no longer rely on the centralization power, but they should focus on decentralizing the operation. In a centralized organization, the executive management teams are responsible for making decisions and the employees just follow the orders that they have issued. While on the other hand, if the company is having financial problems, why not decentralize and make everyone a part of decision making.

Sometimes, the employees who are actually doing the work can give some pretty good suggestions. Therefore the managers and the employees can work together to make better decisions. There are five structural configurations that were mentioned in the text, and they are simple structure, machine bureaucracy, professional bureaucracy, divisional structure, and adhocracy. Starbucks started off being a simple structure, and as of now, I feel that the organizational configuration that best fits Starbucks is the simple structure, and as more products are added, I believe that they should used the divisional structure.

Starbucks Company was on the all time rise until they hit a downfall in 2008 due to the recession. There were probably many external factors that forced sales to decline including outside competition and cheaper competitive rates of products and services. Here at Starbucks, we had to make organizational changes to better accommodate the customers and ensuring that they are satisfied. Financial Plan The Starbucks company preview looks great financially. In fact, over the next three years there is an upward slope which is represented on the attached graphs.

The following graphs represent the financial situation of Starbucks: (http://www. 4-traders. com/STARBUCKS-CORPORATION-4905/financials/). Included below, there is a copy of the balance sheet, income statement, and additional financial data. Starbuck’s Income Statement Evolution for years 2006- 2016 Annual Income Statement Data Actuals in M $ Estimates in M $ Fiscal Period September200920102011201220132014 Sales9 77510 70711 70013 32214 85016 515 Operating income (EBITDA)1 4291 9832 2222 5373 0183 565 Operating profit (EBIT)8941 4721 6981 9812 4112 886 Pre-Tax Profit (EBT)—— Net income3919461 2461 3751 6521 976

EPS ( $)0,521,241,621,782,152,62 Dividend per Share ( $)-0,360,560,690,790,99 Yield-0,71%1,10%1,35%1,56%1,95% Announcement Date11/05/2009 09:14pm11/04/2010 08:03pm11/03/2011 08:03pm— Finances – Leverage 1 Actuals in M $Estimates in M $ Fiscal Period September200920102011201220132014 Debt—— Finance1176155991 4521 5741 712 Operating income (EBITDA)1 4291 9832 2222 5373 0183 565 Leverage (Debt/EBITDA)—— Capital Expenditure446441532851939958 Book Value Per Share (BVPS)4,10 $4,95 $5,89 $7,09 $7,46 $8,67 $ Cash Flow per Share1,52 $2,23 $2,09 $2,58 $3,03 $3,55 $ Announcement Date11/05/2009 9:14pm11/04/2010 08:03pm11/03/2011 08:03pm— Balance Sheet Analysis 1 Financial Ratios Size2012e2013e Capitalization38 540 M$- Company Value37 087 M$36 966 M$ Valuation2012e2013e PER (Price / EPS)28,4×23,6x Capitalization / Revenue2,89×2,60x EV / Revenue2,78×2,49x EV / EBITDA14,6×12,2x Yield (DPS / Price)1,35%1,56% Profitability2012e2013e Operating Margin (EBIT / Sales)14,9%16,2% operating laverage (Delta EBIT / Delta Sales)1,20×1,89x Net Margin (Net Profit / Revenue)10,3%11,1% ROA (Net Profit / Asset)19,7%21,9% ROE (Net Profit / Equities)27,7%28,9%

Rate of Dividend38,5%36,9% Balance Sheet Analysis2012e2013e CAPEX / Sales 6,39%6,33% Cash Flow / Sales (Taux d’autofinancement)14,7%15,5% Capital Intensity (Assets / Sales)0,52×0,51x Financial Leverage (Net Debt / EBITDA)-0,57x-0,52x Price Earning Ratio 1 EPS & Dividend 1 References About Starbucks – History of Starbucks. (n. d. ). Starbucks Coffee Company. Retrieved September 20, 2012, from http://me. starbucks. com/en-US/_About+Starbucks/History+of+Starbucks. htm Allison, Melissa, S. T. (2012, September 23). Starbucks has eye on worldwide growth.

Journal – Gazette, pp. 3. Retrieved from http://search. proquest. com/docview/1033248131? accountid=32521 Editors, B. (2002, Aug 01). “Starbucks express” launches in Denver. Business Wire, pp. 1-1. Retrieved from http://search. proquest. com/docview/446402119? accountid=32521 Our Heritage | Starbucks Coffee Company. (n. d. ). Starbucks Coffee Company. Retrieved September 20, 2012, from http://www. starbucks. com/about-us/our-heritage Reilly, M. , Minnick, C. , & Baack, D. (2011). The five functions of effective management. San Diego, CA: Bridgepoint Education.

Starbucks Corporation. (n. d. ). Starbucks Corporation. Retrieved September, 2012, from www. mhhe. com/business/management/thompson/11e/case/starbucks-2. html Starbucks Corporation : Financials, earnings estimates and forecasts for Starbucks Corporation | SBUX | 4-Traders. (n. d. ). Stock Market Quotes and News : Equities, Indexes, Commodities, Forex on 4-traders. com. Retrieved September 21, 2012, from http://www. 4-traders. com/STARBUCKS-CORPORATION-4905/financials/ Youssef, C. (2012). Human resource management. San Diego, CA: Bridgepoint Education.

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