crafting and executing starbucks
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CRAFTING AND EXECUTING STRATEGY SEC 001
RESEARCH AND CASE ANALYSIS STARBUCKS
PART B
APARNA KRISHNASTUDENT NO. 300807035
1) Go to Yahoo! Finance and create a line chart comparing the share price of
Starbucks Corporation with that of McDonald’s Corporation from 1992 up to the
present time and describe in a summary statement what the chart portrays. Also,
do provide an insightful comment on what the chart portrays, from the perspective
of a student of strategic management. Be sure that you attach a copy of the chart
with your submission.
a) The chart highlights the meteoric rise of the SBUX common share. MCD has
been rising, but the growth has paled in comparison to that of SBUX. It is also
apparent that Starbucks was more adversely impacted by the recession as seen
by the sharp drop in share prices around 2008-2010 while McDonald’s managed
to fare better. This could possibly be due to McDonald’s having a larger
international presence than Starbucks; geographical diversification may have
cushioned the impact of the recession. SBUX would be a strong buy since the
company is enjoying a price premium that is driven by very strong fundamentals
and not fleeting trends.
2. For the purpose of updating the information provided in the case material and
also for other purposes, please consult the 2014 Annual Report of the company.
Then state the total net revenues ($B), net earnings attributable to Starbucks ($B),
ROA, ROE, and the total number of stores in respect of the last five fiscal years –
2014 to 2010, in that order. Please present your answer in tabulated form.
2014 2013 2012 2011 2010Net Total Revenue (B$) 16.45 14.87 13.28 11.70 10.71
Net Earnings Attributable to Starbucks (B$) 2.07 0.01 1.38 1.25 0.95Total Assets (B$) 10.75 11.52 8.22 7.36 6.39Total Equity (B$) 5.27 4.48 5.11 4.38 3.67
ROA (%) 19.23 0.07 16.83 16.91 14.81ROE (%) 39.23 0.19 27.07 28.39 25.73
Total No. of Stores 21366 19767 18066 17003 16858
3. What factors might explain the relative decline in the performance of the
company during specific periods in the last decade? (You can pursue additional
research on this question. If you do so, please use information from articles from
Business Week and Fortune only.) Be sure that the sources are appropriately
acknowledged.
a) The period of dramatically poor performance that I would like to focus on is
from 2006-2010. According to Aaron Pressman in an article titled ‘Starbucks,
Are You Listening?’, the chief reason for SBUX performing so poorly was due to
intense competition from rivals like McDonalds, Dunkin’ Donuts and others. He
opines that Starbucks lost its coffee origins and became vulnerable to
competition from its not as premium competitors. In an internal memo that was
leaked on the internet, Schultz admits to his employees that Starbucks is facing
tremendous competition from not only goliaths like McDonalds and Tim Hortons
but also small, local coffee houses and mom and pop stores, which has lead to the
beginning of ‘coffee-wars’.
4. What specific measures had the company undertaken to affect a turnaround in
its performance? Was the company successful in this regard?
Schultz was requested to re-join the company as the CEO. Schultz lead a
major restructuring and revitalisation initiative, changing key personnel
and their roles and responsibilities.
It was felt that the customer service experience had been watered down.
He hired a creative officer who was solely tasked with elevating the in-
store experience of customers.
He focussed his energies on three main themes: strengthening the core,
elevating the experience and investing and growing.
Cost containment and efficiency campaigns were launched, which lead to
a dramatic increase in productivity per employee.
Continued to focus on international expansion to drive its growth.
In my opinion, the transformation has been very successful as evidenced
by all financial metrics. The last 7 years have proven to be very successful
for the company with it scaling new heights under the management and
vision of Schultz.
5. Why do you think Starbucks has opted for joint ventures as an entry mode for
international expansion?
In my opinion, Starbucks opts for joint ventures as an entry mode as local
partners would be able to shoulder the capital costs and risks along with
Starbucks. Local partners may also be more clued in to local nuances and
tastes, which may be vital in the company’s success. Starbucks can set
various rigorous criteria to ensure prospective partners share the same
commitment and vision towards success as the firm. Once on board, the
relationship would be mutually beneficial – the local partner can use the
Starbucks brand name and be relatively certain of earning an attractive
return on its investment, while Starbucks can leverage local partner to get
a pulse of the market.
6. In a 2006 interview with a reporter, Howard Schultz had stated that Starbucks’
business was recession proof. How would you evaluate this statement?
a) I would have agreed with this statement had Starbucks positioned itself
as a low-cost, no-frills coffee chain like Tim Hortons. Such a chain would
be more resistant to recessions since customers would probably not forgo
a cup of coffee that more of than not costs about a dollar. However, since
Starbucks is selling an experience and not merely coffee, its customers
probably have a much higher elasticity of demand when skipping a
Starbucks Venti Latte would lead to a saving of USD 1,500 a year, as
approximated by Katie Couric on CBS News (Economy’s A Bitter Brew For
Starbucks).
7. State, in separate and numbered sentences, all the comments made about Wall
Street by Howard Schultz in the videotaped presentation. Also, please indicate two
distinct aspects of the presentation that you have found to be personally
interesting.
He says that Wall Street has a much narrower, short-term focus.
He believes that some financial metrics that retail public companies
report to the Street promote a short-term mentality and culture
within the organisation that is very detrimental in the long run.
He adds that it is difficult for a company to simultaneously serve the
best interests of its customers and of the company itself as well as
the short-term interests of the Street.
He believes that if customers and employees are happy, it will
eventually lead to long-term value creation, which will tie back to
profits for the shareholders as well.
He admits that there have been some missteps within the
organisation that has contributed to the company’s market
capitalisation having fallen, but he doesn’t seem to be very
perturbed by it because he has a much more long-term focus.
8. A. G. Lafley and Roger L. Martin in their book, Playing to Win: How Strategy
Really Works, (2013) assert that strategy is the answer to five interrelated
questions. You have studied Starbucks Corporation in some depth. Assume that you
have been appointed as a Special Assistant to Howard Schultz and that Howard has
asked you to prepare some notes for him on these five questions for an upcoming
presentation on Starbucks at the Rotman School of Management and at which
Professor Roger Martin would be present. Be sure that your notes are compiled for
each question clearly and fully and numbered separately for each point that you
put forward.
a) The purpose of the company is to deliver a coffee-experience to its customers.
The focus is not just on the sale of a cup of coffee but also on the entire in-store
‘Starbucks’ customer experience. The company is attempting to position itself as
a third space – after a person’s house and office. Core competency would be to
serve high-quality premium beverages and superior customer service.
b) The playing field is primarily North America. Outside of the U.S., China is the
biggest market. Intention is to further diversify internationally. Since the brand
has such global brand recognition, the entire world can eventually be the playing
field. The company can leverage local partners in an attempt to make inroads
into emerging markets and other countries in which there is currently no
presence.
c) Product differentiation would be the primary winning strategy. Differentiators
could be the coffee itself, the store and its ambience, superior customer service
and strategic locations. Constantly innovate and ensure there is a feedback loop
across the organisation to make sure senior management is cognizant of
developments on the ground.
d) Heavy reliance on baristas as they are customer facing and represent the
company to the customer. The company ensures customer service personnel and
baristas are a strategic fit and understand the firm’s goals. Thus, amassing the
best human resource pool is mandatory. The firm ensures deserving employees
are rewarded with monetary and non-monetary benefits. Also, continue to invest
in technology to better manage the customer interface (mobile apps for instance)
and also to manage the supply chain more efficiently.
e) Long term focus without much regard to short-term volatility in share prices.
Management has full faith in its employees. Customer requests are prioritised
and employees are given significant leeway in deciding what is the optimal
solution to a customer complaint. This discretion empowers employees as they
feel they can make a difference to the company. Management also treats all
employees fairly with health benefits, stock options etc. Contented employees
eventually lead to happy customers.
BIBLIOGRAPHY
1) Crafting and executing strategy. (2014). MC Graw hill
2) Retrieved December 1, 2015, from
http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-
reportsannual
3) Pressman, A. (2007, July 14). Archrivals Storm Starbucks.
Retrieved December 1, 2015, from
http://www.bloomberg.com/bw/stories/2007-07-18/archrivals-
storm-starbucksbusinessweek-business-news-stock-market-
and-financial-advice
4) Couric, K. (2008, December 1). Economy's A Bitter Brew For
Starbucks. Retrieved December 1, 2015, from
http://www.cbsnews.com/news/economys-a-bitter-brew-for-
starbucks/
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