crafting and executing starbucks

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Starbuck Case Study





APARNA KRISHNASTUDENT NO. 3008070351) Go to Yahoo! Finance and create a line chart comparing the share price of Starbucks Corporation with that of McDonalds 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 McDonalds managed to fare better. This could possibly be due to McDonalds 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. 20142013201220112010

Net Total Revenue (B$)16.4514.8713.2811.7010.71

Net Earnings Attributable to Starbucks (B$)

Total Assets (B$)10.7511.528.227.366.39

Total Equity (B$)5.274.485.114.383.67

ROA (%)19.230.0716.8316.9114.81

ROE (%)39.230.1927.0728.3925.73

Total No. of Stores2136619767180661700316858

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 companys 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 (Economys 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 companys market capitalisation having fallen, but he doesnt 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 persons 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 firms 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.BIBLIOGRAPHY1) Crafting and executing strategy. (2014). MC Graw hill2) Retrieved December 1, 2015, from Pressman, A. (2007, July 14). Archrivals Storm Starbucks. Retrieved December 1, 2015, from


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