APPROACH TO THE CASE SITUATION

Starbucks is an international coffee company with number of quality coffee products and

coffeehouse chain across the world. This case study analyses the market and financial

information with the customer value identification and satisfaction. The future of the coffee

industry is very productive and will have high growth in spite of the other existing industries.

Strategic Situation analysis and planning is the most effective way of analyzing the industry

to get the correct and exact insight of the industry. Starbucks is the largest coffee industry

with 19555 stores in the 58 countries. Starbucks sell cold drinks, soft drinks, coffee beans,

salads, cold and hot sandwiches, sweet pastries and snacks etc. The financial position,

competitive environment, mission and strategy of the Starbucks Company need to be analyze

in order to meet the customer requirement and be in competitiveness.

ANALYSIS OF THE PAST AND PRESENT

Financial Position and Performance Measures

1. Income statements

Starbucks has the net revenue of more than USD $ 10.7 billion till year 2010 but as

shown in the case study the financial statements of the firm is given for the 6 years

from 1994 to 1999.

Fig: Income statements for the 6 years from 1994 to 1999 (US $ Thousands)

For the period of 6 years from 1994 to 1999 the above graph shows that the net sales

of the company got increase by 80 percent in the last 6 years that indicates the rapid

growth in the sales of the company. The net earnings of the company also got increase

by many folds from the year 1994 to the year 1999. The position of the company at

the time of 1999, seem to be more strong as the growth of the company is more than

80 percent which is a good sign to the growth of the coffee industry.

2. Balance sheets

Starbucks Company in year 1994 has the lowest assets and in year 1996 the assets

were higher because the company expanded its coffee business and production centers

across the world so there were highest assets during that period. In year 1994 the

assets were USD $ 84150 and in year 1996 assets were USD $ 339541 so the

increasement in the asset value for the next 2 year became 400 % means 4 times more

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

Net Revenues Net Earnings

1994

1995

1996

1997

1998

1999

than the asset value in year 1994. The liabilities of the Starbucks coffee industry in

year 1994 were 50 percent of the total assets and also in year 1999 the liabilities of the

company were more than 60 percent this shows that the company has liabilities for the

expansion of the business as from the banks and also from the investors.

Fig: Balance Sheet for the 6 years from 1994 to 1999 (US $ Thousands)

3. Performance

Fig: Net margins of the Starbucks in respect to the other coffee industries in US and

Canada

0

50000

100000

150000

200000

250000

300000

350000

400000

Assets Liabilities

1994

1995

1996

1997

1998

1999

Brothers Coffee People

Diedrich Green

Mountain Starbucks Cara

Van House

Second Cup

Net Margin -14 1.7 1.2 3.3 6 5.8 4.7 -3.7

-15

-10

-5

0

5

10

Ne

t M

argi

ns

Net Margin

As shown in the above chart the net margins of the sale to the coffee industries, is

higher for the starbucks than other coffee industries as the net margins for starbucks is

6.0 % and the lowest is -14.0 % . This indicates that the profit of the starbucks coffee

industry signify about the growth and customer data base as much higher.

Fig: Return on the invested Cash for the 6 years from 1994 to 1999 (US $ Thousands)

The starbucks industry’s total invested fund for the six years from 1994 to the year

1999 has been shown in the above figure. The highest total invested fund was in year

1995 and the lowest investment was in year 1999 this means that the asset value got

reduce over the time but the return on the invested fund over the time got increase that

means the projected fund for the firm was up to the expectation in coming years. The

higher return value suggests that the customer satisfaction was good and also the

increase in sell was higher.

4. Shareholder value

Shareholder value for the starbucks company got increase by many folds over the six

years time duration from year 1994 to year 1999. The below chart for the shareholder

value shows that in year 1994 it was less than USD $100,000 (in thousands) but in the

six years gap the value got increase 5 times more than the earlier value. So it shows

that growth of the company increased by 5 times.

0

50

100

150

200

250

300

350

400

Total Cash Investment ROI

1994

1995

1996

1997

1998

1999

Fig: Shareholder Equity for the 6 years from 1994 to 1999 (US $ Thousands)

5. Management financial preferences, objectives and strategies

The financial preferences for the firm were not increase the sales and also increase in

the customer base. The basic objective of the firm is to serve the quality coffee

products to the customers across the world. For this the firm developed number of

strategies to achieve this.

Business Competitive Environment

1. Identification of stakeholders and competition

The stakeholders of the starbucks coffee industry include of all the people irrespective

of their category to the closeness to the company. There are number of competitors in

the market such as Costa Coffee, Nescafe, Boss Coffee, and Maccona etc. These

coffee brands are also expensive and highly used in the different countries across the

world so it seems as having the good competitor in the coffee chain industry. Mainly

the competition is of two different kinds such as product based competition and

another is retail based competition. Starbucks’s strong competition is with the Costa

Coffee and with the Second Cup as these two industries retain the more than 80

percent market in the coffee industry.

2. Target customer-or-client to industry-level business connections analysis

0

100000

200000

300000

400000

500000

600000

700000

800000

Shareholder Equity

1994

1995

1996

1997

1998

1999

Starbucks is the largest coffee industry with 19555 stores in the 58 countries.

Starbucks sell cold drinks, soft drinks, coffee beans, salads, cold and hot sandwiches,

sweet pastries and snacks etc. More than this the firm also has coffee house chain

across the world.

3. Quantifying market, segment

The company’s market size is bigger than the other coffee producing firms. Only in

USA the purchase of the coffee is around 20 percent. The reports say that the coffee

consumption pattern has changed and now the daily consumption is 1.7 cup per day

per person. Population demographics are necessary to analyze by the firm because it

helps in targeting to the customers.

Fig: Age wise group distribution for the starbucks coffee

Fig: Customer Profile who purchased coffee from Starbucks

Age Group Distribution

18-24

25-34

35-54

>55

Urban Areas 14% Rural Areas

5%

Stay at home 1%

Mothers at home 26%

Single People 24%

College Students

30%

Customer Profile

Mostly the coffee is used by the people who are under the age group from 35 – 54 and

also 18-24 but the percentage is much higher for the college group students as they

purchase coffee more. In families the percentage that purchased coffee is very less.

The coffee is purchased for more than 58 countries in the world but mostly in Europe

areas.

4. Market and technology life-cycles

Starbucks have only concern of the brand equity because Starbucks is not only a place

of coffee chain but also for the place and experience. The strategy is to develop brand

beyond the preferred outlet and also increase in the number of retail stores. The aim of

the firm is to retain its core coffee brands across the world. Starbucks always go for

improvement of the technology as internet its first priority. The first generation of the

ecommerce website was launched on 1998 and then it upgraded the servers of the IT

channel to distribute and speeding up the work. The main challenge for the firm is to

define its brand image over the years and the development of technology that can

assist to increase the technological flexibility over the internet. New material

processing, research and development, and software up-gradation are also core need

to enhance the production, operation facilities and quality of the coffee.

5. Five-forces analysis and industry value chain

The industry structure of the Starbucks Company can be analyzed with the help of

five force model analysis. It will help in identifying the competitive environment.

The threat of entry: Because of being a more hectic competition in the coffee chain

market, the new entrants can easily enter. This will not create any issue to the

Starbucks because it already has a large share of the coffee market in the world.

The power of buyers: The volume purchase for the coffee is higher so it increases the

concentration of buyers. Powers of buyers is higher where the large players in market

are less. Switching cost of the suppliers for the starbucks is low.

The power of suppliers: In the coffee chain industry, the market is dominated with the

big players so the power of suppliers as bargaining power is higher. In case of

Starbucks the coffee brands are directly purchased from the production countries like

Brazil etc.

The threat of substitutes: It will only happen in case if the large customer base shifts

from coffee to the tea. There are few strong factors that help starbucks to retain its

core coffee brands in the market.

Competitor Analysis: Each year there is significant increase in the coffee shops and

coffee chain industries. The price cuts, increase in aggressive products are few

activities which will make Starbucks coffee industry in trouble.

6. Industry experience curve and company learning curve

Fig: Industry experience and learning curve for starbucks

It shows that for the last 20 years the company has learnt a lot and that learning has

been converted in to actions as industry experience. Industry experience definitely

helped to the firm to grow in to a giant in the coffee industry chain.

Business Mission, Objectives and Strategy

1. Management preferences, mission statements, objectives and strategies

The firm has strong management structure to take the lead and making the business

strategies so that the brand can be build and also the customer database can be

captured at a large scale. The mission of the firm is to nurture the human spirit as one

person, one cup and one neighbored at a time. The objectives of the firm are to deliver

the coffee to each customer with the help of the partners in the firm and are fully

engaged with the customers by connecting and laugh with them and try to uplift the

0

10

20

30

40

50

60

70

80

90

Before 1990 After 2010

Pe

rce

nta

ge

For period of 20 years

Industry Experience

Learning

live of the customers. The main objective is to create a human connection with the

customers.

2. General business competitive strategies

The business competitive strategies include the leadership, technological

advancement; sales operations and supply chain management for the competitive

environment because there are number of coffee firms emerging in the market so the

price cut and also the quality of the coffee are the two main strategies for the business

environment. The firm has maintained the culture and experience on all retail stores

and this differentiated it from the other coffee chain companies.

Functions/Operations and Organization

1. Company internal functional/operational value chain

The internal functionality or the operational value chains of the firm have some

struggle because it is difficult to manage the each individual links to have higher

customer value. The marketing mix of the firm is very suitable for the customers.

Product are of good quality, price of these products are very cheap in accordance with

the other firm’s products, the firm has number of retail stores in the 58 countries and

for promotion the firm used number of strategic approaches to reach its customers.

2. Company resource and capability profile

The company has its own retail stores, vehicles for transportation, the production

centers, online ecommerce system and delivery to the customers on time. The

capabilities include the number of employees and strong leadership and management

which makes strategic plans for the firm to grow.

3. Organization analysis and culture

The organization’s culture is very friendly and it has maintained the six guiding

principles to retain the best culture. Every employees of the firm get the health,

economic and cultural development with the loyalty to the customers and encourage

them to grow themselves and for the firm too.

ANALYTICAL PROJECTIONS INTO THE CHANGING FUTURE

Projected Future Changing Business Competitive Environment

The increasing number of the competition in the coffee chain industry needs to think about

the future strategies and also need to analyze the future projection of the growth and

investment. It is expected that the future growth of firm will increase by 400 percent and also

need to revise the production environment to retain the core coffee market for the lower

prices.

Projected Future Environment versus Continuing Present Business

Functions/Operations and Organization

The future environment of the firm from the case study can be identified as the increase in

revenue and customer base because the customers are really liking the Starbucks coffee so the

competitive environment will not be too much typical but yes the entering of the new firms in

the coffee industry with the high price cut may lead to the trouble for the firm. Also the

environment of local business is being captured by other firms in that case it will be difficult

to enter in the local business market.

Projected Future Environment versus Continuing Present Financial Position and

Performance Measures

The present financial environment of the firm is stronger and better than other coffee chain

industries. As mentioned in the case study that the future environment for the coffee industry

is going to very competitive in that case the customer may deviate to the other products and

the sales of the firm may reduce if the firm didn’t integrate the new methodologies for the

quality of the products, reduction in the prices and also the maintaining the retail culture. The

revenue may decrease by 30 percent in the near future if the diversities of the products and

new technologies are not implemented.

FUTURE DESIRED STRATEGIC POSITION — COMPETITIVE STRATEGIES

AND IMPLEMENTION PLANNING

For the implementation of the new strategies to have the growth of the firm rapidly and

maintain its customer database, there is need of developing the customer value based

strategic activities and also the leading team which can take thing forward. The main

strategies need to develop for the competitive environment as new entrants are reducing

the price of the firms and diversifying the range of the coffee products to attract to the

customers. Based on the current scenario and reputation among the world customers it

can be said that the desired strategic position for the firm will be on top still. The other

future strategies include loyalty programs, cultural and business environment, brand

building and current digital marketing strategies. Also the integration of the new

technology development and ecommerce are also necessary to be in competitiveness

because the future market is totally based on the retail ecommerce and online ecommerce.

CONLCUSION

Starbucks is one of the world’s largest coffee producing industry and coffee house chain

industry. The leading team and winning market strategies shows that the firm will grow

rapidly in the future. The impact on the customers may lead to the future brand in the

coffee industry.

REFERENCES

1. Starbucks Official Website, 2012 [http://www.starbucks.com/]

2. Adamy, Janet (January 28, 2009). "Starbucks to Close More Stores". Wall Street

Journal

3. Michelli, Joseph A. (2006). The Starbucks experience: 5 principles for turning

ordinary into extraordinary

4. Behar, Howard with Janet Goldstein. (2007). It's Not About The Coffee:

Leadership Principles from a Life at Starbucks

5. Causeway Press Genus A (1996) Flexible Strategic Management (2nd ed)

6. Chapman & Hall Johnson G Scholes K (2002) Exploring Corporate Strategy (6th

ed)

7. Paul G. Patterson, Jane Scott, Mark D. Uncles(2010) Australasian Marketing

Journal (AMJ),Pages 41-47

8. Peter S.H. Leeflang, Dick R. Wittink (2000), International Journal of Research in

Marketing, Pages 105-126

9. Zabihollah Rezaee (2005) Critical Perspectives on Accounting,Pages 277-298

10. Ashiq Ali, Krishna R Kumar (1994) Journal of Accounting and Economics,Pages

89-114