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.
1600000
1400000
1200000
1994
1000000
1995
800000
1996
1997
600000
1998
400000
1999
200000
0
Net Revenues
Net Earnings
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
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.
400000
350000
300000
1994
250000
1995
200000
1996
1997
150000
1998
100000
1999
50000
0
Assets
Liabilities
Fig: Balance Sheet for the 6 years from 1994 to 1999 (US $ Thousands)
3. Performance
Net Margin
10
Net Margins
5
0
-5
-10
-15
Net Margin
Brothers
Coffee
People
Diedrich
-14
1.7
1.2
Green
Starbucks
Mountain
3.3
6
Cara
Van
House
Second
Cup
5.8
4.7
-3.7
Fig: Net margins of the Starbucks in respect to the other coffee industries in US and
Canada
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.
400
350
1994
300
1995
250
1996
200
1997
150
1998
100
1999
50
0
Total Cash Investment
ROI
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.
800000
700000
600000
1994
500000
1995
400000
1996
1997
300000
1998
200000
1999
100000
0
Shareholder Equity
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
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.
Age Group Distribution
18-24
25-34
35-54
>55
Fig: Age wise group distribution for the starbucks coffee
Customer Profile
College
Students
30%
Urban
Areas
14%
Rural Areas
5%
Stay at home
1%
Single People
24%
Mothers at
home
26%
Fig: Customer Profile who purchased coffee from Starbucks
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.
Percentage
6. Industry experience curve and company learning curve
90
80
70
60
50
40
30
20
10
0
Industry Experience
Learning
Before 1990
After 2010
For period of 20 years
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
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/]
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Journal
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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
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89-114