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0 INTRODUCTION
Name
Headquarters
Employees
176,000 in 2008
US$10.383 billion
CEO
Vision Statement
Starbucks vision statement is;
To establish Starbucks as the most recognized and respected brand in
the world and become a national company with values and guiding
principles that employee could be proud of
The vision statement clearly describes the dream or the future of the company
that is to be the worlds most well known coffeehouse and also to be the most
appreciated and positively graded brand by all levels of people around the world.
The company also focuses its vision to employee satisfactions, so that the
employees will be happy.
2.2
Objectives of Starbucks
Paying scale and fringe benefit package allowed it to attract motivated people
with above average skills and good work habits and also to make the employee
to be loyal with Starbucks.
2.3
Mission Statement
Starbucks Mission Statement is;
Establish Starbucks as the premier purveyor of the finest coffee in the
world while maintaining our uncompromising principles while we grow.
The six principles are:
1. Provide a great work environment and treat each other with
respect and dignity.
2. Embrace diversity as an essential component in the way we do
business.
3. Apply the highest standards of excellence to the purchasing,
roasting and fresh delivery of our coffee.
4. Develop enthusiastically satisfied customers all of the time
5. Contribute positively to our communities and our environment
6. Recognize that profitability is essential to our future success.
COMPONENT
YES/NO
1.
Customers
Yes
2.
Products or services
Yes
3.
Markets
Yes
4.
Technology
No
5.
Yes
6.
Philosophy
Yes
7.
Self-Concept
Yes
8.
Yes
9.
No
Establish Starbucks as the premier purveyor1 of the finest coffee in the world and
also to be established as the most employee valued company while maintaining
our uncompromising principles as we grow together with technological advances.
The six principles are:
1. Provide a great work environment and treat each other with respect
and dignity.
2. Embrace diversity as an essential component in the way we do
business.
3. Apply the highest standards of excellence to the purchasing, roasting
and fresh delivery of our coffee.
4. Develop enthusiastically satisfied customers all of the time
5. Contribute positively to our communities and our environment
6. Recognize that profitability is essential to our future success.
Consequently, after retirement for the group of baby boomer, there must be an
allocation of funds for the retiree to support there families in life long. Provide
benefits such as Medicare and Medicaid retirement beneficial. Next, products are
produced in globally must convenience and attractive to be used by any
customers. A cultural connection is created, among customers because
producing the products with quality flexible price for the rich and middle class
family. People are also looking forward for free chemical products. This means
that the product is free from chemical or additional flavor mix and it is made from
natural products.
Technological
Mass communication and high technology are creating patterns of diverse
cultures worldwide. Revolutionary technological changes and discoveries are
having a dramatic impact on organization. Internet is the world information
spread machines that have covered an interaction from one user to another user.
In contrast, advertising through have brought high achievement into marketing
strategy. For example, advertising products into facebook so that the users can
consume on their products .Online purchasing, this option it will create less
hassle to customer for purchasing the products which they needed.
Advancement of the technology can cause the life cycle of the product changed
and increased in the distributing of the products. High technology of the
Machineries can increased the supply of the products while achieve a better
profits for the organization.
POTENTIAL
DEVELOPMENT OF
SUBSTITUTE
PRODUCT
BARGAINING
POWER OF
SUPPLIERS
RIVALRY AMONG
COMPETING FIRMS
POTENTIAL ENTRY
Strategic Management
PMS 3393
OF NEW
COMPETITORS
BARGAINING
POWER OF
CONSUMERS
The Radial Diagram above is Porters Five-force model. It helps the Companys
strategists to evaluate the industry growth, market development and organization
Strategy accompanied with the good intuitive judgment. The big corporation firm
such as Starbucks needs a systematic and effective external-audit system
because external forces among foreign countries vary so greatly. The analysis of
the Competitive can be divided into Porters Five-Forces. The five forces are as
follows:
1. Potential entry of new competitors
2. Potential development of substitute products
3. Bargaining power of suppliers
4. Rivalry among competing firms
5. Bargaining power of consumer
10
11
12
Porters
Details
Industry
five
profitability
Forces
Rivalry Among Competing Firm
go.
With
customers
the
85%
taking
their
North
coffee
American
to
go,
Potential
development
of
substitute products
There
is
more
bargaining
power
for
LOW
Caribou coffee
13
CRITICAL
SUCCESS FACTOR
WEIGHT
(WT)
RATING
WT
SCORE
RATING
WT
SCORE
RATING
WT
SCORE
Advertising
0.10
0.30
0.20
4
3
0.40
Product Quality
0.40
0.80
0.60
0.40
Price
Competitiveness
Management
0.05
0.10
0.15
0.15
Financial position
0.08
0.05
3
3
0.24
0.15
2
3
0.16
0.15
3
2
0.24
0.10
Customer loyalty
0.10
0.30
0.20
0.20
Global expansion
0.15
0.60
0.30
0.30
Employee benefits
Customer Service
0.10
0.17
4
3
0.40
0.51
2
2
0.20
0.34
2
2
0.20
0.34
TOTAL
1.00
3.50
2.50
2.23
Starbucks shown highest score and the second highest were Caribou Coffee and
Gloria Jeans coffee shows the lowest Score. The competitive profile matrix
(CPM) weighs product quality. The product quality (0.20) and is the most
important item on the list of critical success factors. Starbucks score on this
factor as the highest in comparison to their two chief competitors, Caribou and
Gloria and reflecting a distinctive competitive advantage in the market. Customer
service 0.17, Employee benefits 0.10 and global expansion 0.15 replicates a high
level of importance on the CPM. The advertising weight, 0.10, on CPM does not
reflect a high level in ranking the critical success factors, but does release
valuable information in comparison to their competitors on the CPM. Starbucks
rates and scores the lowest on the price competitiveness factor.
3.1.4
14
Weigh
Rating Weighted
enter
t
0.15
Score
0.60
internet
0.10
0.30
connections.
Express foods are getting famous to reduce
0.10
0.20
time to be spent.
Demand for non-chemical
healthy
0.10
0.30
Threats
Increase in the inflation rates creates a
0.15
0.45
0.20
0.60
0.10
0.20
Globalization
makes
it
international market
People are looking
easy
for
cheap
and
to
products.
supermarkets
1.00
2.55
Weight of TWSO=0.6+0.3+0.2+0.30
=1.40/0.45
= 3.11
Weight of TWST=0.45+0.60+0.20
=1.25/0.452
= 2.78
External Evaluation Matrix comprises of 2 lists. Both are important for the
company. Its identified as the opportunities and threats of the company. The
factors are rated from 1 till 4, where 1 is the lowest and 4 is the highest. The
highest weight is assigned to the most important factors or several very important
factors. The most important factors maybe a threat or an opportunity. In this
case, it is an opportunity.
15
Based on the key external factors, the most critical factors are that many
companies are pricing their products cheaper to impress customers. Increase in
the inflation rates creates a demand in lower priced products comes along as the
most critical threats to the company.
Anyway, there are still opportunities to increase the growth of the
company. It is known that the factors which carries most weight is the factor that
most to be address. Globalization makes it easy to enter international market is a
good opportunity for Starbucks. Since the total weighted score is 2.78 generally
Starbucks is not so effective in addressing its CFS which exists in its current
environment. It needs to upgrade its effectiveness.
However, this is subject to further analysis of individual weighted score of
opportunities (TWSO) and weighted score of threats (TWST). Based on the
calculation, as shown in the table above, is more effective in addressing the
Opportunities .Still, Starbucks must find the way to reduce the threats to focus on
the future challenges.
16
Oct 2
2005
Oct 3
2004
Sept 3
2003
Net revenue:
Retail
Specialty
Total net revenue
Diff.
between
2005
and
2004
Diff.
between
2004
and
2003
$5391927
$4457378
$3449624
21
29
977373
836869
625898
17
34
$6369300
100
5294247
100
4075522
100
20
30
2165911
34
1790168
34
1379574
34
21
30
Other operating
197024
171648
141346
15
21
Depreciation and
amortization expenses
340169
289182
244671
18
18
357114
304293
244550
17
24
76745
59071
36903
30
60
780615
12
606587
12
420850
10
29
44
$494467
$388973
$265355
27
47
$0.61
$0.49
$0.34
24
44
Operating expenses:
Store operating expenses
General and
administrative
development
Income from equity
venture
Operating income
Gain on sale of
investment
Net earnings
Net earning per sharediluted
Analysis summary
The Total net revenue for the Starbucks shows
until 2005.The big increase from 2003 to 2004 could be due to the major
customer demand and customer royalty for the product. Total net revenue can be
divided into retail and specialty. Retail is meant by selling food beverage directly
17
to customer and specialty means customer royalty. The sale for 2004-2005
periods is less then 10% from 2003 to 2004 which is 20%.
Another significant observation from the statement is the operating income. It is
shown that from 2003 to 2005 the income is increased. It could be because of
the performance of the company is going concern. Operating income from 2003
to 2004 is increased by 44%.This drastic increase is because of the purchase of
Seattle's Best Coffee and Torrefazione Italia from AFC Enterprises, bringing the
total number of Starbucks-operated locations worldwide to more than 6,400.
While the shareholder is important to any company, the net earnings per share
are equivalently important to the shareholders. As observed, the net earnings of
share diluted of the company increased from $0.34 in 2003 to $0.49 in 2004,
reaching $0.61 by 2005. This is because of the company performance in
achieving target. The net earnings per share increased by 44% from 2003 to
2004 and increased by 24% from 2004 to 2005.
B)
18
In millions, except
For per Share Items
Oct 2
2005
Different
Between
2004
and2005
Oct 3
2004
Different
Between2004
and2003
%
Sept 30
2003
46
23
80
22
$924029
608703
335767
2776112
%
Current assets
Current liability
Working Capital
Total assets
Long-term
debt(including
current portion)
$1209334
1226996
(17662)
3514065
(11)
64
4
$1350895
746259
604636
3386541
3618
17
4353
(14)
5076
Shareholders equity
$2090634
(15)
$2470211
19
$2068689
Analysis summary
As observed in the above table current assets increased for 2003-2004 by 46%.It
could be because of company activations and reloads on Starbucks Cards, but
for the year 2004-2005 is dropped by 11% because of the advertising Starbuck
coffee
Besides, the shareholder Equity increased due to the increases in net earning for
the company. While the shareholder equity decreased for about 15% in
comparison of 2004-2005. However shareholder equity increased by $2090634
in 2005 its because of the stability net earning.
Long term debt shown in the table dropped 14% from 2003 to 2004 previously it
was known companys net earning
19
company has extra earnings to pay off debt. Since this is a long term debt, the
amount is tremendously big and by reducing it by 14% within a year shown that
the development new shops really has a big impact on the companys
performance.
C)
Financial Ratio
1.
Liquidity ratios
2005
2004
20
Current ratio
$1209334
$1226996
$1350895
$746259
0.99 x
1.81 x
Leverage Ratio
2005
Long term
Debt-to-total-assets ratio
$3618
2004
=
$2090634
=
0.0017
$4353
$2470211
0.0018
Companies with high ratios are said to be "highly leveraged," and could be in
danger if creditors start to demand repayment of debt and for Starbucks, the ratio
is very low at both years. The ratio is 0.0017 at 2005 and 0.0018 for the year
21
2004 respectively and the ratio drop slightly. This means that most of the
Starbucks assets are financed through equity and is safe if creditors start to
demand repayment of debt.
3.
Activity Ratio
2005
Fixed assets turnover
2004
$6369300
$2304731
$5294247
$2035646
2.76x
2.6x
2005
Total assets turnover
2004
$6369300
$3514065
$5294247
$3386541
1.81x
1.56x
Activity ratios show how effectively a firms assets are being managed. Activity
analysis, together with the leverage ratios are the key factors in determining
profitability. Fixed Asset turnover ratio is one of the measures of activity. Another
activity measure is the Total Asset turnover ratio. Based on the above tables,
Starbucks has a bigger asset turnover which means that the company is using its
assets more efficiently than other competitors in the industry. Companys noinventory policy has significant effects on its superiority. In both ratios , there is a
slide increase which shows the companys efficiency on using assets has
increased too.
4.
Profitability Ratios
2005
2004
22
= $6369300-2605212
$6369300
= $5294247-2191440
$5294247
= 0.59 (59%)
= 0.58 (58%)
Profitability ratios measure and explain the ability of the firm to generate income.
Gross profit margin has increased. This shows that the company has a greater
margin to cover the operating expenses and yield a profit.
2005
2004
= $494467
$6369300
= $388973
$5294247
= 0.078 (7.8%)
= 0.073 (7.3%)
There is a small increase in the profit after tax. This shows that the companys
profit has increased. Yet, the percentage of profit compared with the sales is
small which is 7.8% from total sales is the net income of year 2005.
2005
2004
= $494467
$3514065
= $388973
$3386541
= 0.14 (14%)
= 0.12(12%)
2005
Return on equity ( ROE)
= $494467
2004
= $388973
23
$2090634
$2470211
= 0.24 (24%)
= 0.16 (16%)
company
generates with
the
money
shareholders
have
invested. The ROE is useful for comparing the profitability of a company to that
of other. Starbucks shows a drastic increase from 16% to 24% for the year 2005.
This shows that the company is generating a good profit from the shareholders
money. This will, increase the shareholders amount in future.
EPS
Year
2005
2004
Earning per share
$0.61
$0.49
The earnings per share are a good measure of profitability. When compared with
EPS of similar companies, it gives a view of the comparative earnings or
earnings power of the firm. EPS ratio calculated for a number of years indicates
whether or not the earning power of the company has increased. Starbucks EPS
has increased and thus showing that the earning power has increased.
3.2.2
24
Weight
Rating
Weighted Score
0.21
0.84
0.10
0.40
0.10
0.30
0.10
0.30
0.12
0.48
0.08
0.24
0.10
0.20
0.07
0.14
0.12
0.24
Strengths
1. Huge market expansion to China,
Brazil, India and Russia
excellence in services.
4. Starbucks has monopolistic
advantages over its competitors.
the
sales
of
Weaknesses
1.
product
3. Starbucks products are not
available at supermarket
TOTAL
1.00
3.14
25
: 0.58/0.28
: 2.00
Internal Factor Evaluation (IFE) Matrix is a summary step in conducting an
internal strategic-management audit. This strategy-formulation tool summarizes
and evaluates the major strengths and weaknesses in the functional areas of
business, and its also provides a basis for identifying and evaluating relationship
among those area.
Starbucks' company is expanding its market to china, Brazil and Russia. These
are very big markets and will definitely increase its growth.
The strategic of Starbucks' services provided, quality of coffees and management
of the company makes strength became as very important factor. It is because
Starbucks' provide a great work environment and treat each other with respect
and dignity. Besides of that, other than that, Starbucks Purchase Ethos healthy
water for 8 million and also does not use chemical flavor for coffee. This is also a
great strength to it as its coffees are free from chemical flavors and it blends and
mix the real hazelnuts to the coffee.
Since the total weighted score is 3.14 generally Starbucks is effective in
addressing its CFS which exists in its current environment. But still, its weakness
is also high. 2.00 is very high, this means that Starbucks is still weak in
identifying its weakness.
Since Starbucks' has its own strength to increase the growth of the company,
there is also has weaknesses. The prices of coffees sold at Starbucks are higher
compared with other stores. This is a major strength for other competitors.
Other than that, Starbucks does not interest in marketing its products through
advertisings a lot. It focuses on its quality coffee which has the power to attract
customers.
Anyway, this is subject to further analysis of individual weighted score of
strength (TWSS) and weighted score of weakness (TWSW). Based on the
26
27
3.3
TOWS Analysis
STRENGTHS
WEAKNESSES
S1.
W1
Starbucks
W2
less
marketing
excellence in services.
S4.
W3
and
not available at
supermarket
OPPORTUNITIES
SO Strategies
WO Strategies
S1,S3,O1,O2,O3
W1,W2,O1,O3
international market
O2.
O1.
Globalization makes it easy to enter
connections
W1,W3,O3
O3.
Express foods are getting famous to
reduce time to be spent
O4.
Demand for non-chemical and
S5,O4
Do
R&D
to
sell
products
at
for it is high.
healthy products
28
ST Strategies
WT Strategies
S2,S3,S4,T1,T2
W1,W2,T1,T2
THREATS
T1.
Increase in the inflation rates
creates a demand in lower
priced products.
T2.
Many companies are pricing
price
to
compete
with
competitors.
W3,T3
Starbucks needs to analyze the way
T3.
Increase in hypermarkets and
economical supermarkets
3.4
the
at
supermarkets
Space Matrix
Strategic Management PMS 3393
29
as
FINANCIAL STRENGTHS
RATING
A Starbucks asset is financed through equity and is safe if creditors
start to demand repayment of debt. Long term debt-to-equity ratio is only 0.0017.
income of Starbucks.
13
INDUSTRY STRENGTHS
RATING
Starbucks Coffee Liqueur was the top selling new spirit product,
grossed sales over $8million annually.
3
Starbucks Everywhere approach has increased foot traffic for all the
stores in area. This makes customers easy to fine Starbucks all the places in
town.
12
+6 = best
+1= worst
ENVIRONMENTAL STABILITY
30
RATING
Starbucks products prices are high compared with competing coffee
-4
houses. They price their products several dollars below then Starbucks price.
Demand for Starbucks products to be supplied in supermarkets
increase. But, doing that will put Starbucks business in risk as customers dont know
-2
-3
-9
COMPETITIVE ADVANTAGES
RATING
Starbucks coffee and beverages are high in quality brewed by well
trained employees.
-1
-1
-2
-2
-6
-1 = best
-6= worst
CONCLUSION
31
FS Average is 13/3 =
4.3
IS Average is 12/3 =
4.0
ES Average is -9/3 =
- 3.0
CA Average is -6/4 =
- 1.5
SPACE MATRIX
FS
+6 CONSERVATIVE
AGGRESSIVE
+5 +4 +3 +2 +1 -
(2.5, 1.3)
CA
IS
I
-6
I
-5
I
-4
I
-3
DEFENSIVE
I
-2
I
-1 0
-1 -2
-3
I
+1
-4 -5
-6
I
+2
I
+3
I
+4
I
+5
I
+6
COMPETITIVE
ES
Starbucks must pursue a strategy that is Aggressive. The strategies that include in aggressive strategies is
backward integration, forward integration, horizontal integration, market penetration, market development,
product development and diversification which include related and unrelated diversification.
3.5
BCG Matrix
32
HIGH
MEDIUM
LOW
HIGH
MEDIUM
Backward, Forward, or
Horizontal Integration
Market Penetration
Market Development
Product Development
STARS
QUESTION MARKS
II
STARBUCKS
Product Development
Diversification
Retrenchment
Divestiture
CASH COWS
LOW
Market Penetration
Market Development
Product Development
Divestiture
III
Retrenchment
Divestiture
Liquidation
DOGS
IV
SUMMARY
The Boston Consulting Group (BCG) matrix is enhancing a multidivisional firms
efforts to formulate strategies. This matrix allows a multidivisional organization to
manage its portfolio of businesses by examining the relative market share
position and the industry growth rate each division relative to all other divisions in
the organization. Starbucks are measured to identify the stores strategic position
in the Boston Consulting Matrix. The BCG matrix, were included 4 divisions
which is Question Marks, Star, Cash Cows, and Dogs. In division quadrant I,
shows low relatives market position, high growth industry. Firms cash needs are
high and cash generation is low.
This division decides to strengthen on pursuing an intensive strategy. Division
quadrant II, identifies best long-run opportunities for growth and profitability. Star
33
division is high relative market share and high industry growth rate. In convince
of substantial investment to maintain or strengthen their dominant positions. Next
in quadrant III, Cash Cows with high relative market share position but compete
in a low growth industry ,while this division will be managed to maintain strong
position for as long as possible.
Finally, in quadrant IV Dogs have low relative market share position
and compete in a slow or no market growth industry. This divisional are weak
into internal and external position and often liquidated, divested or trimmed down
the retrenchment. Retrenchment can be best strategy to pursue because many
dogs bounced back, after strenuous asset and cost reduction, to become viable,
profitable divisions. In contrast, the highest scored is 3.5, and it determinant that
relative share position is HIGH.
Besides that, Starbucks Income Statements shows the Net Revenue
were consecutively increased between the years 2003 until 2005. The revenues
on the year 2003 is $4075,000, while $2191,000 in year 2004, $6369,000 in year
2005. Moreover, the industry sales growth rate between year 2004 and 2005is
56.3%.It determinant HIGH position of industry sales growth rate. In conclusion,
Starbucks were identified in STAR division. This division represents the
Starbucks long-run opportunities for the growth and profitability. While, this
division is in high relative market share and industry growth rate and
subsequently they received substantial investment. The divisions are forward,
backward, and horizontal integration, market penetration, market development
and product development are will be considered.
Corporate Level
34
Functional Level
Starbucks have poor marketing strategy on advertising. They prefer to
build the brand by promoting the drinks cup-by-cup with customers. In this
way, the advertisement ends until they drink the coffee, while some
groups of people willing to support the advertisement for timing just to
taste the drink for free. The chances to attract valuable customers are very
low. Therefore, it also affects gross profit of Starbucks, the study does not
show drastic increased between year 2004 and 2005. The percentages of
the profit increased from 58% in year 2004 to 59% in year 2005. This
would because of lack of marketing strategy in advertising. The company
spent total of $87.7 million on advertising in fiscal 2005, up from $49.6
million in fiscal 2003. It show Starbucks does not emphasize on funding
the money into advertisement.
35
36
5.0 RECOMMENDATION
5.1
CORPORATE LEVEL
Reduce their price by producing a new product of coffee using cheaper beans or
may come out with special discounts promotions to increase the sales.
Starbucks coffee is worlds preeminent global brand. Starbucks should decrease
price of the coffee to face competition from nationwide coffee manufactures.
They also can do promotion or promote packages of coffee set to impress
customers, such as McDonald promoting their product. If the challenge was met
successfully, in all likelihood companys best years lay on the strategic road
ahead.
5.2
BUSINESS LEVEL
FUNCTIONAL LEVEL
Advertisement can develop through internet that services convinced for users to
access, give the brochures, do road shows, so that public come to know more
about Starbucks details. Market penetration and market development will help to
increase the sales and reduce the weakness in Starbucks. Distribute packaging
of Starbucks instant coffee will definitely increase the sales as it is a demand
from customers.
37
Introducing accurate mixing level of the coffee in a tea bag style will increase the
sales at supermarkets. Packing it together with the guidelines on mixing coffee
beans and sugars with milk to result same taste of coffee will never reduce the
quality of the coffee. Providing proper steps to customer will make a better quality
of coffee indeed.
38
6.0 CONCLUSION
Starbucks success is achieved through a few factors.
Outstanding Quality of the coffee brewed
Excellent service provided at the stores
Fast growth of new stores all around the world
These factors not only have increased the sales but also the reputation among
the coffee lovers. Starbucks encounters aggressive competition in all areas of its
business activity. The market for each of their business segments are
characterized by vigorous competition among major corporations with long
established positions and a large number of new and rapidly growing firms.
Anyway, as Starbucks have a good financial capacity with good strategies; it can
overcome all the competitors to shine high as the first class coffee purveyor.
39
40