Executive Summary
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starbucks_analysis.docx
Executive Summary
Mission Statement
The Starbucks mission statement it short but sweet - To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.
The mission and values of Starbucks uphold Starbucks to a high level while addressing the customers and the partners. ‘One person, one cup, and one neighborhood at a time’ really pushes that Starbucks wants a one on one connection with its customers. The vision statement enhances on the mission statement. It talks about the sustainability, having a culture of warmth, and belonging where everything is welcome. There is a large focus on partners, it shows within the first line of the vision statement; “With our partners, our coffee and our customers at our core, we live these values…” The company also focuses on its growth in the vision statement. Starbucks would like to grow by acting with courage, challenging the status quo, being present, connecting with transparency, while having dignity and respect. It shows that Starbucks is an all-inclusive company that wants to connect with customers and its partners. The one thing the mission and vision statements do not address is the shareholders. The shareholders are a large part of the company so it is interesting that they are not addressed in such a key platform for the company.
If we were to change the mission statement we would change it to include the partners and the shareholders. They are a key part to the company and should be addressed in the statement that represents the company is.
Internal Audit
Starbucks has done a lot to ensure that they are the top dog in their market. As a company they are overall doing very well. Starbucks has many strengths with the top of them being its strong brand image and its overall stocks. The brand image at Starbucks is a very key feature. When you see the signature green Siren, people know that you are drinking Starbucks. The stocks have been on a steady incline since 2012. As a company Starbucks is worth about $85.3 billion. But as any company, they also have their struggles. Recently in the news there has been a lot of grief over Starbucks cutting their employees hours. Employees who have great benefits, are not pleased with this. Starbucks uses a program called Global Labor System (GLS) which has an algorithm to help stores schedule their employees. Corporate claims that nothing has changed but employees are seeing it very differently. This in turn has also affected the wait times at stores which are upsetting customers. The less employees that Starbucks is scheduling, the more work and longer wait times will be. The changes that corporate is denying happening is also affecting the stocks in the short term. While stocks have been at an overall growth, they are down a little bit since the various articles have come out.
|
|
Starbucks |
Dunkin |
McDonalds |
|
Current ratio |
1.2 |
1.33 |
3.26 |
|
Acid Test ratio |
0.6 |
1.19 |
3.04 |
|
Debt/equity ratio |
1.14 |
-15.47 |
.42 |
|
ROI |
0.2 |
.03 |
.08 |
|
Inventory Turnover |
11.45 |
5.78 |
171.9 |
|
A/R Turnover |
2.52 |
3.047 |
6.18 |
Starbucks is the leading company is coffee shops around the world. However, Dunkin, and McDonald’s are competing Starbucks for market share. A financial analysis has been made based upon important factors such as Current ratio, Acid Test ratio, Debt/equity ratio, Return on Investment, Inventory Turnover, and Accounts Receivable. McDonald’s ratios are not excluded to coffee profits alone. The analysis was done on the company as a whole.
Asset Turnover ratio is an efficiency ratio that allows investors to see how efficiently a business is using resources invested in fixed assets and working capital. Starbucks’ asset turnover ratio is 1.97. Dunkin Donuts on the other hand is 0.06, and McDonalds is standing at 0.67. Starbucks has the highest asset turnover ratio of the thee companies. The higher the ratio the better the company performs.
Working capital ratio enables the company to meet its current obligations such as payment of bills, meeting the payroll requirements and making the necessary loan payments. Starbucks Working capital ratio is 0.89. Dunkin’s working capital is 1.55. And finally McDonalds working capital ratio is 3.18. Starbucks may struggle in paying short term debts from short term assets. McDonalds However are investing well in excess assets. Dunkin Donuts has the best working capital ratio where it lies at 1.55 and considered a sufficient ratio.
The current ratio evaluates the status of the company’s liquidity. With an appropriate ratio, the company is able to meet the short-term debt obligations. It is necessary to check whether this firm has adequate resources which can pay its debt over the given duration of time. Starbucks’ ratio is 1.2 which is the least among the other companies.
Debt/equity ratio is another liquidity ratio which compares the company's total debt to the total equity. Various industries have their own standards in determining the general ratio acceptable to firms within the industry. On a general basis, a debt ratio of 0.5 would indicate that there is a half as many liabilities compared to the equity. A ratio of 1 would however imply that both the investors and the creditors have an equal share in the assets of the business. Most companies prefer to have a lower debt to equity ratio since it translates to stability of the business.
External Audit
Starbucks is a large company that is doing well for itself, but there is always room to grow. There are many opportunities for Starbucks to look into. Starbucks is already a pretty global brand, but there are still different markets that are open that Starbucks could venture into. There is already a duty free tax on coffee imports, but Starbucks could be taking even more of an advantage of it. There are also many different products and offerings Starbucks could have. Starbucks already offers things like their Verismo (Keurig copycat), their own coffees, mugs, tumblers, clothing, etc. but there is probably a lot more that Starbucks could add to their lineup. Things such as tools to help with the coffee process; scoops, special airtight coffee containers, pitchers, blenders, etc. Starbucks also has a large opportunity with their technological advances. They have an app but it could still use a lot of work. They offer mobile pay and Mobile Pour which is a way to order off of the Starbucks app and have your coffee ready for you at the barista counter or drive thru. There are also many different technological advances Starbucks can have with their drink and food items. The distribution that Starbucks uses right now is good, but there can also be more advances with that. Starbucks has recently had a few concept stores. These stores include museums,
Starbucks in the past has partnered with many different brands. They own Teavana, the had a partnership with La Boulangerie, but there are many more different partnerships to be had.
On the flip side of the many opportunities that Starbucks has, there are also many threats that the company should think about. The competitors that Starbucks has like McCafe, Dunkin Donuts, even places like Speedway are no joke. Consumers know that these alternatives are cheaper and at the end of the day, someone looking to get a simple brewed coffee will look for a place with the best price. There are also threats with local coffee stores. There is more of a push on ambience and home-y type atmospheres. When people go somewhere they are not always going to go in and out, they also want an experience. A lot of time when you go to local coffee shops, you get that experience. There will always be a threat of the price of coffee beans. The more coffee beans you use, the more you have to grow trees and have the coffee beans replenish. If any of the areas that Starbucks uses to get their beans from has a natural disaster or they use the beans faster then they grow, there will be a large problem. Consumers are also becoming a lot more health conscience. While Starbucks doesn’t have the worst menu, the drinks do pack a high caloric punch. While consumers are becoming more knowledgeable, Starbucks needs to do some R&D on how to make their product base a little bit healthier. There have also been a lot of supply chain issues happening with Starbucks. When Starbucks rolls out new drinks or promotions, they need to make sure that they are ordering enough product and that suppliers actually have the product in. One of Starbucks new ventures includes having stores in India. Starbucks will really need to look into the price point of the drinks that they’re selling in global places because consumers there might have a want for their beverages, but if they are too expensive the consumers there will not plausibly be able to go there.
Starbucks has recently rolled out a new concept in their stores called ‘Evening hours.’ This means that they will sell wine, beer, and alternative food options. Many think of Starbucks as a family place or a place to take their kids for a treat. Many of these families might not like to take their children to a place that is serving alcohol in the evenings. The atmosphere of Starbucks might change as well. A lot of times if you go to a Starbucks later at night you will see friends enjoying a nice conversation, people working on laptops, or people just running in quickly to get a night cap of coffee. Starbucks should really think about how these evening hours will affect them.
|
EFE |
Weight |
Rating |
Weighted Score |
|
Opportunity |
|
|
|
|
Expanding into Emerging Markets |
0.15 |
3 |
0.45 |
|
Duty Free Coffee Imports |
0.02 |
3 |
0.06 |
|
Expanding product mix and offerings |
0.06 |
2 |
0.12 |
|
Technological advances |
0.05 |
2 |
0.1 |
|
New Distribution Channels |
0.07 |
3 |
0.21 |
|
Brand Extention |
0.02 |
3 |
0.06 |
|
Concept Stores |
0.04 |
4 |
0.16 |
|
Partnerships |
0.02 |
2 |
0.04 |
|
|
|
|
0 |
|
Threats |
|
|
0 |
|
Big company competition |
0.15 |
3 |
0.45 |
|
Local Coffee competition |
0.08 |
3 |
0.24 |
|
Brand Imitation |
0.02 |
3 |
0.06 |
|
Price of coffee beans |
0.07 |
2 |
0.14 |
|
Consumer knowledge about healthy products |
0.05 |
2 |
0.1 |
|
Supply Chain issues |
0.11 |
1 |
0.11 |
|
Global Expansion Issues – expense on drinks in places like india |
0.03 |
1 |
0.03 |
|
Legal Issues – with alcohol |
0.04 |
3 |
0.12 |
|
Consumers not taking to ‘Evening’ hours well |
0.02 |
3 |
0.06 |
|
|
1 |
|
2.51 |
Five Forces Model
Entry of new competitors –
Starbucks has a large customer base and a stable place in the market. Newer competition can have an effect on the brand because of low switching costs which means it doesn’t affect the consumer to switch to a different brand. Starbucks and other large chains also have prime real estate when it comes to potential attractive locations for new coffee shops so a competitor would also have a hard time finding a place where they could still sell products and be successful. This shouldn’t be a large focus of Starbucks because they are very secure in their market.
Rivalry among existing customers-
Starbucks is the largest company in its marketplace. There are other large companies like McDonalds and Dunkin Donuts that are on the heels of the business. One advantage that Starbucks has is that it is mainly a coffee shop that sells food items whereas McDonalds and Dunkin Donuts primarily sell food items while also selling coffee. A big rivalry for Starbucks is when it comes to products being sold in grocery stores and other retailers where there are hundreds of other competitors.
Substitute Products -
The threat of substitute products for Starbucks are mild. The coffee industries are easy startup
businesses, which makes it easy for small coffee-houses to open up and sell coffee at a cheaper
price than Starbucks. McDonalds, and Dunkin Doughnuts are the leading competitors against
Starbucks. Their coffee prices are cheaper and close to the quality of Starbucks coffee.
However, the loyal customers Starbucks has makes it harder for substitute products and
services to establish a high market share. Starbucks is depending on its quality and services to
overcome its competitor’s low price of products.
Bargaining power of suppliers -
The bargaining power of suppliers is the least lucrative of Porter’s Five Forces to Starbucks. Most of the suppliers are dependent on the company rather than the other way around. On the flip side there are a lot of companies that are dependent on Starbucks. Starbucks “operates under a set of fair trade practices outlined in its coffee and farmer equity (C.A.F.E) program, a program that provides suppliers a partnership status of sorts with Starbucks and thereby somewhat increases their bargaining power” (Maverick, 1).
Bargaining power of buyers -
The bargaining power of Starbucks customers happens to be very small due to the price and quantity of what they are purchasing compared to the company’s overall revenue. Due to the fact that every customer is buying different things as well, leads to a diverse customer group which also impacts the bargaining power. What this means, is that no single customer has power to influence or harm the company due to the structure of the company and its market dominance as well. With that being said, Starbucks has to keep several key factors in mind to maintain satisfied customers such as price and employee friendliness, in order to have consistent customers and continue to dominate in the coffee industry.
|
Competitive Profile Matrix |
Starbucks |
|
|
Dunkin' |
|
|
McCafe |
|
|
|
Critical Success Factors |
Weight |
Rating |
Score |
Weight |
Rating |
Score |
Weight |
Rating |
Score |
|
Advertising |
3 |
0.15 |
0.45 |
4 |
0.2 |
0.8 |
3 |
0.2 |
0.6 |
|
Product Quality |
4 |
0.2 |
0.8 |
3 |
0.1 |
0.3 |
2 |
0.08 |
0.16 |
|
Management |
3 |
0.08 |
0.24 |
2 |
0.1 |
0.2 |
2 |
0.09 |
0.18 |
|
Financial Position |
4 |
0.09 |
0.36 |
3 |
0.13 |
0.39 |
4 |
0.07 |
0.28 |
|
Customer Loyalty |
3 |
0.15 |
0.45 |
3 |
0.12 |
0.36 |
3 |
0.09 |
0.27 |
|
Global Expansion |
3 |
0.1 |
0.3 |
2 |
0.15 |
0.3 |
4 |
0.22 |
0.88 |
|
Market Share |
3 |
0.08 |
0.24 |
2 |
0.2 |
0.4 |
2 |
0.15 |
0.3 |
|
Employee Benefits |
3 |
0.15 |
0.45 |
1 |
0.15 |
0.15 |
1 |
0.1 |
0.1 |
|
|
|
1 |
3.29 |
|
1 |
2.9 |
|
1 |
2.77 |
Overall, even with the threats that Starbucks has, the opportunities are outweighing the threats. Starbucks still has the largest market share within its products and is doing very well for itself. As long as Starbucks continues to please its customers, partners, and shareholders, the company should still continue to grow.
Strategic Problems
Choice Overload – There are thousands of different products that can be sold/made which could overwhelm consumers
Environmental Issues- The main products of Starbucks are sold in plastic and paper cups that are a large pollution problem
Inability to meet Growth goals – Starbucks is a continually growing company but they have been short of their growth goals the past few quarters
VI. Strategic Analysis and Choice
Starbucks corporation is engaged in the following strategies:
Market Penetration - Starbucks is a renowned coffee brand, originally established in the US in 1971. Currently, it has its operations in more than 41 countries all over the world. Regarding market penetration strategy, Starbucks has employed some approaches. It has focused on finding alternative ways of delivering its products and services to its customers outside its outlets. The strategy has seen Starbucks open retail stores in many grocery stores and also get into coalition with other food and beverage brands such as Pepsi Kraft foods to help distribute their products to food retailers and grocery stores. The only shortcoming of such strategy is that of shared profits, but its advantage is that it surely increases the market share of the company’s product. This is an excellent strategy as it gets to gain more market share in the competitive food and beverage industry.
Product Development - Starbucks has also invested in implementing some product development strategies to help create products and services with new characteristics, that may offer new level of satisfaction to their customers, or rather give additional benefits. These include addition of new flavours, Seasonal beverages like pumpkin spice latté in Halloween, and added new drinks such as soda machines in 2014, new muffins and cakes. Starbucks even gone further by verifying 99% of coffee being ethically sourced. Starbucks is aiming to make coffee “the first sustainably sourced agricultural product in the world” (News.Starbucks.com). This strategy may actually be a point of sale for Starbucks, but the disadvantage is that many of its competitors such as McCafé from McDonalds have implemented such strategies.
Digital engagement - Starbucks has seen its marketing activities thrive. Starbucks social media marketing has increased customer involvement in its day-to-day activities. Investing in mobile applications such as “Starbucks” and “Starbucks Mobile Pour”. For instant, Mobile pour is a service where you order a cup of coffee while walking on streets, and a barista brings your coffee to you with a scooter. The advantage of online marketing has seen Starbucks brand grow by the day, as well as enhanced the brand’s relationship to its customers. Starbucks allows customers around the world to access the store’s playlist on Spotify, and have the ability to add songs to the playlist. Starbucks partnered with Chase bank and announced “Starbucks Rewards Prepaid card” where customer could win stars for their purchases and benefit from it such as free food and drinks on birthdays. Digital engagement is a must-have for all companies today.
Implementation Steps
Starbucks has already introduced many things to help them grow. Starbucks is already in those 41 countries but it is already scouting even more places to grow into. The fact that they are partnered with Pepsi Kraft foods shows that they are already implementing different factors into new ventures.
Key FactorsWeightRatingWeighted Score
IFE
Strengths
Benefits for employees – first company to ever offer health insurance0.0430.12
Brand Image - 10 billion0.0940.36
Stocks0.0640.24
HR Management0.0640.24
High Standards0.0530.15
High Morale0.0630.18
Social Media – one of first to use social media0.0630.18
Product Mix0.0630.18
Partnerships0.0840.32
0
Weaknesses0
Expensive0.110.1
US Market Dependence0.0810.08
Self Cannibalization0.0520.1
Struggling with having products for new advertisements0.0820.16
Store Size0.0220.04
Uneven International Growth0.0610.06
High Turnover Rate0.0220.04
Not Eco Friendly0.0320.06
12.61
