CASE 4

ADEYINKA SANUSI

BAM479

Professor Harvel-Jenkins

April 4th, 2016

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Executive Summary
Starbucks Corporation is known throughout the world for their exceptional quality coffee
products and they are general considered to have revolutionized coffee business. Starbucks
originated in Seattle Washington before they expanded throughout the country. They also
expanded to other countries in Europe and Asia and they seem to be the leading company in the
coffee industry. Starbucks coffee objective was to produce the best quality coffee products in the
world and to be the leader in the coffee industry, in other to achieve this objective, Starbucks
expanded its retails operations home and abroad by selectively pursuing other opportunities to
leverage and grow a strong brand through the introduction of new products and development of
new distribution channels.
Starbucks was able to raise a large awareness with their products and they were able to
merge with little retailers in other to increase sales, this actually led to having a huge amount of
capital and they keep expanding in other to remain the leader in the coffee industry. Starbucks
has a very solid earnings and returns during their expansion to other countries in Europe and
Asia, they managed to continue a healthy operation while generating more capital for more
expansion. They took good care of their employees and make sure their customer service
members are well trained and they gave all their employees health card and benefits package as
well as starting at the minimum wage paid in each state. Starbucks endeavor to offer an
environmental safe product to its consumers as well as significant contributions to local charities
in the environment they have locations.

Vision Statement
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
Mission Statement
Starbucks strives to inspire and nurture the human spirit one person, one cup and one
neighborhood at a time.
Milestone
Starbucks has hit a major milestone after the creation of the mobile transactions as many
workers may forget to carry their wallet along with them to work due to hurrying and all; they
had an overwhelming mobile transaction each year since the mobile transaction has been created
in 2011.
Research made me understand they created this mobile transaction because people forget
to carry their wallets sometimes when they want to get a latte but they usually have their phones
at hand just like I usually do when I am going out I dont usually carry my wallet because I am
scared of theft and all. The creation of the card mobile also allows customers to view their
balances and gain stars in their reward programs by reloading their cards at the nearest stores
without any extra charges, the creation of the mobile payment is being accepted at all their
branches around the world which makes it easier for consumers.
I overhead more milestones are coming this year because a huge credit card company is
trying to partner with Starbucks and customer can also get credit cards through them and
discounts will be offered on every coffee purchased with their credit card with 0% interest rate
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each year and student discounts will be offered in locations that are on school campuses across
all higher institution around the world, that is still an upcoming project they are working on
according to source.
External Factor Evaluation Matrix (EFE)
Opportunities

Weigh

Rating

Weighted Score

Global sales of product around

t
0.15

0.60

the world
Rebranding of coffee products

0.10

0.30

with varieties of options

Offering Drive thru coffee to

0.10

0.30

reduce queue
Demand for non-chemical and

0.10

0.20

healthy products
Threats
Global market differences of

0.15

0.45

style
Fluctuations in the value of

0.20

0.60

currency
Competition among rivals like

0.10

0.20

Time Hortons etc.

Total

1.00

2.55

Internal Factor Evaluation Matrix

Strengths

Weigh

Rating

Weighted Score

Huge market expansion to

t
0.21

0.84
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China.
Advertising
Gift cards opportunities
Establishment of new

0.10
0.10
0.10

4
3
3

0.40
0.30
0.30

Frappuccino sales in east china

Weaknesses
Customers wait time
Less advertising
Trade mark Infringements by

0.10
0.07
0.12

2
2
2

0.20
0.14
0.24

competitors
Total

1.00

3.14

SWOT ANALYSIS
STRENGTHS: - (1) Huge market expansion to china
(2) Advertisement across the globe
(3) Donation of gift cards to frequent customers
WEAKNESS: - (1) Customers wait too long to get their orders
(2) Less advertisement in some countries
(3) Locations are scarce in the suburbs
OPPORTUNITIES: - (1) Global sales of products among developing countries
(2) Creation of blended sachet coffees in china and other neighboring countries
(3) Rebranding of strategic production sales
THREATS: - (1) Fluctuations in the value of currency

(2) Saturation of similar products in developing countries

(3) High price of coffee in certain area

Starbuck Industry Analysis

Starbucks operates in a retail coffee store industry and they also compete with some other coffee
retailers like dunking donuts etc. Starbucks has some economic crises in the past few years and
there was an adequate change in the consumers taste while the industry revenue was decreasing
in the U.S AT about 7.0% to $28.6 billion, they have been having a very good growth rate and
being consistent before the economic slump. Most consumers want to spend less on coffee.
Starbucks coffee success indicates its effectiveness in addressing some external factors in its
industry environments.
Starbucks Porters Five Analysis
(1) Threat of New Entrance: - Starbucks has an issue with the moderate forces of the threat
entrants or new entry, some of the list that can help contribute to the moderate force of
the threats of new entrance are (a) There is a moderate threats of new entrance into the
industry because the barriers to entry are not high enough to discourage new competitors
to try to compete with them. (b) Moderate supply chain cost is another factor because
competitors can always find a way to lower their sources of equipments if the supply
chain is inexpensive. (c) The saturation of the coffee industry seems to be high as well
with a monopolistic competition structure. (d) Some incumbent firms like Starbucks have
a larger scale and scope, yielding them a learning curve advantage with a good
relationship they create with their suppliers.
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(2) Bargaining Power of Customers: - the buyers or consumers has a power over what they
buy with their money, they may choose not to buy or choose to buy whatever they feel
its better for them, the strong force behind the bargaining powers of buyers are (a)
Starbucks offers vertically different products with a diverse consumers base interest, this
can create a relatively low switching cost which in turns evade the buyers power. (b)
Substitute availability is a strong force because there are many different buyers in the
coffee industry and no buyer can demand a price concession. (c) Consumers have a
common sensitivity in premium coffee retailing as they pay a premium for higher quality
coffee products.
(3) Bargaining Power of Suppliers: - Starbucks coffee also experience the weak forces of
bargaining power of suppliers and this influence their business, some point that
contributes to this are (a) The major inputs in the value chain of Starbucks is their coffee
beans which is only grown in select regions with standard inputs, this actually inflates the
cost of switching between substitute suppliers. (b) Moderated sixe of suppliers is another
major point because most of the suppliers in the industry pose a low threat of competing
against Starbucks due to their integration and this actually lowers their power. (c) High
variety of suppliers is also important because it size and scope determines the power of
the supplier so the supplier may be forced to pose a moderately low bargaining power.
(4) Threats of Substitute: - there are few major external threats of substitute Starbucks faces
which are High, here are the threats of substitute (a) Availability of substitute, as we all
know there are many reasonable substitute beverages to coffee, tea, juices, water,
nonalcoholic beverages can also substitute for Starbucks products and services. (b) Low
switching cost, there are little or no switching cost no switching cost for consumers for

switching to substitutes depending on what their interest is and this is being regarded as a
strong force which makes a high threat.
(5) Competitive Rivalry: - This is high to moderate from the look of things, the industry has
a monopolistic competition as we all know and with Starbucks having the largest markets
share and its closest competitors also have a significant market share which will
eventually create a huge pressure on Starbucks as a whole because they are in a
competition with a large number of firms. A moderate force I can think of will be the
variety of firms that are in existence, because consumers have any cost of switching to
other competitors which creates high intensity rivalry in the industry.

Competitive Analysis

Strengths

Weaknesses
1. Small Customer

1. Excellent Customer
Services.
2. International Brand
Recognition.
3. Financial Profitability.
4. Great Product
Qualities.

Based Locations.
2. Lack of Employees.
3. High Prices of Coffee.
4. Expansion of brands
is limited.

Opportunities
1. Main street locations.

SO Strategies
1. Mobile media

2. Implementation of

WO Strategies
1. Branch locations at

technologies in

college campuses

New Promo, Coupons

foreign markets. (S2,

around the city. (W4,

etc.

O4,)

O3)

3. Popular Store Brands.

2. Creation of better

4. New Technology in
Product.
Threats

2. Developments of

reward systems to

compatible models for

generate more loyal

different price levels.

customer. (S1, O2)

ST Strategies

(W3, O2)
WT Strategies

1. Economic recessions

1. Reward programs

2. International cultural

giving to less

survey on website

developed countries.

with rewards for

(S2, T2)

survey. (W1, T4)

values.
3. Availability of
substitutes.

2. Increase in the

4. Competitors

1. In depth feedback

2. Coordinating with

number of products to

different airlines

technologies and

meet consumers

managements and

prices.

demand. (S4, T3)

supermarket
managements. (W4,
T2)

Rationale behind the above matrix

Strengths

 Excellent customer services: - One of the good strength Starbucks has is the excellent
customer services their attendants give to customers which is a very awesome strategy to
bring smiles to the faces of the customers.
International brand recognition: - Starbucks Company was one of the future 100
companies to work for at a time and they were recognized globally because of the quality
of their products.
Financial Profitability: - Starbucks company is financially stable and this helps them to
make more profit because they keep investing money in new ideas and this new idea
brings in more customers and more attention to the company which increases their profit
earned in the long run.
Great product qualities: - Starbucks is well recognized for the quality of their products
which in turns helps to increase their sales, people are able to design what kind of coffee
they want with an assurance of great quality production.
Weakness

Small customer base location: - one of their major weakness is the small locations
they have an industrial area where they have many customers, they need to improve
on getting more employees at each small location in other to increase sales and

reduce customers wait time.

Lack of employees: - the lack of employees affects this company in so many ways
because some they tend to lose customers when wait time to pick up coffee is too
long some customers will tend to go elsewhere in other to save them time to get to

their work or destinations.

High Prices of coffee: - The high prices of coffee seem to be one major weakness
they have because some set of class cant afford to drink their coffee every day

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because their budget is not enough for them to buy coffee every day while they can

get an everyday coffee at other stores for a half price.

Expansions of brand is limited: - The expansion of their brands are limited because
they dont have many brands of coffee to choose from and other things they offer like
sandwich breakfast seems to have a limited number of brands.

Opportunities

Main street locations: - One of the opportunities Starbucks have is that their
shops are mostly located on main streets where people can access it easily and

purchase their coffees are purchased without a hard way to locate their branch.
Implementation of New Promo, Coupons etc.: - this is a really good opportunity
for Starbucks to get more customers because coupons cut down coffee prices but
brings in more customers and when customers are acquainted to the coffee they
will usually come back to buy even if the promos and coupons are not made
available but the good thing is the interest of the customers has been gained and

they will keep coming back to patronize them.

Popular Store Brands: - One of the opportunities Starbucks enjoy is the
popularity of their store brands, its very unique and easy to recognize from far,
their brands of coffee being popular across foreign countries help to secure more

sales home and abroad.

New Technology in Product: - The introduction of new technology in the
production making of their products helps by growing the interest of the
customers and enhancing their production processes faster and more accurate.

Threats

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 Economic recession: - One major threat this company faces is the economic
regression, this actually affects them because customers wont be able to
afford the expensive products due to the bad economy and it can affect their

sales home and abroad with the currency exchange values in some cases.
International cultural values: - International cultural values can affect their
sales in the sense that some cultures do not subject to drinking coffee every
morning because it is not their norm while some will go against the sales of
their sandwich probably because it has something like pork in there that is

against some cultures belief.

Availability of substitutes: - when there is availability of substitutes,
customers tends to substitute their products for something else probably
because of the long wait time at their shops or because of their price,

locations etc.
Competitors technologies and prices: - this is an important factor because
many competitors will lower their prices in other to gain more customers and
to increase their technological output with their lowered prices of the same
products Starbucks provides for their customers.

SO Strategies
Mobile media technologies in foreign markets: - this actually helps
because it speeds up customers orders and reduces their wait time at their
locations and makes a faster payment easier for customers just like we
preorder foods from Coney Island etc.
Creation of better reward systems to generate more loyal customer: - This
will actually assist Starbucks coffee in getting more customers because

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some coffee lovers will stick to them in order to earn a reward at one
point or the other, it might be free coffee reward or something else thats
more tangible that customers will be able to use again at their stores.
WO Strategies
Branch locations at college campuses around the city: - the provision
of stores around campuses will help them increase their sales and
impact greatly on their annual sales because most students are coffee
lovers especially during the cold weather, some student says drinking
coffee in class helps to prevent students from sleeping during lectures
and all.
Developments of compatible models for different price levels: - This
actually helps Starbucks customers to be able to purchase coffee of
their choice or something similar at a reduced price.
ST Strategies
Reward programs giving to less developed countries: Implementation of reward program will help increase their sales
and help citizens of developing countries have a great opportunity
of consuming their products without thinking so hard about the
cost because the reward that will come out of consuming
Starbucks product is what they will be targeting.
Increase in the number of products to meet consumers demand: Starbucks can increase the number of their products in other to get
more customers interest and increase their sales, like the
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introduction of breakfast they just added to their services recently

helps increase their sales because some customer buy coffee and
pick up a quick sandwich breakfast along with them in other not
to go hungry.
WT Strategies
In depth feedback survey on website with rewards for survey: - This
is a really great point that will help Starbucks evaluate their present
performance and help realize what is needed to achieve their set goals while
rewarding this customer pushes customers to do the survey.
Coordinating with different airlines managements and supermarket
managements: - their coordination with airline and supermarket
managements will help increase their sales and help publicize their products
which I believe is a major strategy to be leading in the industry.

Case Statement
Starbucks is facing its own struggles, it realizes a slipping in sales before other
companies did recently during recession, I read in an article that Starbucks has a new growth
strategy that will bring in more revenue with lower costs and this new strategy has been helping
the company in opening up more locations after when some locations where closed down in
some parts of the world.
Starbucks new strategy is focuses on some areas that decreases risk and upfront
investment, which includes the expansion of foreign stores nationwide with the aid of partnership
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that share risk and costs, selling via instant coffee in convenience stores nationwide. The
international development added upstream to allow for international marketers to develop new
products that suits their cultures and that will add potential values to their sales expansions. At
this point the management are sure that they are doing better and doing the right thing in other to
outweigh their competitors in the market without debts.
Financial Analysis
Sales and Income Record:

Total

2010
$4,075.5

2011
294.2

2012
6,369.3

2013
7,786.9

Revenue
Percent

29.9%

20.3%

22.3% during

20.9%

change in
revenue
Net Income
Percent

2014
9,477.5

recession,
265.4
46.5%

388.9
27.1%

494.4
14.1%

564.3
19.2%

672.6
23.6

change in Net
Income

Starbucks has increased in both total revenue and net income by averages of over 20%
each year in the past few years. The cost of revenue, or goods sold, is 79.2.3% of the total
expense distribution, Starbucks cash ratio has improved in the past few years positively.
Starbucks financial strong analysis is very advantageous because they have a low
debt/equity ratio which is actually not greater than 20% and their pre-tax profit margins
methodology looks for at least 9% and considers anything over 20% to be phenomenal and
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another financially strong analysis is that Starbucks has the ability to raise its dividend is a low
payout ratio, Starbucks financial weak analysis is their PEG (price/earnings growth ratio) in the
recent year, they had a short fall of 2.56%.
I believe Starbucks is big enough to raise a needed short term capital from the way their
sales are increasing and the scope of expansion, I dont think they raise a long term capital
through debt and equity as they are investing more in other to outgrow their competitors in the
coffee industry. Starbucks has sufficient capital to run their day to day activities at each of their
location and a company of its own, their budgeting procedures seems to be effective because of
their increase in sales and introduction of new products.
Their dividends payout policies are reasonable and they have good relations with their
investors and stock holders, they keep growing and expanding and they seem to be the leading
coffee maker in the industry at this point in time. Most of their financial managers are well
trained and experienced.
Strategy Selection
The selection that is most suitable strategy for Starbucks depends on evaluation of the
alternatives while considering the goals and objectives of the company. The strategy analysis
distinguishes between the corporate levels business levels.

QSPM
Alternative 1 (SO)

Alternative 2 (ST)

Expand Market Share

Maintain Market Share

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Key Factors

Weig

Attract

Total

ht

Score

Attractive

Weight

Attractive

Total Attractiveness

ness Score

Score

ness Score
Strengths

Huge

0.1

0.4

0.1

0.2

0.5

0.10

0.4

0.8

0.1

0.3

0.1

0.3

0.05

0.02

0.1

0.4

0.1

0.4

market
expansion

Strong
financial
power

Apply the
highest
standards of
excellence
in service

Varieties of
flavors

Strong

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brand image

Excellent

0.05

0.15

0.05

0.05

0.05

0.15

0.01

0.3

0.1

0.4

0.1

0.4

0.05

0.10

0.02

0.4

0.1

0.1

0.1

0.3

Customer
Services

Great
Product
Qualities.
Weaknesse
s

Price of
coffee is
high at
Starbucks

Environmen
tal Issues

Small
Customer
Based
Locations
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Sum

weights
Opportunit
ies
0.2

0.8

0.2

0.2

0.5

0.15

0.5

0.01

0.3

0.12

0.3

0.06

0.2

0.4

0.2

0.04

Main street
locations

New
Technology
in Product

High
growth
potential for
flavored
coffee

High
growth rates
in emerging
markets
Threats

19

Economic
0.1

0.2

0.1

0.3

0.15

0.45

0.15

0.15

0.3

0.12

0.3

0.6

0.1

0.3

0.1

0.3

0.1

0.3

0.1

0.4

recessions

Emerging
markets

Increase in
hypermarke
ts and
economical
supermarket
s

Availability
of
substitutes

High
bargaining
power of
suppliers
Sum
Weights
Sum Total

1
4.94

5.21
20

Attractivene
ss Score

The QSPM Matrix shows that Starbucks coffee should create an aggressive expansion
strategically and internationally by maintaining current market shares and avoiding attacks from
competitors,
Business Level Strategies
Business level strategies deals with profit making potentials and product categories, the BCG
matrix I did earlier shows the profitability of Starbucks four major products categories. The
grand strategy matrix needs to be applied in other to determine which product strategies are most
appropriate for each category based on competitive position and the growth of the market.
Implementation Plan
Based on the assessment and analysis I have researched about Starbucks coffee industry, I
believe there are some necessary strategic plan that needs to be implemented for them to increase
and expand in the industry successfully, below are some of the plans that I come up with that
needs to be implemented and how they will go about it.

Market Development strategy in Asia: - Starbucks has a significant inroad in Asia and
lots of untapped potentials that they can capitalize on in other to increase and expand
their sales. Starbucks needs to develop a marketing strategy in Asia that will appeal to
younger generations who fantasize about western coffee culture as a symbol of modern
life style. Starbucks also needs to partner with local retailers in order to gain market
presence in Asia because there are lots of homogenous markets in Asia. I suggest
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Starbucks try to nurture existing partnership with their existing customers because they
all contribute different strengths and local expertise that can help them gain more
understanding of different taste and preferences of Asian customers from different types
of views. Once the market is consolidated Starbucks as whole should continue its
centralization strategy of buying back stores from local partners to increase profits and
reduce the threat of intellectual property and all this has to be done by those who are in

their marketing department.

Product Development Strategy: - Starbucks Operations department has a great growth
potential in fresh juice and tea products and I will advise them to build up on those
products along with their core coffee products in other to develop successful product lines
so that they do not loose attractiveness in the eyes of their customers. In other to increase
sales Starbucks is advised to build better relationships with specialty retailers or
convenient store to clinch premium shelf space for such products lines to increase
customer awareness with necessary marketing campaigns to highlights the benefits such

products have over competitors.

Premium-pricing strategy: - it is advisable for Starbucks finance department to expand
their stores both home and abroad in order to level up and above with their competitors
who are based on their low cost advantage and are able to attract more customers from
fast growing economies. Starbucks should try to hold on to their high quality image,
lowering prices will likely mediocritize their excellent image and reputation as a provider
of premium coffee. Starbucks services has shown that customers are value good services
and high quality products and they are willing to pay an extra amount in order to get it ,
this principles works better for them in developed countries but not in developing
countries, they will lose customers if they tend to continue like that in developing

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countries, their prices needs to be cut down in developing countries in order for them not
to run at loss, they should produce quality coffees from products found in that country
because importing products from developed countries will affect their sales as the cost of
import is expensive. Research made me understand there has been fluctuations in the
prices of high quality coffee beans in the past. They had to migrate price volatility by
applying effective hedging strategies.
Quarter Ended Pro Forma
December 2015
December 2014
$4,895.0
$4,526.7
The pro forma net earnings attributable to Starbucks for the first quarter of fiscal 2015 included
the acquisition related gain of 410.7 million and 13.6 million transaction and integration costs.
The amount state above in the supplemental pro forma earnings fully eliminates
intercompany transactions, major accounting policies and adjustments for additional cost,
property, plant, amortization and all has been applied on September of 2014, the above pro forma
result are unaudited.
The close of the second tender offer period in December 2015 was funded to acquire an
additional 15.5% ownership interest for $ 321 million in cash, the amount transferred in the first
fiscal quarter of 2015 was included in restricted cash within prepaid expenses and other current
assets on the current balance sheet, the net earning is presented as net earnings attributable to
non-controlling interest in the consolidate earning statement for the year ended December 2015.
EPS/EBIT

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I dont an EPS /EBIT chat because Starbucks has more than enough Capital and they are
loan free. They have enough resources on reserve. I was told I dont need to worry about it since
Starbucks have a huge capital base.
Conclusion
Starbucks has been able to maintain a competitive advantage strategy by bringing quality
coffee choices to the citizens in order to remain a leading coffee provider in the industry,
Starbucks focuses more on its core competencies in order to avoid competitors from taking over
their customers. Starbucks created new innovations by enhancing their customer service
experiences and by investing in online content and interactivity, instead of creating new products
they enhanced their connections with their customers and create a wide gap from their
competitors.
Starbucks also strived hard to expand their scope in so many countries with the assistance
of franchise made them realize more capital and get more sales all around the world and they are
seen as the leading company in the coffee industry because of their new innovations and the
expansion of their branches worldwide.

References

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starbucks.com, https://news.starbucks.com/news/starbucks-details-five-yearplan-to-accelerate-profitable-growth

www.academia.edu

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