Running head: Starbucks
Starbucks History and Success
Angelo Barbardo
Hawaii Pacific University
Table of Content
Starbucks.1
Table of Contents2
Executive Summary3
Mission Statement of the Company5
Objectives of my Research6
Macro-Environmental Analysis of the Company6
Economics6
Political/Legal7
Historical8
Demographics12
Social/Cultural13
Technological14
Micro-Environmental Analysis14
Management14
Marketing16
Finance17
Conclusions and Recommendations21
Source Page22
Executive Summary
Starbucks opened operations in Seattle’s Pike Place Markets in 1971 with the future aim of providing coffee to a number of restaurants and surrounding bars. With the recruitment of Howard Schultz who led the marketing and retail efforts of Starbucks in 1982, the company took a change in direction through the views of Schultz, who after visiting Italy tried to adapt the same principles in order to a strong bar culture. Schultz then utilized Starbucks ability to provide quality coffee beans and opened up a new store called Il Giornale, which brewed coffee from these particular beans. By 1987, Giornale had decided to take over the assets of Starbucks and also, further changed its name to Starbucks Corporation. By the end of the year, Starbucks had increased the number of stores to 17 and furthered its location span by entering Chicago and Vancouver.
The Business plan on Starbucks Coffee Company 2
Beauty is only skin deep, companies must look within to secure longevity. Before a company can successfully bring a mission statement and vision to fruition, they must take a good hard look at their business plan. A company must reflect upon internal strengths and weaknesses, external opportunities and threats, and consider the trends associated with each. The fundamental process of strategic ...
In 1990, the company took further steps forward with expansion of the Seattle headquarters and an increase in resources with the opening of a new roasting plant. Relationships and other ventures also took off during the early nineties as the company looked to development organizations to further its progress. By 1995, the company really established its name with the opening of the 676th store as well as increasing the products in store with the addition of compact discs a result of a previously popular experiment with ‘in-house’ music. In 1996, the company kept on stretching its reach by entering into the market of Japan, Singapore and Hawaii. This was achieved through joint ventures including the one formed with Sazaby Inc., which pushed through the development of coffee houses in Japan. By the year 2000, things had progressed so far that 3,300 stores were already opened, the company had ventured into countries ranging from England to Australia and a website was created to keep up operations with the latest technology (starbucks.com).
The current international situation for Starbucks seems to be an emerging part of their business and the reorganization of this is proved by their aim to become a leading global company through making a difference in people’s lives all around the world (http://www.starbucks.com).
This goal is quite close to being achieved as proved the Starbucks current locations in international markets and the successfulness of these ventures. The current countries in which Starbucks are located in are: Australia, Bahrain, Canada, Hong Kong, Israel, Japan, Kuwait, Lebanon, Malaysia, New Zealand, Oman, Peoples Republic of China, Philippines, Qatar, Saudi Arabia, Singapore, South Korea, Switzerland, Taiwan, Thailand, United Arab Emirates, United Kingdom, and the United States (starbucks.com).
Overall, the aim of becoming a worldwide global brand seems to be working in favor of the company and is helping it to attract the attention of many major companies who would like to share a partnership (starbucks.com).
This is all positive news for the company because it provides a strong basis for future development of international markets, which further strengthens the mission to become one of the leading specialty coffee retailers in the world. In addition to the fact that Starbucks has already successfully opened around 3,500 stores, the ‘push’ to achieve their goal is proved more than ever by the aim to open at least 650 stores just in Europe by the year 2003. It’s these types of goals which prove the potential of this brand to become so popular and well known, that it would be as recognizable as major names such as McDonalds and Coca-Cola.
The Essay on Ethos, mission, aims and values
Explain how the ethos, mission, aims and values of a school may be reflected in working practice. The Ethos of the school should be recognisable when entering the school setting as it is all encompassing from the reception staff, children, teachers to the general feeling of the school. The mission statement of the school usually in motto form and at Offley this is “Joy in Learning “ is reflected ...
Mission Statement of the Company
The mission of Starbucks is to establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow. None of this success would have been possible without a set of goals that the company aimed to achieve and a set of principles, which governed the decision making process. Starbucks has a clear set of guidelines which has to be followed and uses these as a direction tool for the future of the business. Traditionally, the guidelines would more appropriately be connected to the vision; however the company has set them with the mission statement. The six principles of Starbucks are stated as “Provide a great work environment and treat each other with respect and dignity, Embrace diversity as an essential component in the way we do business, Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee, Develop enthusiastically satisfied customers all of the time, contribute positively to our communities and our environment, and recognize that profitability is essential to our future success” (starbucks.com).
Application of these principles can be used as a guideline for all employees from managers to workers to aim to achieve the company’s goals, while maintaining a certain type of standard. This mission statement along with the set of guidelines provides a focus for employees as they make strategic decisions. It not only supports the employees, but supports the customers as well, making a note that they should satisfied all of the time. The mission shows alignment with the vision by stating how the company plans to reach the broad goals set by the vision statement. Another supporting sentence in the mission statement is that the “company applies the highest standards of excellence to the purchasing, roasting and fresh delivery of its coffee.” This statement supports the idea that Starbucks uses the best available resources to give it a recognized and respected name.
The Term Paper on Starbucks company profile study
Berjaya Starbucks Coffee Company Sdn Bhd is an authorized licensee of Starbucks Coffee International, Inc. It is wholly owned subsidiary of Berjaya Group Berhad which holds 51% share and Starbuck Coffee International, Inc has 49% share capital of the company. As a Starbucks franchisee in Malaysia, currently it is holding more that 45% share of the local gourmet coffee market. It operates Starbucks ...
Objectives of my Research
The set of goals that the company aimed to achieve and a set of principles, which governed the decision making process. Take the company timeline and strategic decisions portion in two main sections. The first as a Private Company inception in 1971, and Second its initial public offering in 1992 to present. Starbucks strategy of growth, Marketing and Sales, Customer Service, Procurement, Human Resource Management, Technology Development, Marketing Research and Development, Financial and Accounting, Demographic Factors, Legal / Political Forces, and Economic aspects.
Macro-Environmental Analysis of the Company
In this section of Macro-Environmental, I will discuss the factors of looking at the “health of the industry and company, political/legal, historical, demographics in showing how the changing population will impact the company, the social/cultural on how changes in these areas will impact the company and how technology will impact the company.” (Schultz, 2007)
Economics
Economic factors are an important aspects that concern the nature and direction of the economy in which a firm operates. Since the relative affluence of various market segments will affect the consumption patterns, companies must take this into consideration when planning its strategy. In periods of normal price variation, the demand for coffee is price inelastic. However, when coffee prices show big increases, consumers tend to reduce their consumption commensurately.
The Company’s net revenues increased from $1.3 billion in fiscal 1998 to $1.7 billion in fiscal 1999, due primarily to the Company’s store expansion program and comparable store sales increases. As part of its expansion strategy of clustering stores in existing markets, Starbucks has experienced a certain level of cannibalization of existing stores by new stores as store concentration has increased. However, management believes such cannibalization has been justified by the incremental sales and return on new store investments. This cannibalization, as well as increased competition and other factors, may continue to put downward pressure on the Company’s comparable store sales growth in future periods. (starbucks.com)
The Term Paper on Specialty Coffee Starbucks Company Market
Michael Porter, a Harvard Professor introduces his ideology of the Five Forces model that shapes the competition in the industry. Each force is interrelated and therefore leads into the other to show the elements directly involved in the further success or ultimate success of the firm. Starbucks Coffee Co. throughout its existence since 1971, with its great management team, innovative style of ...
Political/Legal
Right now, Starbucks had two class action suits pending since 2001. The lawsuits entitled Carr vs. Starbucks and Sheilds vs. Starbucks are challenging the status of Starbucks California store managers and assistant managers as exempt employees under California wage and hour laws. Starbuck’s is denying all liabilities in these cases, however; the company has agreed to the settlement in order to take care of all of the plaintiffs’ claims without having to get involved in any protracted litigation.
Starbucks also only imports all their coffee beans, so possible threats could include a change in import laws. A change in the status quo as far as imports go could greatly affect numerous areas of production for the company. For example, if it costs more to import or the process is made more difficult the result could ultimately be a change in price, which would affect the level of consumption for Starbucks coffees (starbucks.com).
Historical
Started as a Private Company 1971, Starbucks began when three friends-English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker opened a store called Starbucks Coffee, Tea, and Spice in the touristy Pikes Place Market in Seattle (Thompson).
The three original partners each invested about $6,350 in the store, and believed they would build a client base in the Seattle area. This was a strategic decision because they saw an opportunity in the fine coffee market, as they saw another similar store have success in the San Francisco Bay area (Thompson).
The store sold coffee beans, and high quality coffee making equipment. The owners prided themselves on their knowledge of coffee bean and of educating customers about the benefits of dark roasting coffee (Thompson).
In 1972, after the success of the first store, a second Starbucks was opened in Seattle (Thompson).
September 1982 Howard Schultz, current chairman of Starbucks, was hired to manage retail sales and marketing (Business & Company, 2002).
After meeting with the owners early in 1982, Schultz was taken in by Starbucks commitment to quality and of educating customers of the benefits of slow roasting dark coffee beans. By this time Starbucks had expanded to operating five stores, and a small coffee bean toasting facility (Business & Company, 2002).
The Business plan on Complete Analysis of The Starbucks Coffee Company
... U.S. companies to enter the Asian market in a serious way before trying out Europe. Approximately ten Starbucks Coffee stores are expected to be opened within ... interior decorations, clothing and handbags. The new company will be called Starbucks Coffee Japan Ltd.A second Starbucks store was opened in Ochanomizu, a less glitzy district ...
In 1983, After visiting Milan, and seeing that the vast quantity of coffee and expresso bars, Schultz realizes that Starbucks should be selling espresso, cappuccino, and fresh brewed coffee, as well as selling coffee beans and high quality coffee equipment (Thompson).
He was met with resistance as the owners did not want Starbucks to sell beverages (Business & Company).
In April 1984, Schultz finally convinced the owners to open a sixth “test” store in Seattle area (starbucks.com).
It was an Expresso Bar that was designed to sell coffee, espresso, and cappuccino, and the store had immediate success (Thompson).
In April 1986, Schultz left Starbucks to fulfill his idea of building espresso bars around the Seattle area and opens II Giornale (Thompson).
In a year and half two more II Giornale espresso bars would be opened, all serving Starbucks coffee (starbucks.com).
In March 1987, Giornale and Howard Schultz acquired Starbucks for $3.84 million (Thompson).
They acquired the Starbucks name, roasting plant, stores, etc. The new name of the company would be Starbucks Corporation, and Howard Schultz was the new CEO. Schultz has a strategic vision of Starbucks becoming a national company. His goal was to open 125 stores in the next five years. Schultz had already demonstrated his corporate vision and growth strategy with Giornale, now he was horizontally integrating in the Seattle Market by acquiring Starbucks. This would be the first major acquisition in Starbucks history. Between 1987 through 1990 Starbucks entered new Markets, and continued to grow. Schultz announced a five-year growth plan to build 125 new stores (Thompson).
At the end of 1987, there were 17 Starbucks locations, and by 1990 there were 84 (starbucks.com).
During this four year growth phase Starbucks entered the markets of Chicago, Vancouver, and Portland (starbucks.com).
In 1988 the company started a mail order catalog for it’s fine dark roasted coffee beans and high quality coffee equipment (Business & Company, 2002).
In 1991, Schultz makes Starbucks, “the first privately held company to establish an employee stock option program that included part-timers.” (Business & Company, 2002).
The Essay on Starbucks Coffee Partners One Stores
... than 50%. web. About the Company. Timeline. (2003) Miazzi, Patrice. Manager of Starbucks Coffee location #8514. Personal Interview. April 10, ... and rethink environmental practices in their stores and roasting plants. Individual stores or partners receive the "Green Bean ... of the Starbucks mission statement is to: Contribute positively to our communities and our environment. Partners (employees) take ...
Schultz had a business strategy to retain high quality employees by making Starbucks a great place to work. He referred to every employee as a “partner” in the company (Thompson).
In 1991, Starbucks Company entered next big market, California. Management believed this would be a favorable market because of its “trendy” nature (Thompson).
In 1992, Starbucks had opened 150 new stores between the five-year period of 1987-1992, 25 more than the original plan (Thompson).
This was a tribute to the high sales and success that Starbucks was having throughout its markets. People were associating Starbucks with high quality coffee and it was becoming a very social atmospheres.
Became a Public Company in June 1992, Starbucks Company was very successful after its initial public offering on the NASDAQ exchange (Thompson).
In 1993, during this year Starbucks opened in the Washington, D.C. market, opened its second roasting plant, and began its long-term relationship with Barnes & Noble, Inc. to sell coffee products at its bookstores (Business & Company, 2002) (starbucks.com).
In 1994-1995, these years represent more growth and partnerships, including an acquisition of The Coffee Connection, Inc. for $23 million (Business & Company, 2002).
During these years Starbucks penetrated the approximately 15 more markets (cities) in the United States (starbucks.com).
It also formed a strategic alliance with PepsiCo, the North American Coffee Partnership, to manufacture and distribute coffee drinks. This strategic decision turned out very lucrative as Frappuccino, an iced coffee drink, has had an incredible amount of success in grocery and convenience stores. Starbucks also opened two more major accounts; Sheraton Hotels, and United Airlines (starbucks.com).
In 1996, Starbucks Coffee International, a subsidiary of Starbucks Corporation, formed a joint venture with Sazaby Inc., a Japanese corporation, to bring Starbucks into Japan in 1995 and in 1996 it opened its first international location in Tokyo. This marked the beginning of its International growth, which would see locations in Singapore at the end of 1996; Taiwan, Thailand, New Zealand and Malaysia by 1998; China, Lebanon, and South Korea by 1999; and Spain, Puerto Rico, and San Juan by end of 2002 (Business Wire) (starbucks.com).
By 2002, Starbucks had locations in almost thirty countries (starbucks.com).
Also in 1996 Starbucks formed an alliance with Dreyer’s Ice Cream to introduce coffee ice cream products, according to starbucks.com became the “number one brand of coffee ice cream in the United States.” By 1996 there were 1,015 Starbucks locations (starbucks.com).
By 1998, Starbuck acquired the Seattle Coffee Company, located in the United Kingdom and comprised of 56 locations, for over US$60 million (BBC News Online, 1998).
This is the beginning of Starbuck’s president’s goal of opening 500 stores in Europe by 2003 (BBC News Online, 1998).
There were two major events during 1999. The first was the acquisition of Tazo, a tea company (Business & Company, 2002).
The second was a long-term contract with Albertson’s supermarkets (Albertson’s, 1999).
In this deal more than 100 Starbucks Coffee bars would be opened in Albertson’s grocery stores in the U.S… This was also a strategy by Starbucks to introduce Frappuccino, Tazo tea, and other merchandise to new markets across the Midwest, where Albertson’s is centralized (Albertson’s, 1999).
During 2000, approximately 1,865 Starbucks locations were opened in the United States and abroad (starbucks.com).
In addition, Starbucks entered into a contract with Host Marriott International, as this continued their growth into the hotel industry (starbucks.com).
In 2001, this year represented another year of substantial location growth, with over 1,400 new locations, bringing the total amount to 4,709. In addition Starbucks Japan, Ltd, “Starbucks Japan” saw the opening of its 300th Japanese location after winning immense popularity in Japan and financial success after its Initial Public Offering on NASDAQ Japan September of 2001 (starbucks.com) (Business Wire).
By 2002, Starbucks continues to break through into new markets in new countries. In March of 2002, Starbucks celebrated its first store opening in Spain, and announced plans to open hundreds of new stores internationally (Puget, 2002).
Starbucks is a global corporation with 4,709 total locations in the United States and worldwide (starbucks.com).
With operations in almost thirty countries, such as the United States, Australia, Germany, United Kingdom, and Qatar, to name a few, they reported revenues of over $2.64 Billion in 2001 (Starbucks Corporation).
The company reported total assets of $1.851 billion in 2001. Starbucks continues to grow at a rapid pace, with plans to open over 600 locations in Europe alone by 2003 (starbucks.com).
Starbucks has quickly become well established in the United States having locations in every major city. Starbucks employed over 59,000 people during 2001, with an employment growth rate of 24% (fortune.com).
Demographics
Starbucks originated in the United States, which is the sector we will be examining for demographics. According to the CIA World Fact book, the population of the U.S. as of July 2001 was estimated at 278,058,880 (CIA).
Population facts are important to Starbucks because they can give Starbucks valuable statistics, such as US population base per Starbucks store. People ages 15-64 make up the largest percentage of the population, and therefore will have greater control of the market than any other sector (CIA).
This implies that the most important target markets for Starbucks are people within this age group. The two largest ethnic groups in the U.S. are white 83.5% and black 12.4. The ethnic background is important to a company because it influences tastes, trends, perceptions, values and beliefs of an individual. Estimated GDP in 2000 was $9.963 trillion (CIA).
GDP real growth rate was 5% (CIA).
The growth rate of GDP suggests that the economy is growing, and therefore there is opportunity for Starbucks to expand business. A very large per capita purchasing power parity of $36,200 suggests that Americans have the opportunity to buy specialty coffee drinks from an expensive, quality-intensive organization such as Starbucks (CIA).
An inflation rate in consumer prices in the year 2000 of 3.4% is a high inflation rate. T his suggests that the economy could be heading towards recession. During a recession, it could be expected that consumers would spend less on premium luxury items such as Starbucks’ coffee.
Social/Cultural
As a result of Starbucks closely following their objectives, the company has installed a list of principles that further outline the company’s willingness to make sure that its affect on the environment is as positive as possible. These principles are stated as “Understanding of environmental issues and sharing information with our partners, developing innovative and flexible solutions to bring about change, striving to buy, sell and use environmentally friendly products, recognizing that fiscal responsibility is essential to our environmental future, instilling environmental responsibility as a corporate value, measuring and monitoring our progress for each project, and encouraging all partners to share in our mission.” The importance of these guidelines is further illustrated by the company’s mission to show leadership towards environmental issues. This can only be seen as a positive for the image of the company and shows that they are willing to utilize their resources in order to more than satisfy requirements. In addition to this, Starbucks doesn’t just rest on its laurels, it demonstrates it through participating and organizing activities such as neighborhood clean-ups and walk-a-thons. Once again, the company’s image is strengthened by its actions and shows that it is able to actively contribute with the right focus behind its activities. Further examples of the company’s actions towards environmental friendliness include the recycling and reusing of resources in order to enhance the lives of people around the world (http://www.starbucks.com).
Policies that also have been implemented are the buying policies, which only allow the company to purchase from those other businesses (suppliers) who follow the same environmental strategy as Starbucks. This illustrates the integrity of the company as they can sometimes sacrifice opportunities if they don’t follow what the company stands for. In addition to waste reduction, Starbucks also aims to reduce energy usage and once again, demonstrates this by doing energy audits and then using the results to change store design or procedures so that they save as much energy as possible. Lastly, to integrate these policies to new employees, Starbucks has employed the services of a few partners which congregate together to create a “Green Team,” which installs the environmental views into trainees as well as coming up with inventive ways of helping the environment.
Technological
Starbucks is continuously searching for ways to better a customers’ experience. With the introduction of the Starbucks Card for example, the Company has created the opportunity to improve customer service, shorten lines and make a customer’s visit at Starbucks quicker and more convenient. Most if not all Starbucks location have WI-FI for consumer needs.
Micro-Environmental Analysis
In this section, I will discuss the factors of company management, marketing and finances.
Management
Starbucks realizes that one of their most valuable resources is their employees. The first guiding principle in their mission statement even addresses the Company’s belief towards employees: “Provide a great work environment and treat each other with respect and dignity”. Management understands that their employees play a major role in the growth of the company. All employees at Starbucks are referred to as “partners”, no matter what job position they occupy. The Company’s cultural values give employees a sense of meaning to their work even if it is just pouring a cup of coffee. Each partner (even part-time employees) is eligible to receive health care, participate in the Bean Stock program, and get a free pound of coffee each week. Under the Bean Stock program, employees are offered stock below the fair market value several times a year. Starbucks’ employees also participate in a 401(k) profit sharing plan. Starbucks believes they are in the coffee business as well as the “people development” business. Each employee is required to complete an extensive training program that includes product expertise, a commitment to customer service, and well-developed interpersonal skills. Professional coffee bartenders for Starbucks complete up to 24 hours of training before entering their assigned store. This training gives them knowledge to answer any questions about coffee or the Company, and the knowledge to arrange sample tastings and demonstrations with any of the equipment in the store. While the industry turnover rate is about 400 percent, Starbucks maintains a turnover rate of only 50 percent. Due to this low turnover, Starbucks has lowered their training time and costs. Additionally, Starbucks is proud to note that it was again rated as one of the best companies to work for by Fortune magazine.
Starbucks firmly believes that their employees are one of their important assets and that it is through their high quality workforce, that they are able to maintain a competitive advantage. They have successfully built a nationwide Retail Company by creating pride in the labor force produced through an empowering corporate culture; exceptional employee benefits, and employee stock ownership programs. Employees are empowered by management to make decisions without having to first report to management, and are encouraged to think for themselves as an entity of the business. The culture towards employees can be described as “relaxed” and supportive. Starbucks has avoided a hierarchical organization structure and has no formal organizational chart. It is evident that employees at Starbucks share common goals. An employee was quoted as saying; “We all have this common belief in the product we sell”.
Marketing
Starbucks is the leading specialty coffee retailer in the nation, with over 5,000 locations in 22 international markets. Starbucks positions their products on a relatively simple plane. They focus on quality and experience, rather than price. A comparison of specialty drinks with its competitors reveals very minor differences. Starbucks’ image is one of the key elements to their success. The company has realized that people don’t only come for the coffee; they come for the atmosphere. People socialize, read, study, or just enjoy the music while drinking their coffee. Knowing this, Coffee shops try to make their stores unique in some way or another that will create an appealing atmosphere. Starbucks has less of a distinct setting for their locations; instead, they focus on having plenty of comfortable seating so that people feel welcome to stay longer than they might have planned. Starbucks also positions each store individually according to the specific location it is in. This flexibility has attributed to the great success of the Company in the past decade. Another important part of Starbucks’ positioning is that they are environmentally friendly. While other retailers position themselves in similar ways, no one focuses to the extent that Starbucks has. Consumers seem to respond to environmentally friendly companies who seem to truly care about the future of the world.
Starbucks’s organizational culture is one of innovation and creativity. This is evident through the continuous developments of new and exciting products. Whether it’s the new 4-cup thermal coffeemaker recently introduced to the market, or the Starbucks ‘Double Shot’ Espresso beverage, Starbucks seems to be the market leader when it comes to new products and ideas. In November 2001, the Company introduced the ‘Starbucks Card’, which is a stored-value card that can be loaded and re-loaded in denominations up to $500. The Starbucks Card is a wonderful convenience tool for customers that can serve as great gifts, and reduces time spent at the cash register. This contributes to the overall enhancement of the customer’s experience. Starbucks is extremely pleased with the ongoing positive customer response to the Starbucks Card. It is through the introduction of new products and the development of new distribution channels that Starbucks focuses on their Company’s goal of becoming the most recognized and respected brand in the world. Starbucks is one of the fastest growing companies in the U.S.; from just 17 coffee shops in 1987 to over 5,000 today. Future plans include opening at least 1,200 new stores during 2002 and by 2005, to have over 10,000 stores worldwide.
Advertising strategies used by Starbucks has also been a key success factor. Starbucks has found more success advertising on a local level rather than to the nation as a whole. The Company advertises a lot through print mediums, as Starbucks’ target market tends to be educated people who do more reading than the average person.
Finance
During the fiscal year ending September, 2007, reported revenues were $9.4 Billion. This was over $5.4 Billion higher than the previous year. Reported gross profit increased over $800 million from 2006 to $5.4 Billion. Starbucks reported 2007 Operating Income of $945 million and Total Net Income $672 million, both figures increasing substantially from the previous year (Starbucks Corporation).
Starbucks Corporation has quite a few very strong financial ratios, which we will now look at. The P/E ratio (profit/earnings) in 2007 was 71.2, which is far superior to the Industry average of 47.4 (Ratio, 2008).
Starbucks EPS, earnings per share, of 81.79 is over five times higher than the industry average of 12.67 (Ratio, 2008).
The quick ratio, which relates total current liabilities to cash, marketable securities, and receivables of 1.48, is a strong figure. Starbucks Corporation’s Current Ratio of 17.7 is slight less than the industry average of 18.6. As the Current Ratio is the company’s current assets / current liabilities, this indicates that Starbucks Corporation has the ability to satisfy its current liabilities with its current assets, and with the ratio of 17.7 it is a signal of financial strength. Some other ratios found from Multex.com include a Return on Assets of 11.31, a Return on Investment of 14.52, and a Return on Equity of 14.86. Starbucks ROA and ROI are both stronger the industry average, but the ROE is slightly weaker than the industry average of 17.80. Inventory Turnover ratio is 11.48, which indicates that Starbucks Corporations inventory is highly liquid, and its operating cycles are very healthy (Ratio, 2002).
This ratio is one more strong measure that Starbucks is a corporation that has exhibited strong financial performance.
Starbucks Corp.
Income Statement
View: Annual Data | Quarterly Data
All numbers in thousands
PERIOD ENDING30-Sep-071-Oct-062-Oct-05
Total Revenue9,411,497 7,786,942 6,369,300
Cost of Revenue3,999,124 3,178,791 2,605,212
Gross Profit5,412,373 4,608,151 3,764,088
Operating Expenses
Research Development- – –
Selling General and Administrative3,999,274 3,420,925 2,720,049
Non Recurring- (93,937)(76,745)
Others467,160 387,211 340,169
Total Operating Expenses- – –
Operating Income or Loss945,939 893,952 780,615
Income from Continuing Operations
Total Other Income/Expenses Net2,419 12,291 15,829
Earnings Before Interest And Taxes1,056,364 906,243 796,444
Interest Expense- – –
Income Before Tax1,056,364 906,243 796,444
Income Tax Expense383,726 324,770 301,977
Minority Interest- – –
Net Income From Continuing Ops672,638 581,473 494,467
Non-recurring Events
Discontinued Operations- – –
Extraordinary Items- – –
Effect Of Accounting Changes- (17,214)-
Other Items- – –
Net Income672,638 564,259 494,467
Preferred Stock And Other Adjustments- – –
Net Income Applicable To Common Shares$672,638 $564,259 $494,467
Starbucks Nonfinancial Performance Starbucks Corporation was voted by Fortune Magazine as one of the Top 100 Best Companies to Work For in 2002, ranked number 58 to be exact (fortune.com).
As of 12/1/2001 Starbucks Coffee has 51,914 employees in the United States, and 7,627 employees outside of the U.S. (fortune.com).
Starbucks Corporation created 12,650 new jobs in 2001 from a pool of over 720,000 applicants, with a 24% Job Growth Rate (fortune.com).
26% of its workforce is made up of minorities (non-Caucasian), and 60% of it is made up of women (fortune.com).
Starbucks Corporation chairman Howard Schultz believes that Starbucks should be a great place to work, and should treat every one of their employees as partners. Some examples of his good faith have been employee stock options plans, and health coverage that allow any employee, part-time or full-time, to benefit from. The plans have succeeded in having a low voluntary employee turnover rate in 2000 of 23% (fortune.com).
Starbucks Corp.
Cash Flow
View: Annual Data | Quarterly DataAll numbers in thousands
PERIOD ENDING30-Sep-071-Oct-062-Oct-05
Net Income672,638 564,259 494,467
Operating Activities, Cash Flows Provided By or Used In
Depreciation491,891 414,638 377,304
Adjustments To Net Income7,405 (69,206)80,168
Changes In Accounts Receivables- – (49,311)
Changes In Liabilities224,300 348,662 85,704
Changes In Inventories(48,576)(85,527)(121,618)
Changes In Other Operating Activities(16,437)(41,193)56,894
Total Cash Flow From Operating Activities1,331,221 1,131,633 923,608
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures(1,080,348)(771,230)(643,989)
Investments(68,310)21,924 452,179
Other Cashflows from Investing Activities(53,293)(91,734)(29,498)
Total Cash Flows From Investing Activities(1,201,951)(841,040)(221,308)
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid- – –
Sale Purchase of Stock(819,861)(694,796)(950,092)
Net Borrowings558,424 422,102 276,265
Other Cash Flows from Financing Activities89,550 117,368 –
Total Cash Flows From Financing Activities(171,887)(155,326)(673,827)
Effect Of Exchange Rate Changes 11,272 3,530 283
Change In Cash and Cash Equivalents ($31,345)$138,797 $28,756
Conclusion and Recommendations
From a single privately-owned coffee shop to becoming a publicly-owned corporation with over 10,000 stores in 37 countries worldwide, Starbucks has been through some growing pain to where the Company stands now, all because of the vision of its founder Howard Schultz. The Company has been very successful in achieving its goal to become the world’s leading coffee brand. Nevertheless, after a thorough marketing audit, the following summaries some areas of Starbucks weakness, because the Company’s full efforts has been focused on store expansion and new market discovery, Starbucks may have neglected some consumers’ concern of the Starbucks brand is too pricy. It appears that Starbucks’ main marketing segment is the young adults with its coffee shop setting and music service additions. There does not seem to be any special services being offered to older adult retirees. Since the Company has been concentrating on developing more blends of coffee drinks, Starbucks may have over looked the potential market of different healthy tea drinks. Although Starbucks maintains a top-notch management team, the Company does not seem to have a well-organized consumer relations department. As it was evidenced on the viewed as offensive cup quotation case and the issues with the Marine’s email from Iraq accusing the Company of refusing to support the troops, Starbucks was a little too slow on clearing up the conflicts. One of Starbucks’ guiding principles is to create a pleasant work environment for its employees.
Recommendations, while it is good to maintain brand prestige with a higher pricing strategy, Starbucks should consider the general demand and work a price reduction strategy into the Company’s overall pricing strategies. Price reduction strategies may include a rebate or coupon promotion program. T he increase in sales will offset the costs of these price reduction programs. While active young adults are more likely to be coffee shop patrons, the older generation retirees may also want to have a hang out place. Starbucks should consider tailoring some of its coffee shops to accommodate these older adults, perhaps another line of special drink products and services. Besides concentrating on coffee specialties, Starbucks should also consider researching into the tea specialty drinks market. Tea drinks will increase popularity because their perceived value of healthy benefits. Starbucks may need to review its company policies to see if updates are needed to address different consumer relation situations. Sometimes managers may not be able to act immediately and appropriately to settle consumer issues because they are abided by rather strict company policies. For some situations these policies need to be more flexible to ensure problems are being resolved in a timely manner to minimize further damages. Employees are the backbone of a company. Starbucks may consider locality pay to compensate employees who are working in Starbucks store where the local living cost is much higher compared to other towns. This compensation my help build a better worker relation since the primary concern of the Union was the claim that Starbucks does not have a fair pay system.
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