Strategic Analysis of StarBucks
-
Upload
saad-abu-bakar -
Category
Documents
-
view
769 -
download
11
Transcript of Strategic Analysis of StarBucks
Strategic Analysis of Starbucks
OVERVIEW Introduction Coffee Facts History – Time Line Mission Statement Industry Analysis External Assessment Internal Assessment Strategies in Action Strategy Analysis and
Choice Implementing Strategies Evaluation and Control Recommendation
Introduction Starbucks started in 1971 in
Seattle, Washington Founded by – Zev Seigel, Jerry
Baldwin & Gordon Bowker Grew from 17 stores in 1987
to over 17,200 stores in 49 countries, including around 9,177 in the United States
Revenue - $9.411 billion (2008)
Employees – 172,000 worldwide
Products line include: Beverages Pastries whole coffee beans coffee-related retail items
Coffee: Some Facts
First consumed in East Africa during the 11th century
Quality of beans – Robusta & Arabica
Produced in 70 countries
Global coffee production – 134.2 mn bags
More than $70 bn retail sales globally
History & Time Line
1971 Starbucks Coffee, Tea, and Spice opens in Seattle by Zev Seigel, Jerry Baldwin & Gordon Bowker
19831984198619871989
Schultz was impressed with the espresso bars culture in Italy. Schultz convinces the founders to test the coffee bar concept Mr. Schultz sees the future of coffee – Opens Il GiornaleMr. Schultz buys Starbucks concept. Total = 17 LocationsAchieved profitability. Total = 55
199019211993199519971998
1999
Builds a new roasting plant in Seattle. Total = 84IPO traded at Nasdaq. Total = 165Opens second roasting plant in Kent. Total = 272 First Joint Venture with Japan. Total = 676 Opens in the Philippines. Total = 1,412 Partners with Kraft to distribute coffee in supermarkets. Opens in Taiwan, Thailand, New Zealand, and Malaysia. Total = 1,886 Opens in China, Kuwait, Korea, and Lebanon. Total = 2,135
2000 Howard Schultz Became chairman and chief global strategist. Opens in Dubai; Hong Kong; Shanghai; Qatar; Bahrain; Saudi Arabia and Australia. Total = 3,501
History & Time Line
2001
2002
2003
2004
20052006
2007
2008
2009
Begins to offer high-speed wireless internet access and third roasting plant located in Carson Valley. Opens in Switzerland , Israel, and Austria. Total = 4,709 Introduces Starbucks Barista Quattro™ thermal coffeemaker Opens in Oman; Indonesia; Germany; Spain; Puerto Rico; Mexico; Greece and Southern China. Total=5,886 Develops Starbucks Card, a stored value card for customers to use and reload. Opens in Turkey, Chile, and Perú. Total = 7,225 Opens in France, San Jose, Costa Rica. Launches in-store CD burning service powered by HP. Total = 8,337Opens in India.Closed location in the former imperial palace in Beijing due to ongoing controversy with protests on AmericanizationStarbucks cancelled plans to expand into India but opened its first store in Russia.Continued its expansion, settling in Argentina, Bulgaria and PortugalStarbucks entered Poland. Total 17,200 in 49 countries
The Business Mission
Mission Statement
Industry Assessment
Industry Definition
Specialty Eatery Industry Food and beverages Steady growth in the
90s leading to increased competition
Demand for specialty food services has increased in recent years
Industry and Competitive Analysis
Market Structure Monopolistic Competition
Competitive Activity Many companies are in the market and
competition is fierce Competitors use location, product mix, and
store atmosphere differentiation to establish market niche
Industry Costs and Capital Structure Low to moderate costs for each location Major start-up expenditures are property and
equipment Major operating costs are labor and cost of sales
International Competitors
Dunkin Donuts Sells coffee beans both online &
at physical outlets Fresh brew coffee Similar services & products as
Starbucks
Mc Donald’s Offers number of specialty
coffees Huge penetration Established fast-food retailer
The External Assessment
PEST Analysis
Political Influences State & Local government controls
Economic Influences Changes in disposable income could
influence purchase levels Social Influences
Consumer preferences could shift from coffee to other beverages
Technological Influences Use of technology can improve operational
efficiencies
Porter’s Five Forces
Competition Tully’s Coffee, Gloria Jean’s, Caribou Coffee etc. Competition nowhere in terms of volume of operations Competitors selling similar products, incl. specialty coffees
& high quality food Threat of new entrants
Controlled access of distribution channels Innovation & product differentiation
Bargaining power of buyers More options due to no. of competitors Large variety of products
Bargaining power of suppliers Over crowding of market Rise in prices of coffee beans Choose suppliers based on quality, social, environmental
& economic issues Threat from substitutes
Tea Soft drinks Juices
External Factor Evaluation Matrix
Opportunities W.t Rating
Total
1 Expansion into European and Latin American markets
0.15 4 0.6
2 Distribution agreements with hotels, airlines, and office
0.05 2 0.1
3 Use supermarkets as a way of expanding into international markets
0.05 2 0.1
4 Numerous brand extension according to local taste 0.05 3 0.15
5 Improve on perception of instant and decaffeinated coffee to expand that market share
0.2 2 0.4
Threats
1 The coffee market is saturated 0.05 2 0.1
2 Cost of coffee beans is expected to rise in the near future
0.15 3 0.45
3 Supermarkets threaten whole bean sales 0.05 2 0.1
4 Farmers might switch from coffee to vegetable crops 0.05 1 0.05
5 Consumers trend toward more healthful fare 0.2 4 0.8
1.0 1-4 2.85
Internal Assessment
Internal Factors
Management - Howard Schultz – CEO Organization’s structure - Empowered employees Organizational culture – friendly & relax culture Marketing Finance/ Accounting Research & Development - Continuous testing and
innovation Customer Service - Second to none Human Resources - Overtime plus fringe benefits Managing Information system - ERP Value chain Analysis - Roasting plants supply chain
Financial Analysis
Solvency Not extremely liquid but capability in Financing short-term debt will not be a problem
Profitability Profitable Below industry standards Declining in 2008 due to higher operating costs
Financial Leverage Initially the company was financed majorly by equity capital later over the years it accepted debt majorly long term Has ability to cover debt obligations
LIQUIDITY RATIOS
LEVERAGE
Years 2008 2007 2006 2005 2004
Current Assets 1,748.0 1,696.49 1,529.79 1,209.33 1,350.9
Current Liabilities 2,189.7 2,155.57 1,935.62 1,227.0 746.26
Current Ratio 0 .8 0.79 0.79 0.99 1.81
Years 2008 2007 2006 2005 2004
DEBTS 3181.7 3,059.76 2,200.44 1,423.43 916.33
EQUITY CAPITAL 2490.9 2,284.12 2,228.51 2,090.26 2,470.21
DEBT –EQUITY RATIO 1.28 1.34 0.99 0.68 0.37
Financial Analysis
STARBUCKS INDUSTRY S&P 500
Sales (5-Year Annual Avg.) 20.57 18.96 12.90
Net Income (5-Year Annual Avg.)
3.52 9.23 15.13
Dividends (5-Year Annual Avg.) NA NA 11.79
STARBUCKS INDUSTRY S&P 500
5Yr Gross Margin (5-Year Avg.) 2Profit Margins % 3.0
29.6 39.4
5Yr Net Profit Margin (5-Year Avg.)
6.3 8.9 11.5
5- YEAR PLAN
GROWTH RATES %
Starbuck percentage Share Worldwide
Yearly Sales Data of Starbucks
Internal Factors Evaluation Matrix
Strengths W.t Rating Total
1 Never experienced a strike or work stoppage 0.05 2 0.1
2 Good relationships with coffee suppliers 0.1 4 0.4
3 Value employees 0.05 2 0.1
4 Located in high traffic areas 0.2 3 0.6
5 Successful Beverage Innovator 0.1 4 0.4
Weaknesses
1 Rumors of support for the Israeli military 0.1 3 0.3
2 Employees report to two division heads 0.05 2 0.1
3 Increasing shareholders dilutes their interest 0.1 3 0.3
4 Saturated US market due to quick expansion 0.05 2 0.1
5 Do not allow smoking in their stores 0.2 4 0.8
1.0 1-4 3.2
Strategies in Action
Alternative Strategies
Backward Integration – Coffee roasting plants
Forward Integration - Partners with Kraft to distribute coffee in supermarkets.
Market Penetration – Europe, China & Japan Market Development – Egypt, Pakistan Product Development – Coffee Ice Cream Related Diversification – DUETTO value card Unrelated Diversification - Thermal
coffeemaker, Wi-Fi & in store CD- burning Retrenchment - Eliminating Non-Profitable
Operations and expansions.
Long term plan: from 2003 to 2010 Starbucks opens
17,970 new stores
YearTotal North America International
About 20% growth annual 9.5% growth annual
35.8% growth annual
2003 7,086 5,324 1,762
2004 8,543 5,830 2,393
2005 9,633 6,384 3,249
2006 12,000 6,990 4,413
2007 14,400 7,654 5,992
2008 17,280 8,381 8,138
2009 20,736 9,177 11,051
2010 25,057 10,049 15,007
Overview of 2008 & Financial Target for 2009 Throughout fiscal 2008, Starbucks experienced a consistent
weakening in its U.S. business,. Management recognizes that it faces a more challenging environment from an economic, operational and competitive standpoint entering fiscal 2009. In response to those challenges, management intends to focus in the following key areas: Better operational excellence at the store level; More meaningful innovation to continue to differentiate the
store experience; Increased efficiencies and effectiveness in the general and
administrative infrastructure, to become more capable of navigating through the fluctuations in the external environment.
In setting targets for fiscal 2009, management’s goal was to
balance the long-term opportunity for store growth with the near-term realities of the challenging economic and operating environment. For fiscal 2009 the Company is targeting: Opening approximately 2,500 new stores Comparable store sales growth in the range of 3% to 5% Total net revenue growth in the range of approximately 17%
to 18%, to over $11 billion Earnings per share in the range of $1.02 $1.05, representing
17% to 21% growth, with earnings per share expansion expected to be greater in the second half of fiscal 2009.
Strategy Analysis and Choice
Identifying the markets
Current market: over 50% of world’s coffee consumption
Current market: 12-15% of world’s coffee consumption
Current market: under 10% of world’s coffee consumption
Well-developed market, long-standing coffee drinking traditionsAffluent population, room for gaining market share
Developing market, long-standing tea drinking traditions
High potential for market growth
Traditional coffee growing countries
Less affluent population, room for gaining market shares
Life-cycle model of coffee consumption
Latin America
Development Growth Shakeout Maturity Decline
Few:trial of early
adopters
Few:competitors
Growing adopters
trial of product/service
Entry of competitors
Attempt to achieve trial
Fight for sale
Undifferentiated products
Growing selectivity of
purchase
Deepening competition
Shakeout of weakest
competitors
Saturation
Fight to maintain share
eEmphasis on efficiency, low costs
Exit of some distributors
eSelective
distribution
Drop-off in usage
e
Buyers
Competitive conditions
Europe
AsiaUSALatin
America
Possible long-term penetration in Europe
Implementing Strategies
Implementation2004 Hire Senior Management and develop 5-year plans for
each division.
2005 Senior Staff recruits and hires additional staff for each country’s division. Begin Market Research and developing relationships with local, provincial and national officials
2006 & 2007
Individual divisions use market research to develop market specific menus where wanted. Procure lease agreements or real estate, develop working relationships with local officials, identify and contract with suppliers, hire and train staff.
2008 & 2009
Achieve goals for store openings
Continuously
Monitor and assess success of store openings and operations, make adjustments as necessary
Evaluation and Control
Evaluation and Control
Establish Quantifiable goals:Number of store openingsProfitabilitySame store growthAllow sufficient time to achieve profitability
Tie Goals to:BonusesPromotions
Continue to focus on R&D 5 years – Evaluate each country’s level of
success Stay/Exit Develop new 5 year plan
Score Card
Score Card 1 2 3 4 5 6 7 8 9 10
Active:
Educational:
Family:
Historic:
Local Flavor:
Romantic:
Scenic:
Tourist Trap:
Value:
Weather:
Our Score Card system gives users a snap shot of this venue's qualities
Recommendations
Recommendations for the Future
Social Gathering Environment Expand Internationally Keep pace with Technology Product Placement Drive Thru Learn from cultural experience Revamp the employee reward system
Thank you!Questions & Answers Session