Research Paper on "Starbucks Management Analysis Company Overview Starbucks (NASDAQ"

Research Paper 12 pages (3274 words) Sources: 4

[EXCERPT] . . . .

Starbucks Management Analysis

Company Overview

Starbucks (NASDAQ: SBUX) is today the global leader in coffee retailing, supply chain and quick service restaurant (QSR) development for beverages and light foods. As of November 29th the company has a market capitalization rate of $31B, generating $11.7B Revenue and $1.2B Net Profit, including a complete reversal of their liquidity ratios from 2009 to today. A transformation of this level is extremely difficult to attain during periods of economic growth. To attain this level of accomplishment in the midst of uncertain, often challenging times, the management teams at Starbucks had to concentrate on excelling at their core strategies and making in-store operations as efficient and profitable as possible. To see an analysis of the transformation of Starbucks during the last five years, please see Appendix A: Ratio Analysis of Starbucks Financial Performance, 2006 -- 2011. The most challenging years for Starbucks over this time period were 2008 and 2009, where the company struggled to find its core messaging and unique value proposition in the middle of extreme cost reduction strategies. The company lost its way during these years and had several quarters of losses, which led to a drastic re-aligning of their supply chain, retailing, pricing and service-based assumptions regarding their business. While painful for the company to make these modifications to strategy, the latest fiscal year results indicate how successful those decisions were in reinvigorating their pretax profit margin to 15.47% and a net profit margin of 10.6% across a global base of just over 17,000 locations in 70 nations (Starbucks Investor Relations, 2011) . The changes that Starbucks made to their supply chains, the concentration on operations and business process re-engineering, and the intelligent use of customer data all combined to solidify the platform of the company (Harrison, Chang, Gauthier, et.al., 2005).

Mission and Vision Statement

Starbucks has their mission and vision statements on their website and often publish it for the investment community to underscore how unique they are from a customer service, marketing, supply chain and operations standpoint. The Starbucks mission is defined as follows: "Our mission: to inspire and nurture the human spirit -- one person, one cup and one neighborhood at a time" (Starbucks Investor Relations, 2011).

Starbucks supports this mission with a vision of being the most ethical and profitable coffee supply chain and retaining business globally, investing heavily in Corporate Social Responsibility (CSR) initiatives to further underscore the commitment they have to their mission and vision statements. Starbucks also has an industry-leading vision of how to construct and operate an ethical supply chain that concentrates on Fair Trade practices, ensuring each member of the supply chain gets compensated at market rates for their beans and coffees.

Starbucks has a strong social conscience within its corporate culture and concentrates on creating a company that respects the rights and needs of the individual. Howard Schultz' mother worked two or three jobs when he was a child to pay just for healthcare insurance. This impacted him powerfully and today Starbucks is one of the only U.S. companies to provide healthcare for part-time workers, spending more on this benefit than on coffee (Starbucks Investor Relations, 2011).

Strategic Analysis

Starbucks' re-emergence as a major force in global coffee retailing can be traced back to the decision to stop price cutting and discounting strategies, shifting to strategies aimed at driving up same-store visits and purchases by the most loyal customers (Starbucks Investor Relations, 2011). This strategy of concentrating on the customer experience and selectively using technologies and process improvement to further underscore and accentuate customer experiences transformed the company's financials within just a fiscal year, with the liquidity and Return on Assets (ROA) registering significant gains in the latest fiscal results shown in Appendix A.

In conjunction with this approach to defining the clarifying the customer experience in their stores, Starbucks also began investing heavily in China and the surrounding nations. The net result was a much more focused multichannel management strategy and series of initiatives that gave Starbucks a strong foundation to build on in China. As of the close of their latest fiscal year their investments in China continued to pay off with profitable operations reporting the fastest growth of any subsidiary and the highest ROI of all Starbucks global operations (Starbucks Investor Relations, 2011). Starbucks is today saying their goal with Chinese expansion is to have it attain a growth rate comparable to a "second U.S." both in terms of profitability and sales.

Based on an analysis of their current financial statements and the many filings the company has made with the Securities and Exchange Commission (SEC), the distribution of their sales by product area has been ascertained in addition to the behavior of their most loyal and profitable customers. Based on this analysis of their latest financial statements and SEC documents, Starbucks is generating 75% of all sales from their beverages, 19% from food and 4% from their packaged coffee products. This distribution of products by category has significant implications on their global supply chain and the commitment the company has to operating a Fair Trade-based coffee supply chain that complies to CAFE standards (Starbucks Investor Relations, 2011). This analysis also indicates that a high proportion of Starbucks total operating expenses are in variable-cost-based categories of materials and products supporting the beverage business. Based on the analysis of their financial statements and SEC filings, Figure 1, Starbucks Product Mix was created. This figure illustrates the distribution of product sales by beverages, food, whole bean and soluble coffees and coffee-making equipment.

Figure 1: Starbucks Product Mix

Source: (Starbucks Investor Relations, 2011)

Including food items on the menu of their stores has given Starbucks the opportunity to branch out of just being a coffee shop to being a location customers want to met friends, relax, and talk about their lives. This "third place" approach to defining their value proposition has helped the company compete effectively with smaller regional competitors who also are pursuing this market position. Competitors including McDonald's, Peet's, Caribou Coffee and Panera Bread are among the smaller Starbucks competitors aggressively pursuing place as a part of their core value proposition (Harrison, Chang, Gauthier, Joerchel, 2005).

One of the most critical factors in the overall turnaround of Starbucks continues to be the tighter integration of marketing strategies and financial results. Emerging from the 2008 and 2009 downturn, Starbucks began to look at and simulate thoroughly what each decision would mean in terms of aggregated gross margin cross the global business. This focus on gross margin and profitability over market share led to the company re-defining its marketing strategies and concentrating more on high value-add drinks and products, not just relying on a series of cost reductions as it had done in the past (Harrison, Chang, Gauthier, et.al., 2005). This shift to selling value and the newness of their drinks instead of just competing on price was highly effective in winning back customers who had left due to the pricing strategies cheapening the brand and often, the in-store experience. Starbucks found that their products, from the beverages to the food items, were highly inelastic in terms of demand; drops in price really had not effect on volume (Starbucks Investor Relations, 2011). This was particularly true in the areas of their low-priced products which did not have the intended consequence of increasing overall demand. Starbucks did discover that their brand was highly inelastic however. Customers have very high expectations of what the brand stands for, and a low price (which for many translates into lower-value coffee) is not one of them.

Starbucks also completely re-assessed their retail expansion strategy, concentrating on high-profit regions and locations. This is a complete reversal of what had been the strategy of completely saturating a given metro or urban area with small and large stores. At one point Starbucks had over 30% coverage and cannibalization of stores in a given region (Starbucks Investor Relations, 2011). This high degree of overlap was done with a Darwinist approach to retailing planning and development. This had been very effective as a strategy in emerging markets, yet as the economic slowed down and began to contract, the need for being more selectively about retail locations became very apparent. Today the focus at Starbucks is about having more profitable stores per square foot first, not focusing necessarily on the overall coverage of a given region. This focus on profitability per square foot has also driven up the metrics of the most loyal customers to 16 visits per month, up from just seven in previous fiscal years (Starbucks Investor Relations, 2011). This ability to transform this aspect of their operations has been critical for keeping their most loyal customers coming back to the store while also attaining the status of being a "third place" for customers to visit and meet with friends (Harrison, Chang, Gauthier, Joerchel, 2005).

Third, Starbucks continued to expand its supply chain from a global standpoint, increasing the number of suppliers in China and throughout Asia to further support… READ MORE

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