STARBUKS WAC

Presenter:

Group 5
 Introduction to Group
 Ms. Sehrish Riaz S#: 12
 Mr. Tahir Sami S#24:
 Ms. Aneeqa Atique S#: 08
 Mr. Wasif Ali S#:23
 Mr. Ali Yousaf S#:25
STARBUKS -Overview
Company started:
1971 in Seattle, Washington

CEO:
Howard Schultz (Founder of
Starbucks coffeehouse)
Total Stores world wide: 5886
STARBUKS -Overview
Products: -
Beverages
pastries
Whole coffee beans (coffee-related
retail items

Positioning:
“third place”
Mission Statement (Original)

“Establish Starbucks as the premier

purveyor of the finest coffee in the world
while maintaining our uncompromising
principles while we grow.”
 
 Six components of Mission
 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

Recognize that profitability is essential to our future success.

Mission Statement Analysis
NO COMPONENT YES/NO

1. Customers Yes

2. Products or services Yes

3. Markets Yes

4. Technology No

5. Concern for survival, profitability and Yes

growth

6. Philosophy Yes

7. Self-Concept Yes

8. Concern for public image Yes

9. Concern for employees No

Proposed Mission Statement

 Establish Starbucks as the foremost provider of

the deluxe coffee in the world and also to be
established as the most employee appreciated
company even as maintaining our
uncompromising principles as we grow
mutually with hi-tech advances.
Objectives of Starbucks

Most recognized and respected brand in the

world

Is to recognize that every dollar earned

passes through employees’ hands

Market expansion
Operations to Achieve Objectives:

 rapidly expending its retail operations

 grow its sales and other operations

 Continuously reducing its supply chain cost

PESTEL Analysis
 Political
 Allowance for the Direct Dealing with the growers
 Economic
 Unwillingness to help improve the economic
condition of the coffee growers themselves by
Starbucks
 250 Pre Harvest and 650 Post Harvest financing to
the Coffee growers and farmers by the Starbucks
in 2005 which more than 1.2 B Pounds
PESTEL Analysis (Cont.)

 Social
 Supporting Relief Organization such as CARE
 Providing Direct Support to the farmer and farm
community around the world
 Contribute $43,000 in 2001 for construction of the
Health Clinic and School in Guatemala
 Providing the Varity if ways of improvement of
Coffee Processing facilities in a number of
countries in the world
PESTEL Analysis (Cont.)

 Technological
 shade Growth Mexico coffee’s”
 Online selling throw its website Starbucks.com
 Ecological
 Cultivated under the Company of shade Trees in
Organic product
PORTER ANALYSIS
 Threat Of new Entrants:
(Four 4’s, Two 2’s, One 3s, One 1’s, one 5’s) So the
threat of new entrants is High

 Intensity of Rivalry:
(Three N/A’s, Three 2’s, One 3’s)
The rivalry is very intense and Low to Moderate

 Bargaining Power of Buyer:

(Four 4’s, One 1’s, Two2’s One 5’s)
 The bargaining power of the buyer is High
PORTER Analysis

 Bargaining Power of Supplier:
 
(Three 4’s, Three 2’s, One 5,s)
 So the Supplier power is HIGH

 Threat of Substitutes:
(One 2’s One 3,s)
 So the threat of substitute is Low to Moderate
PORTER Analysis

 INDUSTRY COMMENTS:

As there are three high forces and Two Low to

Moderate force so the over all industry is very
attractive and growth is expected to be there
in the industry
 
 EFE
Weig
Key External Factors Weight Rate hted Comments/Justification
Score
Opportunities

1 Direct relationships with coffee farmers Coffee farmers 

0.08 4 0.32

2 Providing ready access to consumer Increase branches 

0.05 3 0.15
For quality imporvement of
3 Unroasted beans
0.05 4 0.20 Green Coffee
Pacific, Northwest &
4 Market Expansion California, Boston
0.06 2 0.12
,Washington
more to Asia, Europe & Latin
5 International Expansion
0.08 3 0.24 America
 for achieving the target of
6 Joint ventures more then 500 branches till
0.06 4 0.24
2003
7 New product placement at existing coffee  at existing Cafes
0.03 2 0.06

8 Espresso Bar Concept  new concept

0.05 3 0.15
 such as the Fair Trade
9 Providing Organic products
0.06 3 0.18 ,Green coffee etc

10 Buying in long-term contracts By less spending on cost 

0.04 4 0.16
Fair Trade Coffee in North
11 Coffee of the day
0.03 2 0.06 America 
 EFE
Threats

1 Anti Globalized movements  against globalization

0.03 2 0.06

2 Plummeting pressure of Coffee Prices Prices of competitors  

0.04 4 0.16

3 Labour & real estate prices Employment and rent rates  

0.05 3 0.15

4 Imports & Brokers Sale to mass Market 

0.04 2 0.08

5 Less profit from joint ventrues For new entering into countries  
0.06 4 0.24

6 Cash out from the business  

0.05 2 0.10

7 Substitutes Brewages and  juices

0.07 4 0.28

8 Missuse of brand names Copy or miss use of brand

0.07 2 0.14

Total: 1.00    
3.09
 Weighted
Key Internal Factors Weight Rate
Score
Strengths

1 Expension in retail operations 0.08 4

0.32

2 Product Development 0.06 3

0.18

3 New distribution channels 0.05 3

0.15

4 Employees stock ownership plans 0.07 4

0.28

5 Market development 0.05 4

0.20

6 Perceive premium product 0.06 4

0.24

7 Product Defferciation 0.04 3

0.12

8 Paceful atmosphare (Specially service with music) 0.06 4

0.24
Proper customer guidence by providing wide ray of coffee selection
9 0.04 3
& opportunities. 0.12
Evaluation of companies business lines (Assembly of experienced
10 0.08 4
professionals increasing growth) 0.32

11 Quality of service 0.05 3

0.15

12 Employees training benefits 0.03 3

0.09
Weaknesses

1 Lack of emplyee compensations and benefits 0.07 2

0.14

2 Critical parking place at busy streets of North America 0.07 2

0.14

3 Sales saturation 0.03 1

0.03

4 Less spending on advertising 0.04 1

0.04

5 Employees overworked/under paid 0.07 2

0.14

6 Decrease in sale of per store. 0.05 2

0.10

Total: 1.00  
2.86
 4.0 Strong (3.0-4.0) 3.0 Average (2.0-2.99) 2.0 Weak (1.0-1.99) 1.0

THE MATCHING STAGE- IE

GROWTH AND BUILT

 Forward , backward, Horizontal integration

 Product development

 Market development

 Market Penetration
SWOT Matrix
 SO Strategy
 S5, S7 & O8:
 S5:Market development
 S7:Product Differentiation
 O8:Espresso Bar Concept
-Use espresso bar concept in market development which will
ultimately differentiate the product from other coffee provider.

S 11 , O 2 & O 9:
S11:Quality of service
O2:Providing ready access to consumer
O9:Providing Organic products
-We can create customer loyalty through adding benefit to the
product.
SWOT Matrix

 WO Strategy
 W6 O7 :
 W6: Decrease in sale of per store.
 O7:New product placement at existing

 Can increase sale of per store by placing out some

new product at existing coffee.
SWOT Matrix

 ST Strategy
 S4 & T8:
 S4:Employees stock ownership plans
 T8:Missuse of brand names
 Can avoid the misuse of brand name by
employee stock ownership plan( employee
loyalty)
SWOT Matrix

 WT Strategy
 W4 & T1:
 W4:Less spending on advertising
 T1:Anti Globalize movements

• Can reduce the threat of

anti globalization movements
by advertisement.
Financial Analysis
Financial Analysis(Liquidty Ratio)

2001 2002

Net Working Capital 148.6 310.00

Current Ratio 1.33 1.58

Quick Ratio .84 1.09

Financial Analysis(Activity Ratio)

2001 2002

Account Turnover 29.30 33.70

Collection Period 12.46 10.83
Inventory Turnover 5.03 5.13
Inventory Age 72.59 71.16
Operating Cycle 85.04 81.99
Financial Analysis(Activity Ratio)

2001 2002

Total Asset T.over 1.43 1.43

F.Asset T.over 2.33 2.60

Financial Analysis(Leverage Ratio)

2001 2002

Debt Ratio 0.25 0.25

Debt Equity Ratio 0.34 0.33

L.Term Debt Ratio 0.004 0.004

Financial Analysis(Profitability Ratio)

2001 2002

G.P Ratio 57.99% 58.59%

O.P Ratio 10.61% 9.69%
N.P Ratio 6.84% 6.54%
ROI 9.79% 9.38%
ROE 13.12% 12.46%
Financial Analysis(Market Value)

2001 2002

EPS $ .48 $0.56

P.E Ratio 39.95 36.56

B.V/Share 3.63 4.48

Value Chain of STARBUKS (Interlink
Activities)
 Value Chain (Inbound Logistics)

 Starbuks bypass the much of the middle market

+
 Starbuks Developed expertise and
relationship with coffee growers themselves
+
 Taking out cost of its supply chain +

 Joint venture with sazaby that had expertise

in both retail and estate. +
 Value Chain (Inbound Logistics)
 Starbuks is giving direct support to the coffee growers. +

 Company had purchased Peet’s Coffee and Tea, a Berkeley,

California, Coffee roaster and distributor, straining the company’s
management and financial capabilities. -

 Company can pursue the opportunity of leverage the brand by

introducing new products and development of new distribution.
(P+)

 The New York “C” coffee prices remained at near record lows,
decreasing sourcing costs and increasing gross operating margins.
(P+)
Value Chain (Cont..)
 Operations:
 Between 1995 and 1998 starbuks had averaged $0.69 million
per store. +
 Company was continuing expand international operations at
breakneck pace. +
 
 Outbound Logistics:
 Addition to its retail stores: +
 It sells through specialty sales groups
 Direct response business
 Supermarket
 Online selling at starbucks.com
Value Chain (Cont..)

 Marketing and Sales:

 Company is still spending less than $20 million per
year on advertising. P+
 Products type offering: +
 Also sells bottled Frappuccino coffee drinks & line
of premium ice-cream through its joint venture
partners. +
 Also offers a line of innovative premium teas
produced by its wholly owned subsidiary, Tazo
Tea. +
Value Chain (Cont..)

 $215 M profit on $3.29B sales in 2002 &

expecting 25% growth in 2003. +
 New stores cannibalizing existing stores. (-)
 Profliferation of stores did created barriers
for the competitors +
 But this profiliferation led to downward trend
in sales per stores. (-)
 Before entering in any new country, there
was complete research +
Value Chain (Cont..)
 “Commitment to Origins” company program. +
 All the three coffees under “commitment to Origins”
program was 20-25% more expensive compared to
Starbuks traditional blends. +
 Starbuks introduced Fair trade coffee in North
American stores and promoted it through various
brochures and promotions. +
 Company can offer “Coffee of the day” per week rather
than per month. P+
 Corner locations, the hallmark of early growth store
provided high visibility. +
Value Chain (Cont..)

 It expanded all facets of the industry as

distributed through traditional supermarket
distribution systems. +
 It has three-legged stool for global
development which are retail coffee and
assorted specialty items, specialty sales and
Frappuccino coffee drinks and specialty
coffee ice creams sold through retailer
globally. +
Value Chain (Cont..)

 It can enhance its marketing under the

leadership of Howard Schultz. +

 R&D for new markets in which it has to enter. +

Value Chain (Cont..)
Services
 The perceived premium was both in the products’
quality and in the method of its delivery. +
 Starbuks believe and actively giving superior
services by giving the sense of discovery and
excitement and loyalty that bend the customer to
starbuks. +
 It had evolved into its own Americanized version
of specialty coffee provider of coffee shop
services. +
Value Chain (Cont..)

 Special pastries and music provided an

atmosphere of both warmth and comfort. +
 Starbuks is providing ready access to
consumer foot traffic such as commuting
routes. +
 Employees are trained to provide wide array
of advice on coffee selection and
appropriateness to potential customer. +
 Internet Selling. +
Value Chain (Cont..)

Infrastructure
 Starbuks used two basic structures for
international expansion that were company
owned and licensing agreements. +
 The company owned nearly 5700 stores in 28
countries +
 The company had 1312 stores in international
market +
Value Chain (Cont..)

 The total stores in number are 5886. +

 “Interbrand” one of the most recognizable
global brands. +
 Stores are located in pivotal positions for
consumer recognition and access. +
 All stores were owned by the company in
domestic market. +
Value Chain (Cont..)

Human resource management:

 Howard Schultz joined the company as
member of marketing team. +
 In decade of 1990s, starbuks expand its talent
pool on the most senior levels +
 Employees termed as partners. +
 Starbuks is focusing on employee training. +
 Company provides health care benefits to the
employees working over 20 hours in a week. +
Value Chain (Cont..)

 First time starbuks gave stock ownership to its

employees. +
 Starbuks gave training to all foreign managers to
its Seattle offices for 13 day training. +
 It can start employee benefits and motivation
programs. P+
 Stores managers and employees were over
worked and unpaid. - / p+
 Barista pay was more than low-end wages jobs +
Value Chain (Cont..)

Technology development
 Starbuks selectively introduced in starbuks stores in North
America and through online sales at starbuks.com +
 
Procurement
 Company had joint venture with Sazabay in Japan. +
 Starbuks provide bottled Frappuccino coffee drink and
align of premium ice cream through its joint venture
partnership. +
 Buying out the coffee connection change in the region of
Boston. +
SPACE Matrix
Grapgh
Aggressive Strategies
 The results and vector of the space matrix is
showing that strategies will be aggressive,
which are:
 Backward, Forward and Horizontal
integration
 Market penetration
 Market Development
 Product Development
 Diversification (related or unrelated)
THE DECISION STAGE
Outcome of techniques at matching stage
 QUANTITATIVE STRATEGIC PLANNING MATRIX
(QSPM)
Market Development Product Development
Key External Factors Weight AS ATS AS ATS
Opportunities
1Direct relationships with coffee farmers 0.08 - - - -
2Providing ready access to consumer 0.05 3 0.15 2 0.10
3Unroasted beans 0.05 - - - -
4 Market Expension (Pacific, Northwest & California, Bostan
,Washington) 0.06 - - - -
International Expension ( more to Asia, Europe & Latin
5 0.08 - - - -
America)
6 Joint ventures ( for achieving the target of more then 500 0.06 3 0.18 4 0.24
branches till 2003)
7New product placement at existing coffee 0.03 1 0.03 3 0.09
8Espresso Bar Concept 0.05 4 0.20 2 0.10
9Providing Organic products 0.06 1 0.06 4 0.24
10Buying in longterm contracts (By less spending on cost) 0.04 - - - -
11Coffee of the day (Fair Trade Coffee in North America) 0.03 2 0.06 3 0.09
12       -   -
Threats
1Anti Globalized movements 0.03 - - - -
2Plummeting pressure of Coffee Prices 0.04 - - - -
3Labor & real estate prices 0.05 - - - -
4Imports & Brokers ( Sale to mass Market) 0.04 2 0.08 3 0.12
5Less profit from joint ventrues 0.06 - - - -
6Cash out from the business 0.05 - - - -
7Substitutes 0.07 3 0.21 4 0.28
8Missuse of brand names 0.07 - - - -
9       -   -
10       -   -
Total: 1.00  
 Key Internal Factors Weight AS ATS AS ATS

Strengths
1 Expension in retail operations 0.08 - - - -
2 Product Development 0.06 2 0.12 4 0.24
3 New distribution channels 0.05 - - - -
4 Employees stock ownership plans 0.07 - - - -
5 Market development 0.05 4 0.20 2 0.10
6 Perceive premium product 0.06 3 0.18 2 0.12
7 Product Defferciation 0.04 2 0.08 4 0.16

8 Paceful atmosphare (Specially service with music) 0.06 - - - -

Proper customer guidence by providing wide ray of coffee selection &

9 opportunities. 0.04 - - - -

10 Evaluation
of companies business lines (Assembly of experienced
professionals increasing growth) 0.08 - - - -

11 Quality of service 0.05 2 0.10 4 0.20

12 Employees training benefits 0.03 - - - -
Weaknesses

1 Lack of emplyee compensations and benefits 0.07 - - - -

2 Critical parking place at busy streets of North America 0.07 - - - -

3 Sales saturation 0.03 2 0.06 3 0.09

4 Less spendings on advertising 0.04 2 0.08 3 0.12
5 Employees overworked/under paid. 0.07 - - - -
6 Decrease in sale of per store. 0.05 - - - -
Total: 1.00   1.79   2.29
Recommendations

 Revamp Employee Reward System

 Improve “Third Place” Environment
 Focus Profitability Measures on More Than
Just Staffing
 Action Plan For Improvement
 Decrease employee turnover rate
 Improve site accessibility and cleanliness
 Enhance Starbuck’s differentiated
atmosphere
Impacts

 By focusing on the initial recruitment and hiring

stage, and by rewarding employees based on
merit current turnover rates will be reduced.
 By focusing on site accessibility and cleanliness,
the physical facility will not detract from
atmosphere.
 By improving Starbucks’ atmosphere, it will
become a more attractive place to go.
Potential Risks

 Customers may not react positively to the

changes being made
 Not enough available employees to meet re-
aligned hiring needs
 Claims of age discrimination and negative
affect on sales in youth demographic
 Costs associated with planned change
References

 http://www.dailytimes.com.pk/default.asp?
page=story_24-6-2003_pg5_3

 brand Issue::
http://www.organicconsumers.org/starbucks/
coffback.htm
 www.starbuks.com