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Star Bucks

Star Bucks

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Published by: Yogin Vora on Nov 29, 2010
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Starbucks

Presented by: Adam Berger, Justin Buchman, Donald Chase & Suzana Hsu

THE FRAPPUCCINOS

Presentation Outline 
       

Introduction to Starbucks Industry Overview Company Overview Site Analysis Recommendations for Improvement Focused Recommendation for Improvement Final Action Plan Impact Analysis Wrap Up
The Frappuccinos

Introduction to Starbucks
Company started in 1971 in Seattle, Washington  Grew from 55 stores in 1989 to over 2,200 stores today  Products sold include: 

- beverages - pastries - whole coffee beans - coffee-related retail items

The Frappuccinos

Industry Overview

The Frappuccinos

Industry Definition  Specialty Eatery Industry ± Fits within the largest segment of disposable income spending -.food and beverages ± Steady growth in this segment in the 1990¶s has led to an abundant number of new companies ± As demand for convenience has made eating out a normal routine. the demand for specialty food services has increased in recent years The Frappuccinos .

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 The Frappuccinos .Industry and Competitive Analysis   Market Structure ± Monopolistic Competition Competitive Activity ± Many companies are in the market and competition is fierce ± Competitors use location.

Industry PEST Analysis  Political Influences ± Relationships between coffee producing nations and US ± State & Local government controls  Economic Influences ± Constant demand for food and beverages ± 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 The Frappuccinos .

Company Overview The Frappuccinos .

attractive social atmosphere  Offer high-quality products  Create a great working environment  Achieve profitability The Frappuccinos .Starbucks Corporate Strategy  Maximize market penetration  Provide a relaxing.

Starbucks SWOT Analysis  Strengths ± Largest market share in industry ± Differentiated atmosphere    Weaknesses ± Aggressive expansion could lead to managerial / financial problems Opportunities ± Whole bean sales in supermarkets Threats ± Lack of ownership of coffee farms can lead to price fluctuations The Frappuccinos .

4 million Return-on-Assets 8.2% .308.0% Debt-to-Equity 0.7 million Gross Margin 195.7 million Pre-tax Profit Margin 116.7% Return-on-Equity 11.4 million Net Income 68.9% 5. Revenue Growth 28.04 12 mo.Company Financial Performance (1998 FY)         Revenues $1.4% The Frappuccinos (% of Sales) 15% 8.

Company Financial Performance (1998 FY) 30% 25% 20% 15% 10% 5% 0% -5% -10% Net Profit Margin ROE ROA Debt/Equ 12-Mo Rev Growth Industry Starbucks The Frappuccinos .

Site Analysis The Frappuccinos .

Site Characteristics      Leased store located on Central Street in Wellesley Store has over 1.000 square feet of office and storage space in the basement Second most profitable store in the fourteen store region Located one block away from Commuter Rail train station and in busy retail shopping area Only one direct competitor (Au Bon Pain) in the area The Frappuccinos .000 square feet of retail space and 1.

688 262.6% ± No money spent on independent advertisement ± Local entertainment budget underutilized The Frappuccinos .746 EBIT $150.820 %( (4. 367.Site¶s Operational Results (1998 FYTD ± 11 Months)  Financial Operations 1998 Total Sales $760.923 $101.743 431.7%) (3.576 COGS 242.593 C/M 517. 945 533.983 Fixed Exp.9%) 47.0%) (14.5%) (7.237 1997 $796.

000 100.0% $250.000 80.000 50.0% 40.0% $100.Volume of Sales vs. Contribution Margin % $300.0% $150.000 60.0% 90.0% 20.0% $200.000 30.0% 70.0% $50.000 10.0% $0 Espresso Drinks Whole Beans Drip Coffee Pastries Blended Other Serveware Packaged Beverages Beverages Food/Tea Media Brewing Equipment 0.0% Dollar Volume Sold Product Contribution The Frappuccinos Margin % .

Site 7-S Analysis The Frappuccinos .

Site 7-S Analysis  Strategy ± Store¶s strategy is to create a comfortable Third Place environment ± Serve customer a customized high-quality product ± Achieve high level of profitability by focusing on high-margin items while generating add-on sales ± Minimize overall expenses by focusing on controllable expenses The Frappuccinos .

Site 7-S Analysis  Structure ± Functional in structure and relatively flat ± Corporate organization is tall with four levels of management above store management Store Manager Assistant Manager Shift Supervisors Baristas Baristas Baristas The Frappuccinos .

Site 7-S Analysis  Staffing ± Location has one manager. but the location has given away non monetary rewards The Frappuccinos . and vision care. stock options. an assistant manager and 16 partners ± Benefits package includes health. dental. and a free pound of coffee each week ± Raises are based on semi-annual performance evaluations with raises ranging from 0-5% ± Bonuses are not utilized. free shift drinks.

Site 7-S Analysis  Systems ± Corporate headquarters exercises controls over individual sites ± Total Quality Management is specifically built into their processes ± Utilizes a large amount of information technology (IT) ± Internal controls for the store are determined by the manager based in part on information provided by the IT system The Frappuccinos .

Staffing Individual Stores Individual Inventory. Inventory. Inventory. Budgets. Orders.. Mgmt. Distributors.The use of IT at Starbucks Sales. Transfers Stores Sales. Future Sales The Frappuccinos . Staffing Individual Stores Corporate IT System Vendors. Channel Members Orders.

Site 7-S Analysis  Skills ± Most important skills include ³people skills´ and drink preparation ability ± Partners receive training to learn about products. but instead one-to-one discourse The Frappuccinos . brewing methods. although this site does not use regular meetings. and sales techniques ± Retraining mainly occurs during new product rollouts.

53 Min No Take Customer¶s Order Bottleneck Order? .Order Cycle Times Yes Yes Pastry? .53 Min Yes No Pastry? .27 Min .40 Min No Bottleneck Capacity 114 / Hr The Frappuccinos .

Site 7-S Analysis  Style ± Basic management style is Laissez Faire ± Management motivates through reviews and raises ± Work duties are assigned by shift supervisors ± Employees are allowed to use initiative and empowered to make decisions The Frappuccinos .

Site 7-S Analysis  Shared Values (from Mission Statement) ± Provide a great work environment ± Treat each other with respect and dignity ± Embrace diversity ± Apply the highest quality standards for products ± Develop enthusiastically satisfied customers ± Contribute to the community and environment ± Recognize that profitability is essential to future success The Frappuccinos .

Alignment of Store with Corporate Strategy Contrary to the mission statement focus. the reduction of staffing levels appears to be more important than developing satisfied customers  The relevance of the benefits package is misaligned considering the average age of employees  The high turnover rate of partners and managers is detrimental to customer environment  The Frappuccinos .

Recommendations The Frappuccinos .

Focus profitability measures on profitable sales. Tighten focus on creating the ³Third Place´ environment 3. Revamp the employee reward system 2. not just reduction in staffing The Frappuccinos .Recommendations For Improvement 1.

as well as the employee stock options  Outside of hourly wage.Revamp Employee Reward System Large percentage of the staff are under the age of twenty  Benefits package focuses on medical. there are few monetary rewards  The Frappuccinos . dental. and semiannual raises. and vision care.

Improve ³Third Place´ Environment Site has a very high employee turnover rate  Manager ³promoted´ to a another store in hopes of improving their poor performance  Site has very poor handicapped accessibility  Condition of restroom in each of our visits was poor and had no baby changing area  The Frappuccinos .

store would realize a $16K increase in contribution  The Frappuccinos .Focus Profitability Measures on More Than Just Staffing Store is underperforming on some high margin product segments  Too high a focus on minimizing direct labor as a key to achieve profitability  Focus on high-margin items and profitable add-on sales  By increasing pastry sales by 33%.

Focused Recommendation Improve ³Third Place´ Environment The Frappuccinos .

Pros and Cons of Discounted Opportunities Revamp the Employee Reward System Pros ± Employees are motivated with more incentive to perform ± Lower employee turnover rates ± Positive reinforcement which leads to higher feelings of job satisfaction Cons ± Pay and benefit structures dictated by corporate HQ ± Cost of benefits would additional benefits lower site profitability ± New reward system requires additional management The Frappuccinos .

) Focus Profitability Measures on More Than Just Staffing Pros ± Higher staffing levels benefit other employees ± Better customer service ± Improved customer focus could lead to higher sales Cons ± Staffing is a cost that will decrease profitability ± Upper-level management perception of low employee productivity ± Employees may get in each other¶s way The Frappuccinos .Pros and Cons of Discounted Opportunities (Cont.

employee of the month) ± Develop a system of regular employee communications / meetings The Frappuccinos .e.Three-Step Action Plan For Improvement  Decrease employee turnover rate ± Focus on hiring older employees where benefits package is more appropriate ± Base raises on performance rather than maximizing raises for economic reasons ± Develop and actively maintain a reward system for employees (i.

Action Plan (cont.)  Improve site accessibility and cleanliness ± Upgrade front door and restrooms for handicapped accessibility ± Add a baby changing station ± Redesign restroom to separate cleaning supplies from bathroom or move cleaning supplies to another location ± Focus employee attention on restroom cleanliness The Frappuccinos .

Action Plan (cont. etc.)  Enhance Starbuck¶s differentiated atmosphere ± Utilize entertainment budget to hire outside entertainers. ± Display the store¶s collection of games and activities more prominently ± Make the location more of a ³scene´ The Frappuccinos . have book / poetry readings.

it will become a more attractive place to go. and by rewarding employees based on merit current turnover rates will be reduced.Impact Analysis .Benefits By focusing on the initial recruitment and hiring stage.  By improving Starbucks¶ atmosphere.  By focusing on site accessibility and cleanliness.  The Frappuccinos . the physical facility will not detract from atmosphere.

Potential Risks Customers may not react positively to the changes being made  Not enough available employees to meet realigned hiring needs  Claims of age discrimination and negative affect on sales in youth demographic  Costs associated with planned change  The Frappuccinos .

Wrap-Up Starbucks is the market leader in a growing market segment  Starbucks is known world-wide for its highquality food products and differentiated ³Third Place´ atmosphere  The Wellesley location embodies the ideals of the corporate mission and has been very profitable. but there are still opportunities for improvement  The Frappuccinos .

Conclusion / Questions The Frappuccinos .

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