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Starbucks Corporation

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PUBLICATION DATE: 13 Jan 2020
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Starbucks Corporation
TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview ........................................................................................................3

Key Facts ......................................................................................................................... 3
SWOT Analysis ...............................................................................................................4

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Starbucks Corporation
Company Overview

Company Overview

COMPANY OVERVIEW
Starbucks Corporation (Starbucks or ‘the company’) is a premier roaster, marketer and retailer of
specialty coffee. The company offers a range of coffee and tea beverages, tea and related products,
including packaged roasted whole bean and ground coffees, and food and snack offerings. It also
produces and sells a variety of ready-to-drink beverages, such as Frappuccino coffee drinks, Starbucks
Doubleshot espresso drinks, Starbucks Refreshers beverages, and chilled multi-serve beverages through
various channels including grocery stores, warehouse clubs, convenience stores, specialty retailers and
US foodservice accounts. The company operates in countries across North America, Asia Pacific, EMEA,
and Latin America. Starbucks is headquartered in Seattle, Washington, the US.

The company reported revenues of (US Dollars) US$24,719.5 million for the fiscal year ended September
2018 (FY2018), an increase of 10.4% over FY2017. In FY2018, the company’s operating margin was
23.3%, compared to an operating margin of 18.5% in FY2017. In FY2018, the company recorded a net
margin of 18.3%, compared to a net margin of 12.9% in FY2017.
Key Facts

KEY FACTS

Head Office Starbucks Corporation

2401 Utah Avenue South
Seattle
Washington
Seattle
Washington
USA
Phone 1 206 4471575
Fax
Web Address www.starbucks.com/
Revenue / turnover (USD Mn) 24,719.5
Financial Year End September
Employees 291,000
NASDAQ Ticker SBUX

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Starbucks Corporation
SWOT Analysis

SWOT Analysis

SWOT ANALYSIS
Starbucks Corporation (Starbucks or ‘the company’) is a premier roaster, marketer and retailer of
specialty coffee. Financial performance, strong customer connects through value-added services and
operational networks are major strengths of the company, whereas dependence on Americas for major
revenue remains a cause for concern. Foodservice Industry in the US, global hot drink market and focus
towards Asia Pacific are likely to provide growth opportunities to the company. However, competitive
market, compliance costs associated with government regulations and increase in raw material price
could affect its business operation.

Strength Weakness

Strong financial performance Dependence on Americas for majority of revenue

Building Strong Customer Connect Through Value-
Added Services
Operational network strengthens strategic position
Opportunity Threat

Focus towards Asia Pacific to increase its revenue Increase in raw material costs
Global hot drink market Competitive market
Foodservice industry in the US Compliance Costs Associated With Government
Regulations

Strength

Strong financial performance

The financial performance of the company improved in FY2018, which enables it to provide higher returns
to its shareholders, and attract further investments. Growth in revenue and profitability also enhance the
company’s ability to allocate adequate funds for growth and expansion. In FY2018, Starbucks reported
revenue of US$24,719.5 million as compared to US$22,386.8 million in FY2017, which indicates annual
growth of 10.4%. The growth in revenue was due to increase sales in company-operates stores and
license stores, which grew by 11.6% and 12.6% respectively. Growth sales in company-operated store
was arises from incremental revenues from opening of around 816 net new Starbucks company-operated
store in last year, positive impact of ownership change in East China and a 2% increase in comparable
store sales. Licensed store revenue growth was primarily due to increased product and equipment sales
and royalty revenues from its licensees, opening of 1,181 net new Starbucks licensed stores in last year
and the conversions of both the Singapore and Taiwan markets. In FY2018, the company’s operating
margin was 23.3% as compared to 18.5% in FY2017. Improving operating performance indicates the
company’s focus on efficient cost management. Starbuck’s operating cost as a percentage of sales
declined from 81.5% in FY2017 to 76.7% in FY2018. Similarly, the company’s net profit margin grew from
12.9% in FY2017 to 18.3% in FY2018.

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SWOT Analysis

Building Strong Customer Connect Through Value-Added Services

Starbucks operates in the highly competitive foodservice retail space that demands consistent delivery of
quality service to either retain existing customers or to attract new ones. Apart from selling its world-
renowned coffee blends in a variety of flavors, the company is focused on providing a coffee-drinking
experience to its in-store customers. Starbucks offers free, instant and unlimited Wi-Fi connectivity at all
its company-owned stores across the US, Canada and certain other international markets to encourage
customers to spend more time inside the store through free access to internet. Starbucks has registered
numerous Internet domain names, including Starbucks.com, Starbucks.net, Starbucksreserve.com,
Seattlesbest.com and Teavana.com. Starbucks Digital Network, a news and entertainment web portal
offered in association with Yahoo.com. The Starbucks Digital Network also offers free access to
subscription editions of various premium news resources. It also offers other value added services, which
enhance the customer’s overall shopping experience. Starbucks is able to create a unique selling
proposition by combining its customized coffee blends with other value added services. All these
strategies are aiding the company in building its competitive advantage.

Operational network strengthens strategic position

Starbucks has a strong operational network to cater to its store needs efficiently. The company operates
through two types of stores, including company-operated stores and licensed stores. As of September
2018, iIt operated 29,324 stores across Americas, Europe, Middle East and Africa (EMEA), and
China/Asia Pacific (CAP). As of September 2018, the company operated 17,454 stores in Americas, in
which 9,684 company-operated stores and 7,770 licensed stores; 8,530 stores in CAP, which includes
5,159 company-operated and 3,371 licensed stores; 3,320 stores in EMEA, in which 490 company-
operated and 2,830 licensed stores; and 20 corporate and other stores, in which 8 company-operated
and 12 licensed stores.

Weakness

Dependence on Americas for majority of revenue

Geographic concentration is a cause for concern to the company. Though the company operates in Asia
Pacific, Europe, Middle East and Africa, it generates the majority of its revenue from Americas.
Dependence on one region could affect the company’s operational and financial performance and
increase its business risks by exposing it to the economic and geopolitical risks associated with the
region, which could affect the demand for its products or disrupt the supply chain, and reduce its market
share and growth opportunities in the future. It also hinders the company’s growth in international
markets. In FY2018, the company generated 67.7% of its revenue from Americas.

Opportunity

Focus towards Asia Pacific to increase its revenue

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SWOT Analysis

The company has taken several initiatives in the recent past that may enhance its food services business
and expand business network in countries across Asia Pacific, including Japan, Indonesia, India and
China. In February 2019, the company entered into a joint venture agreement with Tata Global Beverage.
Under the agreement, the company will open ten new stores in India. After the opening, the company
would manage 145 outlets in India. Furthermore, Tata-Starbucks also launched a food delivery through
online food aggregator apps like Swiggy. The joint-venture will help the company to expand its business
network in India. It may also enhance the company’s food services business. In 2018, Starbucks reported
approx. 30% growth of sales during the October-December quarter due to this initiative. In the same
month, the company opened Starbucks Reserve Roastery Tokyo, a new coffee store in Japan. The new
store will offers about 100 varieties of coffee and tea beverages, and artisanal Princi Italian fare in Japan.
In January 2019, the company entered into a partnership agreement with PT Sari Coffee Indonesia
Limited. Under the agreement, the company will open Starbucks Dewata Coffee Sanctuary, a new store
in Bali, Indonesia. The store will offer food and merchandise including the Lavender Latte and over 100
Dewata-exclusive handcrafted beverages. In May 2018, the company announced to open around 6,000
stores in China by 2021. Currently, Starbucks has 3,300 outlets in China. It is expected that opening new
stores may double its operating profit in the country by FY2022. In FY2018, the company generated
approx. 18.1% of its revenue from China. Such initiatives may increase the company’s revenue in Asia
Pacific.

Global hot drink market

Starbucks stands to benefit from the growing consumption of hot drinks as it offers tea, coffee and other
hot drinks globally. Growth in hot drink consumption is also expected to provide ample growth avenues to
the company. According to in-house research report, the global hot drinks consumption valued
US$156,516.4 million in 2017 and is expected to increase 5.8% CAGR over 2017-22 to reach
US$207,006 million by 2022. Similarly, in terms of volume, the global hot drinks consumption was
11,191.7 million liters in 2017 and is expected to increase 1.9% CAGR over 2017-22 to reach 12,299.5
million liters by 2022. This was attributed to growth of Chinese soft drinks market, which accounted for
45.5% of the Asia-Pacific hard drinks market.

Foodservice industry in the US

The restaurants industry in the US is forecast to have a strong growth. According to in-house research,
the food service in the US is expected to reach US$758,832 million by the end of 2020. This growth is
attributed to stronger economic growth in the US and the increase in demand from consumers during the
year. The company sells Starbucks and Seattle’s Best Coffee roasted whole bean and ground coffees, a
selection of premium Tazo teas, Starbucks VIA Ready Brew, and other coffee and tea-related products to
institutional foodservice companies that service business and industry, education, healthcare, office
coffee distributors, hotels, restaurants, airlines and other retailers. Therefore, Starbucks is well positioned
to tap the growing foodservice industry. As of September 2018, the company operated 17,454 stores in
Americas. The number of food service outlets is expected to reach 1.1 million in 2020.

Threat

Increase in raw material costs

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SWOT Analysis

Starbucks purchases, roasts, and sales of whole bean arabica coffee beans and related coffee products.
The price of coffee is subject to significant volatility and has undergone fluctuations in various instances in
the past. The price of arabica coffee beans procured by the company depends on a negotiated basis at a
premium above the "C" price. Depending upon the supply and demand of arabica coffee at the time of
purchase, the amount of the premium also varies significantly. Increase in the "C" coffee commodity price
leads to increase in the price of high-quality arabica coffee. This impacts Starbucks ability to enter into
fixed-price purchase commitments. Other factors that influence the availability and price of coffee beans
include weather, natural disasters, crop diseases, production costs, inventory levels and political and
economic conditions prevailing in the country where the product is sourced from. As coffee beans is the
primary raw material for Starbucks, price fluctuations in this commodity could affect the company’s
operations.

Competitive market

The specialty coffee market is intensely competitive. Competition in the global market is based on a
number of factors, including product quality, service, convenience and price. The company faces
significant competition in each of its channels and markets. In the US, Starbucks faces direct competition
from large competitors in the quick-service restaurant sector and ready-to-drink coffee beverage market.
For instance, it competes with Dunkin Brands in the US, which has strong presence in the northeastern
US. Its tea and coffee products sold through its channel development segment compete directly with
specialty coffees and teas sold through supermarkets, club stores and specialty retailers. It also faces
competition from well-established players like McDonald's in many international markets. McDonald's,
which sells specialty coffee through McCafe, has global presence and strong brand recognition in most
countries. This acts as a threat to Starbucks which is yet to build its brand and presence in these markets.
Starbucks also competes with other companies such as Nestle, Peet's Coffee & Tea, Jamba, The J.M.
Smucker Company, Krispy Kreme Doughnut, and Panera Bread Company. Therefore, increasing
competition may lead to price wars, which, in turn, could affect the market share of the company.

Compliance Costs Associated With Government Regulations

The company is subject to the regulations of the US Department of Agriculture, the Food and Drug
Administration and those of the Canadian equivalents. Similar regulations and requirements also exist in
the other countries in which the company operates. Future developments in the regulation of labeling of
foods could require Starbucks to further modify the labeling of its products, which could affect its product
sales. Additionally, new government laws and regulations could be introduced in the future that could
result in additional compliance costs. Thus, the company's inability to comply with requirements could
subject it to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal
sanctions which may impact its business.

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