Starbucks

Strategic Audit Report

Strategic Management Group Assignment

Disusun Oleh:
Bianda Hyacintha Safira
Diah Pratiwi Ginting
Faris Prasojo
Grandy William Kinsey
Tedo Esmu Ziraga
Tesalonika Devi

Tutorial 3B Group 4
 SEKOLAH BISNIS DAN MANAJEMEN
INSTITUT TEKNOLOGI BANDUNG
2014
FOREWORD

Finally the authors finished this report that contain of Starbucks strategic assessment
report. This report is done to fulfill one of the School of Business and Management courses,
Strategic Management.

While arranging this report, there are some parties outside this team that help a lot as the
guides in finishing this report. Authors personally want to thank:
1. Ms. Atik Aprianingsih
2. Mr. Hendy Reinaldo
3. Ms. Nurrani Kusumawati
4. Mr. Ihsan Hadiansyah
5. Mr.Christian Wibisono

We realized that while arranging this report is way far from perfection. As for that, we
want critic and suggestion for the improvement for us in the future.

Bandung, November 12th 2014

Author Team

2
i. Case Abstract
The purpose of this case study is to review the Starbucks Company’s strategic management
based on Strategic Management and Business Policy toward Global Sustainability
(Wheelen, 13th edition) as well as Contemporary Strategic Analysis (Grant, 7th edition).
This research has been conducted in order to analyze strategic management aspects related
to the theoretical framework, find the gold opportunity to be developed, provide
recommendation to solve the problem and present it well. By recognizing the strategic
management model of Starbucks such as environmental scanning, strategy formulation,
strategy implementation along with evaluation and control to create feedback or learning;
we could generate understanding about the company as a whole. In addition, this study
consist of three main parts: strategic audit, financial analysis, and proposed solution.
Finally, we hope that our report will allow for more learning about strategic audit
comprehensively in the future.

ii. Case Issues

In this case study, our main issues is How Starbucks Can Sustain Their Success. We are
interested in analyzing Starbucks’ existing strategy and providing some recommendations for
maintaining their success.

iii. Case Subjects: Starbucks Corporations, April 2012

In this paper, we would like to observe Starbucks Corporation specifically in the United
State Market because Starbucks stores in US have the biggest amount around the world.

iv. Steps Covered in Strategic Decision-Making Process

1. Evaluate current performance results in terms of (a) return on investment,
profitability, and so forth, and (b) the current mission, objectives, strategies, and policies. 3
2. Review corporate governance—that is, the performance of the firm’s board of directors
and top management.
3. Scan and assess the external environment to determine the strategic factors that pose
Opportunities and Threats.
4. Scan and assess the internal corporate environment to determine the strategic factors
that are Strengths (especially core competencies) and Weaknesses.
5. Analyze strategic (SWOT) factors to (a) pinpoint problem areas and (b) review and
revise the corporate mission and objectives, as necessary.
6. Generate, evaluate, and select the best alternative strategy in light of the analysis
conducted in step 5.
7. Implement selected strategies via programs, budgets, and procedures.
8. Evaluate implemented strategies via feedback systems, and the control of activities to
ensure their minimum deviation from plans.

Figure IV.1 Steps Covered in Strategic Decision-Making Process

4
1. PREFACE

I. Current Situation
a. Current Performance
Here are Starbucks financial highlights:

Figure 1.1 Net Revenues of Starbucks

The figure 1.1 shows that the net revenue of Starbucks in 2011 is growing
9.3457% from $10.7 in 2010 to $11.7 in 2011.

Figure 1.2. Sales Growth of Starbucks

5
Comparable store sales growth at company-operated stores was 8% in fiscal 2011
compared to 7% in fiscal 2010.

Figure 1.3. Operating Income

Starbucks’s operating income was $1.7 billion for fiscal 2011 compared to $1.4
billion in fiscal 2010.

Figure 1.4. Operating Margin

6
Starbucks’s operating margin increased to 14.8% compared to 13.3% in fiscal
2010. The increase operation margin was caused by its sales leverage, partly
balance with the higher commodity costs.

Figure 1.5. Earnings per Diluted Share

EPS for fiscal 2011 was $1.62, compared to EPS of $1.24 reported in fiscal 2010,
with the increase driven by the improved sales leverage and certain gains recorded
in the fourth quarter of fiscal 2011. Starbucks identified a gain, for about $0.10 to
EPS in fiscal 2011, from a fair market value adjustment causing from the
acquisition of the remaining ownership interest in its joint venture in Switzerland
and Austria as well as a gain on the sale of corporate real estate.

Figure 1.6. Operating Cash Flow & Capital Expenditures

7
 Capital expenditures were approximately $532 million in fiscal 2011 compared to
$440 million in fiscal 2010. Cash flow from operations was $1.6 billion in fiscal
2011 compared to $1.7 billion in fiscal 2010. Available operating cash flow after
capital expenditures during fiscal 2011 was concentrated at repaying for about
$945 million of cash to our shareholders via share repurchases and dividends.

*The financial highlights was taken from Starbucks Annual Report 2011

b. Strategic Posture

Starbucks has a clear organization mission, objectives, strategies, and policies.

They were clearly stated and embodied in the Starbucks’s performance.

MISSION

“To inspire and nurture the human spirit- one person, one cup, and one
neighborhood at a time”

The mission statement of Starbucks has an underlying meaning that their

company is not only selling a coffee but also engage its customers at an emotional
level.

OBJECTIVES

The objective of Starbucks will be categorized into three sections as follow.

 Corporate Objectives
The corporate objective is to maintain Starbucks standing as one of the most
recognized and respected brands in the world.
 Business Objectives
Starbucks business objectives are to earn good profits and doing good things
in the world through their commitments in providing high quality product
and services.
8
  Functional Objectives
In order to achieve its corporate and business objectives, Starbucks was
disciplined in the expansion outside the United States and the development
of its corporate social responsibility program.

It can be clearly stated that the corporate, business, and functional objectives are
consistent with each other, with the mission, and with the internal and external
environment.

STRATEGIES

The strategies that were implied by Starbucks are obviously in accordance with its
mission statement. It can be closely look as below.

 Coffee Quality

Starbucks is very concern to its coffee quality. The management is always try
to source the finest coffee bean and monitor the production process closely.
Thereafter, Starbucks hopes to provide the best possible coffee.

 Partnering with Employee

Starbucks always recruit closely and treat their employees with respect and
dignity. The company realizes that the staff of Starbucks played a central role
in sustaining and developing its business.

 Starbucks’ Location Strategy

Starbucks was trying to create “Starbucks Buzz” by its clustering store

location. Besides, it has already made a drive-through system that may expand
the sales of coffee-to-go.

 Starbucks’ Store Layout and Design

9
 Starbucks aims to make their customers feel the sense of belonging. It wants
deliver “Starbucks Experience” that customers can perceived Starbucks as the
third place, somewhere other than home and work, where people could engage
socially. Thus, to support its strategy, Starbucks always maintain all store to
be clean. Besides, the store design was influenced by the combination of
urban suavity of an espresso bar in Milan and Pacific Northwest.

 Community Relations and Social Purpose

Starbucks are committed to being a responsible for the environment and also
communities where it does the business around the world.

 Expansion Strategy

By early 2011, Starbucks articulate its expansion strategy as “Blueprint for

Profitable Growth”. It would expand the scope of its customer’s engagement
through growing its network of stores both through geographical expansion or
licensing.

POLICIES

The policy made by Starbucks is consistent with its mission objectives. Here are
the explanations.

 Employee Relationship

Starbucks’s management has a policy for its human resources to recruit people
whose attitudes and personalities were consistent with the culture of the
company. Besides, it also emphasized some characteristics of their
prospective employees, such as adaptability, dependability, capacity for team-
work, and willingness to further Starbucks principles and mission. In addition,
Starbucks also provided health insurance for almost regular employee,
including part timer. It also stressed on the policy of “treat each other with
respect”. Meaning that, Starbucks wants to have workplace that is free
discrimination.
10
  Customer Relationship

Starbucks strive to treat their customers with respects, which embodied in

their “superior customer service” and “equality” policies.

 Community Relationship

Starbucks is encouraged their employee to be involved in the communities

and share Starbucks’s mission. Besides, it also has a policy to reduce
environmental impacts of Starbucks operation by using environmental-
friendly products.

II. CORPORATE GOVERNANCE

a. Board of Directors

Board of Directors Description

The founder of Starbucks Corporation and serves as chairman,
Howard Schultz
president, and chief executive officer .
William W. Bradley Has been a Starbucks director since June 2003.
Robert M. Gates Has been a Starbucks director since May 2012
Mellody Hobson Has been a Starbucks director since February 2005
Kevin R. Johnson Has been a Starbucks director since 2009
Olden Lee Has been a Starbucks director since June 2003
Joshua Cooper Ramo Has been a Starbucks director since May 2011
James G. Shennan, Jr. Has been a Starbucks director since March 1990
Clara Shih Has been a Starbucks director since December 2011
Javier G. Teruel Has been a Starbucks director since September 2005
Myron E. Ullman, III Has been a Starbucks director since January 2003
Craig E. Weatherup Has been a Starbucks director since February 1999

11

Table 2.1 Board of Directors

In Starbucks Company, most board directors come from external members (different types of
companies). Only two directors come from internal members. Based on Starbucks Corporate
Governance Principles, the Non-Employee Director (Corporate Governance Principles, the
Non-Employee Director) own significant shares of stocks which held privately.

Most of Board Directors come from big companies like Microsoft, Pepsi, Fedex, TLC Vision,
Queenstreet Inc., and many more. Commonly their previous positions were also the directors
in those companies. Starbucks Board Directors have different kind of skills and great
international working experience which could strengthen and empower the Starbucks strategy
to maintain the company success globally. That’s why we could see that Starbucks can
develop fast internationally because their broad directors have already set global strategic for
their business.

Based on the directors’ biographies, non-employee directors have been 10 years as board
directors. However, for internal directors, they have been there as almost 14 years. Overall,
the main task of board directors is to evaluate and control the strategy formulation and
implementation whether the result done well or not. It seemed from their future direction
suggestion about environmental sustainability for Starbucks strategy which had been set by
top management. This environmental sustainability concern could be seen from Starbucks
Business Implementation on environmentally friendly packaging and Starbucks
Environmental Commitment which is

“All partners should seek ways to proactively address the environmental impacts of our
operations and incorporate the principles of the environmental mission statement into their
work. At a minimum, we all must ensure that Starbucks business practices and activities
comply with the letter and intent of the law and all company policies. Starbucks understands
that environmental responsibility is necessary if we hope to preserve our world for
generations to come. Our commitment to contribute positively to the environment is of the
utmost importance to our company. We elaborated further on this commitment in 1992 when
we adopted our environmental”

12
 b. Top Management

Name Position

Troy Alstead Chief Operating Officer

Marissa Andrada Senior Vice President, Global

Partner Human Resources

Adam Brotman Chief Digital Officer

13
 Cliff Burrowa Group President U.S., Americas,
and Teavana

Michael Conway Executive Vice President, Global

Channel Development

John Culver Group President of Starbucks

China and Asia Pacific, Channel
Development and Emerging
Brands

Curt Garner Chief Information Officer

14
 Jeff Hansberry President Starbucks China and
Asia Pacific

Lucy Lee Helm Executive Vice President ,

General Counsel and secretary

Deverl Maserang Executive Vice President, Global

Supply Chain

Scott Maw Executive Vice President and

Chief Financial Officer

15
 Sharon Rothstein Global Chief Marketing Officer

Arthur Rubinfeld Chief Creative Officer

Craig Russel Executive Vice President, Global

Coffee

Matthew Ryan Global Chief Strategy Officer

16
 Blair Taylor Chief Community Officer

Vivek Varma Executive Vice President, Public

Affairs

Annie Young Executive Vice President and

President , Teavanna

Table 2.2 Top Management

c. Organizational Chart
17
 Chief Executive Officer

BOARD OF DIRECTORS

Director Director Director Director Director Director Director Director Director Director Director

Chart 2.1 Board of Directors Structure

Chart 2.2 Top Management Structure

TOP MANAGEMENT STRUCTURE

SVP, PCAP EVP,GC EVPPT EVP, EVP,CF EVP,GS EVP,GC EVP,PA

GPHR
S GCD O C
SVP,

CIO GPCA COO CDO CCO GCSO

GCMO GP A,T CCOM
Description of ORGANIZATION CHART

CHART DESCRIPTION

18 SVP, GPHR =Senior Vice President, GCMO=Global Chief Marketing

Global Partner Human Resources Officer
 PCAP=President Starbucks China and CIO=Chief Information Officer
Asia Pacific

EVP,GCS=Executive Vice President , GPCA=Group President of Starbucks

General Counsel and secretary
EVPPT=Executive Vice President and
President , Teavanna
EVP, GCD=Executive Vice President,
Global Channel Development
EVP,CFO=Executive Vice President
and Chief Financial Officer
China and Asia Pacific, Channel
Development and Emerging Brands
GP A,T=Group President U.S.,
Americas, and Teavana
COO=Chief Operating Officer
CDO =Chief Digital Officer

EVP,GSC=Executive Vice President,

Global Supply Chain CCO=Chief Creative Officer
EVP,GC=Executive Vice President,
Global Coffee
GCSO=Global Chief Strategy Officer

EVP,PA=Execuive Vice President,

Public Affairs CCOM=Chief Community Officer
Notes: =executive structure

=chief structure

19
Most of Top Management Team is external members which come from various types
of company. Commonly, they were promoted externally hired. Starbucks Top
Management has been responsible for the corporation’s performance over the past
few years. Besides, only around six executives out of eighteen executives have been
in their current position for less than three years.

All Top Management of Starbucks have various background and great teamwork to
formulate and implement good strategy in maintaining Starbucks globally. They have
their own creativity, principles, leadership, skills and international experience which
lighten them to handle future challenges and support Starbucks international operation
by scanning environment, formulating strategy, and implementing the strategy.

In order to implement a good strategic management, the team has established a

systematic approach, such as making an ethically and socially responsible manner
strategic decision and setting a environmental sustainable decision.

20
 III. External Environment:
Opportunities and Threats (SWOT Analysis)

1. Natural Physical Environment Sustainability Issues

The natural physical environment known as factors that comes from the natural
forces that might affect the company. It related to climate, weathers, and natural
pests threats. As the company that having the whole integrated process from
plantation to selling its’ coffee, Starbucks keep many risks and threads among its’
business process. By keeping the top highest quality of coffee and service,
Starbucks had to deal with natural physical sustainability issues in order to sustain
its’ worldwide business model.

a. Climate which affects the coffee bean production

In climate effects, there are 4 main climate activities that affect the
Starbucks business process. There are climate changes, the high
temperature of climate, long drought, and intense rainfall.
Climate change is affecting Starbucks business model. It affects the
plantation process and changes the cycle of plantation. The climate changes
forces Starbucks to open more property and partnership in plantation of coffee
bean worldwide, in order to keep the products sustain distributed to every part
of the world.
The high temperature affecting the coffee bean quality that Starbucks
has been promised for. By the high temperature effects, Starbucks forced to
rising the price to balance the price rising in plantation and choosing process.
In many recent issue, Long drought and intense rainfall has been
pushing the Starbucks to broaden up its’ coffee supplier and plantation
worldwide. Long drought and intense rainfall lead the Starbucks into scarcity
problems in the distribution of resources. It pushes the price for being
fluctuate in the market for moments. The scarcity also leads to unbalanced
distribution to worldwide channels. It pushes Starbucks to develop its’
business model by having more plantation sites and suppliers around the
world.

21
 Those explanations clearly stated that this factor is the threat for
Starbucks because it affects the raw material of the coffee if the climate goes
unsteady. If the climate goes unsteady, the production process will not be on-
time and it will also affect all selling activities.

b. Weather related events

The weather events such as floods, hurricanes, and drought can affect
the Starbucks business process as a whole. Not only on the plantation
process, some natural disaster like hurricane and flood has also
impactedStarbucks to lose stores and others assets. It impact the company to
having other investment strategy in order to keep the business sustain in
worldwide market.
This is a threat because all of the worst scenes that can happened like
floods, hurricanes, and drought can affect the plantation process which
resulted a late production. The late production will also affect the selling
activities. The disasters can affect the quality of the raw material of the coffee.

c. Pests and Plant Disease

The pests and plant disease is a big risks in plantation business
process. The pests and plant disease is commonly ruining the results of
plantation. Starbucks forced to develop and using the best chemical
technology and maintaining process in order to keep its’ plant away from
pests and plant disease and continuously develop its’ current technology for
the prevention of pests and plant disease.
Pests and plant disease can be a threat because it affects the raw
material of Starbucks coffee. The disease can make the raw material turns
into bad quality which will resulted a worst coffee.

2. Societal Environment Analysis

The societal environment Analysis consists of societal external factors that might
affect the corporation as an opportunity or threat. By this research authors are
analyze the societal environment Analysis by using PEST Analysis based on the
center of business in United States of America. PEST is defined as Political-legal,
22
Economy, Socio-cultural, and Technology factors. The 4 elements of factors are the
main components that affect a corporate as external factors.

a. Political-legal
Opportunity
- The openness of brand entrance in Asian Market
There are the new policies in most of countries in Asia. Which are being
open to others nation investor and corporation in the distribution of channels.
Most of the growing businesses that use this access are accessing the policy
of using third-party brand franchising distribution policy. Most of Starbucks
worldwide channels are also growth by this easiness of political substances.

Threat
- Failure to comply with applicable laws and regulations could harm
business and financial results.
Business policies and procedures are designed to comply with all applicable
laws, accounting and reporting requirements, regulations and tax
requirements, including those imposed by the SEC, NASDAQ, and foreign
countries, as well as applicable trade, labor, privacy, food, anti-bribery and
corruption and merchandise laws. The complexity of the regulatory
environment in which Starbucks operate and the related cost of compliance
are both increasing due to additional legal and regulatory requirements, our
ongoing expansion into new markets and new channels, together with the
fact that foreign laws occasionally conflict with domestic laws. Failure to
comply with the various laws and regulations as well as changes in laws
and regulations or the manner in which they are interpreted or applied, may
result in damage to our reputation, civil and criminal liability, damages, fines
and penalties, increased cost of regulatory compliance and restatements of
business financial statements.

- The taxation issue rising in New York

23
 There is the tax claim issues that appear on Britain, Ireland, and New York .
It related with the issues that Starbucks doesn’t fulfill the tax payment in UK
and Ireland since 2009.

“Kris Engskov, the boss of Starbucks in Britain and Ireland, on December 6th, announcing
that the coffee retailer will volunteer to the British taxman around £10m ($16m) a year more
in 2013-14 than it is required to pay by law. It is doing so not under any pressure from the
authorities, which had not been party to the firm’s decision to donate an extra shot of cash to
the exchequer, but to please British consumers furious not, as you might expect, at the high
price of a latte, but at how little tax the firm pays in their country.”
The Economist, Wake Up and Smell Coffee

Figure 3.1 UK demosntrants toward Starbucks which has not fulfilled the tax
Source :
payment
http://www.economist.com/news/business/21568432-starbuckss-tax-troubles-are-sign-things-come-multinationals-
wake-up-and-smell

Public views of Starbucks foray into politics

24
 In 2012, Starbucks, along with Microsoft and Nike, announced their support
for a Washington state bill to legalize same-sex marriage, according to
CNN. It is in the best interest of Starbucks as a multinational corporation to
remain neutral on partisan issues, as well as any issue that may be seen in
the public eye as controversial. Starbucks takes the risk of losing profits
when they voice their opinions. Customers may feel inclined to support
other corporations who don’t put their stances in the public eye. Consumers
go to stores for the products, not to support certain ideals.

b. Economic
Opportunity
- Americas
Americas operations sell coffee and other beverages, complementary food,
packaged coffees, single serve coffee products and a focused selection of
merchandise through company-operated stores and licensed stores. The
Americas segment is our most mature business and has achieved significant
scale.

- Europe, Middle East, and Africa

EMEA operations sell coffee and other beverages, complementary food,
packaged coffees, single serve coffee products and a focused selection of
merchandise through company-operated stores and licensed stores. Markets
within EMEA operations are in the early stages of development and require a
more extensive support organization, relative to the current levels of revenue
and operating income, than Americas.

- China / Asia Pacific

China /Asia Pacific operations sell coffee and other beverages,
complementary food, packaged coffees, single serve coffee products and a
focused selection of merchandise through company-operated stores and
licensed stores. Certain markets within China / Asia Pacific operations are in
the early stages of development and require a more extensive support
25
 organization, relative to the current levels of revenue and operating income,
than Americas.

- Channel Development
Channel Development operations sell a selection of packaged coffees as well

as a selection of premium Tazo® teas globally. Channel Development

operations also produce and sell a variety of ready-to-drink beverages,

Starbucks VIA® Ready Brew, Starbucks® coffee and Tazo® tea K-Cup®

portion packs, Starbucks® ice creams, and Starbucks RefreshersTM

beverages. The US foodservice business, which is included in the Channel
Development segment, sells coffee and other related products to institutional
foodservice companies.

Threat
- Foreign Currency
To mitigate the translation risk of certain balance sheet items, we enter
into certain foreign currency swap contracts that are not designated as
hedging instruments. These contracts are recorded at fair value, with the
changes in fair value recognized in net interest income and other on the
consolidated statements of earnings. Gains and losses from these
instruments are largely offset by the financial impact of translating foreign
currency denominated payables and receivables, which is also recognized in
net interest income and other.
The inflation and the changes among the trade currency might affect
the Starbucks as the international business. The strength of Starbucks as a
business that has international supply chain might also be a boomerang for
dynamic of economical trades.

- Commodity Price Risk

We purchase commodity inputs, including coffee, dairy products and diesel
that are used in our operations and are subject to price fluctuations that
26
 impact our financial results. In addition to fixed-price and price-to-be-fixed
contracts for coffee purchases, we have entered into commodity hedges to
manage commodity price risk using financial derivative instruments.
c. Socio-cultural
Opportunity:
- America
As the most sustainable market of Starbucks nowadays, the growth within the
America market can be predicted to be more sustainable and less fluctuation
due to the market knowledge and acceptance of brand. The Starbucks has
the opportunity to secure the market within America in order to keep safe
others business expansion investment to others markets.

- Europe / Middle East / Africa

The market within Europe, Middle East, and Africa is producing coffee in the
good scale. Even though there are certain decreasing sales that appears,
however This market as the social and cultural is sustain in attempting the
operational sources plantation events. There is no any conflict yet between
the markets.

- China / Asia Pacific

The social and demography characteristic shows that China / Asia Pacific is
dominated by more younger people which are productive in having expenses
and incomes. This market is respectively growing in the consumption and
sales numbers within countries. The policy of Asia Free Trade Market is also
might be the trigger of the more opened cultural acceptance between the
countries.

Threat:
- Economic Recession in Europe
Due to the economic crisis in Europe there is decreasing number in
consumptions of goods. The decreases of the incomes and expenses held
the threat within the cultural shift or even the population movement to others
regions or parts of the world, which led to the decreasing of market
preferences to brand. 27
 d. Technological
Opportunities
- Development of Information Technology System
The integrated development of information technology systemis the big
significant key in the usage of business information for big companies with
big data across the world. The development might support Starbucks in
maintaining the condition and current information trade within company.

Threat
- Data Security and Safety System Management
There are risks in attaining the access of the worldwide market data of
Starbucks. The data security nowadays is become the key of big risks of
worldwide corporation. The risks are covering from the accessing secret data,
company secrets, or o the hacking and hijacking the corporate functions of
business within the Information data system management.

3. Task Environment
The task environment analysis are represented by Porter’s five forces that includes
threat of new entrants, bargaining power of buyers, threats of substitute products or
service, bargaining power of suppliers, rivalry among competition, and relative power
of other groups. The task environment described asks the environment factors that
surrounded the business process of corporation.
The table below shows our description and analysis of the Starbucks’ task
environment.
Table 3.1 Starbucks Task Environment

28
 Local (US market) Globally
Threat of Independent coffeehouses and Fast Food Restaurants, Local
new chains, fast food restaurants (Mc Coffee Shop (suitable with the
entrants Donald, Dunkin, Burger King), specific social culture)
A lot of coffee shops serve
Bargaining There are many other coffee shops
customers with high quality
power of which provide high quality coffee
coffee and concern with local
buyers standard and competitive price.
preferences.
Home-brewed coffee makers from
Threat of
Nestle, Keurig with its K-Cup system,
substitute Home-brewed coffee makers
the Senseo system launched by
products or from Nestle
Philips and Sara Lee, and Kraft’s
services
Tassimo system.
Bargaining
There are a lot of other coffee importing countries which can provide
power of
Starbucks with the similar even higher quality.
suppliers
Rivalry
among Other coffee shops such as multinational fast food restaurants, home-
competition brewed coffeemakers company, and local coffee shop in each country.
firms
Relative
power of
Government policy, environmental issues.
other
groups

4. Summary of External Factors (EFAS Matrix)

The table below shows the summary of external factors of Starbucks and what
elements that might affect its’ business process. The scores define the Starbucks
position due to the factors that stated.
Weigh Scor Weighted
External Strategic Factors Comments
t e Score
Opportunities        
O1 License Shares 0.10 4.00 0.4 License management
29
 O2 Growing Worldwide Market 0.10 3.00 0.3 Worldwide distribution
O3 Asian Growing Market 0.15 3.00 0.45 Market strength in Asia
Loyalty of service
O4 The Market Loyalty 0.05 4.50 0.225
worldwide
O5 Sustain Business Model 0.05 3.00 0.15 Integrated business model
O6 Product Variety Development 0.02 3.10 0.062 Fast variety development
O7 Product Category
0.08 3.50 0.28 Product differentiation
Differentiation
Threats        
T1 Climate Changes 0.05 3.00 0.15 Plan for changes
T2 Climate Fluctuation 0.03 3.00 0.09 Fluctuation in seasons
Risks in worldwide
T3 Natural Disaster 0.05 2.00 0.1
plantation
T4 Pests and Plant Disease 0.02 3.00 0.06 Prevention system
Adapting to different
T5 Overseas Politics 0.05 3.00 0.15
politics
Worldwide business
T6 Inflation Between Countries 0.10 4.00 0.4
process
T7 Competition Within Industry 0.15 4.15 0.6225 Market leader
Total Scores 1   3.440  

The weighted average of Starbucks is above the industry average because 3.44> 3.00

OPPORTUNITIES

Asian Growing Market

We give the highest weight score in the Asian Growing Market (0.15) because it is a
promising prospect for Starbucks to embrace more. It may strengthen their position as the
market leader in the industry as well as a global brand. The growing Asian market can also
lead to sales increase and generates more profit for the company. By entering the Asian
market, Starbucks is step ahead of their competitors since they gain more customers, thus
increase their market share. We give score 3.00 for the rating score because the company
leads the company to a positive direction by turning their expansion plan in Asia to reality.
Since 2009, Strabucks’ sales in the US has grown stall therefore they try to overcome these
problem by relying their growing retail market in Asian to boost their sales. They launch their
first store in India on October and plan to open their first store too in Vietnam in 2013.

License Shares

The next highest weight score factor is the license shares (0.1) because it supports Starbucks’
expansion by opening new stores in many countries worlwide. This system helps the
company to reach their customer in less time and less cost than entering new regions and
opening new stores by themselves. Moreover, it will provide Starbucks with royalty and license
fees revenues in addition to higher product sales. For the rating score, we give 4.00 because the
company is focusing on their expansion and the license system helps them growing their retail market
rapidly. At the end of 2011, Starbucks had a total of 4.776 licensed stores worldwide.

Growing Worldwide Market 30

The growing worldwide market (0.1) is one of the factors of Starbucks sustainability. The
global customers’ preferable to western brands, the increasing demand for instant coffee, and
active lifestyle are the evidence of how the worlwide market growth can be assured for
Starbucks. In line with the market growth, the company itself also needs to grow and
Starbucks does their best to improve, that is why we give 3.00 for their rating score. As stated
by Starbucks’s CEO, Howard Schultz, “you can’t attract and retain great people for a
company that isn’t going to grow. It is so vitally important to give people hope, to provide
aspirations and a vision for the future”.

Product Category Differentiation

There are quite many opportunities in product category differentiation for Starbucks to take;
therefore we give 0.08 for the score. Since Starbucks has a good brand image that can be
utilized and venture into a new product diversification, for example consumer packaged
goods which are sold in the retailers; they can create some new products that distinguishing
them from their competitors. In other words, it enables Starbucks to construct more
competitive advantages over competitors. For the rating score, we give 3.50 because in 2012,
Starbucks introduce new products which are different than their competitors, including
coffee, non-coffee beverages, and fresh food category such as: Starbucks Blonde roast for
coffee drinkers who prefer lighter a lighter roast (coffee), fresh juices (non-coffee), and
bakery products (fresh food).

The Market Loyalty

The next most prospected opportunity is the market loyalty (0.05) because Starbucks’
customer loyalty is one of the keys to the company’s sustainability. In addition to profit
increase, brand loyalty helps Starbucks move ahead than its competitors. The number of
customer purchase is represented in the market share and as the market leader, Stabucks has
the largest market share which enables them to market and advertise their product and
services quiet easily in the market compare to their competitors. In 2011, they gain 32,6%
market share in the US, way ahead of Dunkin Brands Inc (16,1%) and other coffee chains
(with aggregate of 51,3% market share). We give the highest score of rating score (4.50) in
the market loyalty because the company is really concern about it and greatly maintain their
loyalty program, seen from their focus in providing each customer a unique Starbucks
Experience. It turns out well for the company, gaining 14,6 million loyalty program members
in 2012.

Sustain Business Model

Sustaining Starbucks business model is one factor which is important to be concerned (0,05)
because it includes the key structural and operational characteristics of Starbucks. Therefore,
Starbucks management has implemented its business model which can help Starbucks to
sustain the industry and to intensify the good impact.We can also see Starbucks’ commitment in
31
creating and delivering the ‘Starbucks Experience’ from their supplier to their customers which also
shows how they integrate their business model (3,00)

Product Variety Development

By varying their product (0.02) into juice, cake, and also new choices of coffee, Starbucks can
cope with the changing in their customer needs, lifestyle, and preferences in a significant way. The
company can also reach new market segments (not only coffee-lovers), thus gaining more customers.
It is also important for them to keep their quality standard in each of its new product to meet their
customers’ expectation to the brand. We give the rating score of 3.10 because in 2012, Starbucks
introduces new creative products to meet more of their customers’ needs. These products are:

1. Starbucks refreshers™ Beverages: Cold energy drinks made with natural green coffee
extract, available in cans
2. Seasonal coffee beverages such as: Pumpkin Spice, Peppermint Mocha, and Starbucks
Blonde roast (for coffee drinkers who prefer a lighter roast)
3. Bakery products & pastry (partnered with La Boulange)
4. High-quality premium juices through their subsidiary Evolution Fresh.

THREATS

Competition Within Industry

The competition within Food and Beverages industry is the biggest threat for Starbucks (0.15).
Locally, Starbucks faced with many competitors such as independent coffee shops and fast food
restaurant competitors that provides product that has relatively same price and quality compared to
Starbuck’s. Globally, there are also many giant fast food restaurant and local country coffee shop that
provides unique and high quality coffee. Those local-country coffee shop usually has already adjusted
their coffee taste to the society preferences.

However, the strategy they use to excel their competitors made us give 4.15 as the rating score. They
implement a four –fold strategy:

1. Right market segmentation they compete on comfort rather than convenience

2. Execution focus on their original product bundle

3. A superb leadership which delivered by their founder, Howard Schultz who continues to
come up with innovative products

4. China expansionstrong demand in coffee and Starbucks as ‘third place’

Inflation Between Countries

The inflation between countries (0.4) is also a big threat for Starbucks because it might affect
their international business. Some gains and losses may be resulted from the different
currencies and inflation between countries in a certain period. It is because Starbucks will
receive its account receivable or pay the account payable in any currencies besides US dollar.
We give 4.00 for the rating score because they handle the inflation quite well. In the US
32
inflation case, Starbucks has been able to manage the commodity inflation not with pricing,
but with a more efficient cost structure and strong traffic growth, according to the CFO Troy
Alstead. Moreover, because Starbucks’ high-end consumer base is less sensitive to prices
than that of their rivals, the increases would not affect customer purchases, even in a
struggling economy.

Overseas Politics

As Starbucks operates in domestically and internationally over 65 countries, they must comply with
various laws and regulation to maintain its operation. However, such action is difficult to be
implemented because the foreign laws occasionally conflict with the domestic laws. Therefore, we
give 0.05 score for this factor. Starbucks has been reported has been avoiding tax in the UK for years,
apparently since 2008 even though the company denies it. However in other case, Starbucks pays
much attention to foreign legal system, for example registering their trademarks in China and
Starbucks operational in Indonesia is under Mitra Adi Perkasa because the regulation stated that
foreign franchises must operate through Indonesian legal entity. After learning the examples, we give
3.00 for their rating score.

Climate Changes

The climate changes will be affecting Starbucks business model, especially in plantation process and
changes in the cycle plantation. Therefore, we give the score of 0.05 for this factor. Not only for
Starbucks themselves, climate change is a threat to world coffee supply because climate change
resulted to severe hurricanes and more resistant bugs that reduce crop yields. The farmers also
reported the shifts in rainfall and harvest pattern which hurting their communities and shrinking the
available land that can be used in coffee regions around the world. In facing this matter, we give the
rating score of 3.00 for Starbucks because they have been implementing climate change strategy since
2004. According to their website, the strategy is focusing on renewable energy, energy conservation,
and climate adaptation and mitigation efforts.

Natural Disaster

Unexpected disaster, such as floods, hurricanes, and drought, could affect the supply and quality of
raw materials and inhibit the production activity. The serious impact this threat might bring made us
give score of 0.05 for the factor. Even though natural disaster may occur anytime and unexpected,
Starbucks has several alternatives to avoid further risks. They have a lot of suppliers outside the US to
secure their stock. Moreover, we believe they also have prepared some portion of their income for
recovery cost, in case any unexpected natural disaster really occurred. That is why we give 2.00 for
ther rating score.

Climate Fluctuation

As explained in the climate changes factor above, the climate fluctuation is a threat to their production
process and likely resulted to the decrease in coffee bean supply. Therefore it would affect the
production time and the selling activities, the reason we give 0.03 as the score. That is why Starbucks
needs to search ways to overcome the problem. Same as the climate change, we give 3.00 for the
33
rating rate because how the management deal with i is quite the same, which is through their climate
strategy. Starbucks increases their investments in solutions and strategies that address this crisis.

Pests and Plant Disease (0.06)

Some of the big threats in plantation business process are pests and plant diseases, which lead to crop
failure or bad coffee bean quality, the reason behind our 0.02 score. Same as in the climate fluctuation
result, the disease is a threat to the production process and the decrease supply of coffee bean. To help
the coffee producers deal with the threat, Starbucks offers technical support for them through Farmer
Support Centers. According to their website, these centers allow Starbucks agronomists and quality
experts to collaborate directly with coffee farmers to encourage responsible growing practices and
improve the quality and size of their harvests. This will help farmers earn better prices and become
long-term producers. Starbucks is also planning to open their first farm next year in Costa Rica to
grow its own coffee, cultivating new types of coffee beans and testing new defenses against crop
diseases. This significant step is the reason why we give 3.00 as their rating score.

IV. Internal Environment:

Strengths and Weaknesses (SWOT Analysis)

Business Model Canvas

Chart 4.1 Starbucks Business Model Canvas

 Value Proposition
34
The value proposition defines the main and core value of business. Starbucks has driven and
consistent by the vision of the company, which to be the third place for their customers. 

1. To Be the Third Place

Starbucks vision is to be the third place of people. Third place is meant to be the most strong
connected place with an individual. First place is defined as house and the second-place is
defined as the office or schools, and Starbucks is become the third place of customers.

2. Balancing Profit Conscience

The second value proposition is to balancing profit by the expansion and the efficiency of
business. The second value drives Starbucks into multi-billion businesses worldwide with
integrated business process from end to end process.

3. Commitment to Create Shareholder Value Through The Lens of Humanity

The Starbucks value is to drive the shareholder values not only by sales but also with the great
set and systematic humanity and community development programs. In order to reach the last
value, Starbucks have done many CSR programs that related to humanity and community
development program. Furthermore, Starbucks has also doing many processes in rehabilitation
of community after a disaster like what it did after the Catrina Hurricane disaster.

 Customer Segments
Starbucks has been focusing in developing and targeting two types of its customers, which are
students and mobile professionals or executives.
1. Mobile Professionals and Executives
This segment has driven Starbucks into all parts of the brand extension, expansion, and
growth. From a single store, to distribution in United States, and went globally are driven
with the key segments of mobile professionals and executives
2. Students
The student has been growing segments of Starbucks since the student in university is the
closest potential market in terms of ages and behavior. The students are having more time
and consumptions on using the Starbucks service

 Channels
35
Channels are described set of ways for a business in order to deliver the products and values to
customer segments. The Starbucks key channels are store distribution and license offering for stores
worldwide.

1. Store Distribution
The store distribution has been the key channels of Starbucks business. The store
distribution held a significant role in terms of business development. The Starbucks has
grown to more than 18.000 stores in 2012 worldwide.
2. Various Mix of License for Stores
License offering has been a catalyst of the Starbucks business in its’ growth. Starbucks stores
and its’ business has grown tremendously after the license offering to many private sectors
in various countries.

 Customer Relationship
1. Loyalty Card Program
Starbucks has a program called loyalty card. It is a like an e-money where you can deposit
the money into the card and pay without using cash. The customer can also get some
benefits by using it because there are a lot of reward you can get.
2. Social Media Integration
Starbucks already taken a leadership of the social media promotions. There are 6 additional
social platforms they use which are Twitter, Facebook, Pinterest, Google+, and My Starbucks
Ideas. That strategy using the social medias are actually a really good thing where Starbucks
can get customer engagement. Also, they promote their special offers on the social media to
gain the “happy customer” because that “happy customer” is the one whom will eager to
share good experiences and offers.

 Key Activities
1. Serving the Excellence in-store Experience
The service of Starbucks is actually related to their “The Third Place” value proposition. In
the store, they design the store as comfortable as the customer need by having the coffee
as the center stage. Most of the Starbucks store mix upholstered chairs and sofas with hard-
backed chairs around tables. To the one who actually want to do their job, Starbucks
provides free electricity to their customer so they can plug in their gadget. The most
important thing is... very Wi-Fi! It is necessary because most of the customers are students

36
 and young executives who want to get their job done there. The last thing is that Starbucks
Coupon. There are a lot of different usage of the coupons by simply asking it to the barista.
 
2. Producing Various Types of Finest Coffee
Starbucks has a lot of variances of menu. Some of them are made from places around the
world. They uses the most excellent grinding machine which resulted a very fine coffee.

 Key Resources

Starbucks key resource is the service and all of the finest quality of product offers. The quality of its’
service related to the main resource of its’ 200.000 employees and the selection of finest product
material qualities.

1. 200.000 employees
The human resource is the key of Starbucks business process. What makes Starbucks strong
than the other business is the excellence of service, brand consistency, and commitment.
What makes Starbucks distinct from other similar business is the human resource of 200.000
employees. 
2. Finest Quality of Product Materials
The product quality of Starbucks includes all of the best process in material growing and
process. The Starbucks development of product itself has been a rapid business growing and
development in many years.

 Key Partners
1. Coffee Bean Growers
Starbucks has a lot of suppliers from country across the world. The suppliers provide the
finest coffee bean. Starbucks also operate Farmer Support Center in Costa Rica and Rwanda.
2. Franchise Partners
The franchise partners of Starbucks spread in Asia Pacific, Europe, Middle-east, Africa, and
America with total about 7,972 locations (October, 2011). There are two different kind of
cooperation which are joint venture (50:50) and 100%.  
3. Intuitional food service company
Beside providing the finest coffee, Starbucks also doing some cooperation with food service
company. The majority of the sales in the food service channel come from national broad
line distribution networks with SYSCO Corporation, US, Fooservice TM, and other distributions.
37
 4. Shareholders
The shareholders of Starbucks Schultz Howard, Hobson Mellody, Burrows Clifford, Culver
John, Alstead Troy. Beside that, there are some institutional holders of Starbucks which are
FMR, LLC, Vanguard Group, Inc., Price (T. Rowe) Associates Inc., and etc.

 Revenue Streams

The Revenue streams are includes any revenue sources of business. The analysis shows there are
four main components in business revenue streams; there are sales of in-store fresh products, the
packaged coffee beans, merchandise, and retail goods.

1. In-store fresh products

The In-Store products sales include sales of various types of coffee, teas, and foods. The In-
store fresh products have been the key of revenue streams of Starbucks by years.
2. Packaged Coffee Beans
Nowadays Starbucks has sell its’ famous and signature coffee beans and powders in package
for home brewing. The products are specified for customer uses outside the stores and
purposed for anywhere consumption, such as brewing in office or house.  
3. Merchandise
In terms of the customer loyalty growth, Starbucks has extent its’ product and produce
various kinds of merchandise and sell it in store. The merchandise has driven quite number
in sales among the customers. The merchandise are wide ranged from a cup of coffee to a
iPhone case.
4. Retail Goods and Products
The consumer-packaged goods are Starbucks processed products that sold to retail markets
with the sign and brand of coffee. It includes many varieties of products from the coffee and
tea products that need to be processed to the ready-to-use of product, such as packaged
frapuccino.

 Cost Structure

The Cost Structure includes every parts of business costs as the whole integrated global business
process of Starbucks. The cost structures include four main cost sources; There are taxes, prices per
pounds of product components, overseas distribution, managerial fees for employees, and
maintenance cost.

38
 1. Taxes
The Starbucks as the global scale business held a big part of payment for taxes. The taxes
covered many aspects from business by licensing, sales, brand, and others taxes of product
2. Price per pounds of coffee beans, tea leafs, and others components of fresh products
The price of all raw materials and components of products is the key from cost structure in
product offering and business process. There are payments of fresh product components as
the key of business activities  
3. Overseas Distribution
As the multi-billon and global business, Starbucks manage overseas distribution of material,
component, and services worldwide. The overseas distribution costs are cost for this
material distribution in order to maintain the quality of products and services of Starbucks.
4. Managerial Fees of Employees
The managerial fees and capital investment for human development is the key of Starbucks
business. The quality of human development in terms of fulfilling the service is the big
promise of consistency of Starbucks branding and integrated figure.
5. Maintenance Cost
The Maintenance cost is includes the stores maintenance worldwide. Starbucks has more
than 18.000 stores worldwide. It is very important for Starbucks to keep the condition of
stores and machines in the greatest condition and maintain the performance by
maintenance cost

VRIO FRAMEWORK

Costly to Competitive
Resources and Capabilities of Starbucks Corporation Value? Rare? Exploited?
Imitate? Implication
Prime and Strategic Location
 In high-traffic, high-visibility locations near a
variety of settings, including downtown and Temporary
suburban retail centers, office buildings, Yes Yes No Yes Competitive
university campuses, and in select rural and off- Advantage
highway locations accros the world.
 Tap into customers convince factor.
Global Brand Recognition & Equity Yes Yes Yes Yes Competitive
 The most recognized brand in the coffeehouse Advantage
segment and is ranked 91st in the best global
brands of 2013.
39
  Effectively/leverages its rich brand equity by
merchandizing products, licensing its brand.
Aesthetic Appeal and Concepts of its Stores
 Their stores are visually appealing and have a
‘cool’ factor attached to them.
 Provide free wifi, great music, great service,
warm atmosphere and provide an environment
of community meeting spot, which forms a wider Competitive
Yes Yes Yes Yes
part of the ‘Starbucks Experience’. Advantage
 Concept of the stores as being a ‘third place’
besides home and work.
 Designed to reflect the unique character of the
neighborhood they serve in and environmentally
friendly.
Large Size and Strong Global Presence
 Operation in 60 countries and largest
Temporary
coffee/snack retailer.
Yes Yes Yes Yes Competitive
 Economies of scale through superior distribution
Advantage
channels and supplier relationships.
 Lower input costs
Human Resource Management and Company Culture
 Employees provided great benefits like stock
option, retirement accounts and well taken care
of.
 Knowledge based employees creating a healthy
Competitive
corporate culture. Yes Yes Yes Yes
Advantage
 Ranked 91st in the 100 best places to work for by
Fortune Magazine.
 Great human capital management couple with
great corporate culture translates into supreme
customer service.
Leveraging Technology and Mobile Outlets Temporary
 Starbucks Apps on iOS and Android Yes Yes No Yes Competitive
 Investment in Technology Advantage
Customer Loyalty and Cult Status Yes Yes Yes Yes Competitive
 They have a cult following status among Advantage
consumers.
 Loyalty-based programs like Starbucks Rewards
and Starbucks Card drive loyalty.
40
  Starbucks Card is a value card program that
provides convenience, support giving, and
increases the frequency of store visits by
cardholders.
Good Corporate Social Responsibility Image
 Their stores are community friendly, focused on
recycling and reducing waste. Temporary
 They build goodwill among communitites they Yes Yes No Yes Competitive
operate in. Advantage
 Strong Social Responsibility Initiatives
undertaken.
Chart 4.2 Starbucks VRIO Framework

Source: Geereddy, Nithin. Strategic Analysis of Starbucks Corporation

CORPORATE STRUCTURE

Starbucks adopts matrix structure for their organization structure. It means that the
company’s reporting relationships are set up as a matrix or in other words, the company has
both of vertical structure and strong horizontal structure. Starbucks’ partners, as they called
their employees, have dual reporting relationship, both to their product manager and their
functional manager. By implementing this structure, the company empowers the employees
to make their own decisions and train them to develop both hard and soft skills as well as
creating a team spirit. Eventhough matrix structure has disadvantage of making the
organization more complex, Starbucks seems to have good relationship and well-organized
education system for managerial stuffs to overcome these disadvantage and they seems to
convert these disadvantages to advantages of matrix structure. The fact that the company
has been awarded the prize of “100 Best Companies to Work For” by Fortune during 1998 to
2009 shows that Starbucks’ employee are satisfied to work in this circumstances (Starbucks
2010).

Meanwhile, internationally, Starbucks adopts a hybrid organizational design, encompassing

a geographical structure in addition to functional and horizontal structure. The executives
41
are based on their headquarters in Seattle, Washington and oversee the whole corporation.
The management then divided into 4 geographical regions in the US and 3 geographical
regions globally in which each of the regions is managed by district managers who report to
Starbucks’ executives directly. By dividing the divisions based on the regions, the company is
able to target the varying geographical markets quite differently based on each location,
culture, climate, and lifestyle. Next, the major functions are grouped together within
geographical divisions and lastly, each storefront within Starbucks has its horizontal
structure.

From the explanation above we can conclude that the adoption of matrix structure is a strength for
Stabucks because it empowers the employees and helps them handle complex challenges as well as
reaching the company’s objectives.

CORPORATE CULTURE

Starbucks is committed to develop a culture of “legendary service” or the “Starbucks

Experience” therefore they manage an employee-centered culture which gives impact in
strengthening Starbucks’ foundations for customer care. While Starbucks enforces almost
fanatical standards about coffee quality and service, their policy towards employeeis laid-
back and supportive. The employees are encouraged to think of themselves as partners in
the business. The CEO, Schultz believes that happy employees are the key to
competitiveness and growth.

Starbucks promotes an empowered employee culture through generous benefits programs,

an employee stock ownership plan, and thorough employee training.
 Training
Starbucks stresses five key behaviors for its partners: to be knowledable (escpecially about
the coffee), genuine, considerate, welcoming and involved (as in accountable for their
performance and the outcome at stores).Each employee must have at least 24 hours of
training. Classes cover everything from coffee history to a seven-hour workshop
called “Brewing the Perfect Cup at Home.” In total, all employees must complete five
classes during their first six weeks with the company. 42
  Benefits Package
Starbucks offers its benefits package called “Your Special Blend” to both part-time
and full-time employees. The package includes medical, dental, vision and short-
term disability insurance, as well as paid vacation, paid holidays, mental
health/chemical dependency benefits, an employee assistance program, a 401k
savings plan and a stock option plan. Starbucks’ concern for employee welfare
extends beyond its retail outlets to coffee producers. The company makes sure that
overseas suppliers pay wages and benefits that “address the basic needs of workers
and their families”.
 Stock Option Plan
Starbucks offers stock option plan or as they called as “Bean Stock” to their eligible
partners. With Bean Stock, partners may receive options to purchase shares of
Starbucks common stock. The grant of Bean Stock options is based on the company’s
performance throughout the fiscal year. These stock options give partners the
opportunity to buy a fixed number of shares of Starbucks stock during a 10-year
period at a fixed price. If the value of the stock increases over that fixed price,
partners might decide to buy the options and hold their shares as an investment or
they can trade the options in for cash. Either way, partners have the chance to enjoy
the financial rewards that come with being a partner at Starbucks1.

Starbucks’ CEO, Howard Schultz believes that without these benefits, people do not feel
financially or spiritually tied to their jobs. He argues that stock options and the complete
benefits package increase employee loyalty and encourage attentive service to the
customer.

Starbucks also strives to create a culture that values and respects diversity and inclusion.
The purpose is to build a diverse workforce, increase competencies, shape a culture of inclusion and
develop a diverse network of suppliers2.

Starbucks’ comprehensive and thoughtful organization culture is not only appeal potential
employees but also the customers. Customers are satisfied with Starbucks services because
1 http://lifeat.sbux.com/nr/rdonlyres/416a1708-f497-4188-8a1d-04c3872a7f29/0/tps012beanstockbrochuscan.pdf
2 http://www.starbucks.com/careers/working-at-starbucks 43
 they are treated well by passionate employees and also high quality coffee. The employees
are well trained before they participate in the work formally, therefore are able to introduce
customer professionally. In addition, employees are also satisfied with the wage and
benefits they get. In conclusion, the culture that Starbucks develops is a strength for the
company.

CORPORATE VALUE CHAIN3

Source:
Chart 4.3 Corporate Value Chain
Geereddy, Nithin. Strategic Analysis of Starbucks Corporation

Primary activities
 Inbound logistics – Sourcing coffee from diverse coffee beans producers with whom they have
great relationships and built up efficient supply chain management system.

3Geereddy, Nithin. Strategic Analysis of Starbucks Corporation 44

 Operations – Operates in 60 countries through company operated stores and licensed stores.
 Outbound logistics – Most of its product mix are sold in-store and some through large box
retailers. Payment around source through point of sale, prepaid Starbucks Cards and mobile
payments.
 Marketing and Sales – Investment in marketing activities which contributes to the reputation
growth and to drive customers to their stores and products.
 Service –Bringing ‘Starbucks Experience’ to customers

Support activities
 Firm Infrastructure - Well designed, aesthetically pleasing stores and efficient level of finance,
accounting and legal departments
 Human Resource Management – Great benefits, employee empowerment and amazing
corporate culture that contribute to the efficient management of human capital.
 Technology development – Investments in innovative technologies like the well like mobile app.
 Procurement – Starbucks procures its products from a diverse group of supplier and has fixed
contracts with some of the suppliers

CORPORATE RESOURCES

 Marketing
Starbucks’ marketing team continuosly create innovative advertising campaign, sponsorship,
and in-store merchandising as well as maintain their brand which contribute to their global
brand recognition and equity. Starbucks’ marketing activities encompass five different
areas4:
1. Brand Marketing – How the team establish brand power.
2. Regional Marketing – To ensure that their overall marketing strategy is implemented
correctly.
3. Merchandising – Selling merchandises like Travel mug, flavor coffee, assorted
beverages and Tim card.
4. National Promotions – Do promotions nationally by different mediums such as event
sponsorship, television, radio, in-store advertisements and outdoor advertisements.

4http://www.ukessays.com/essays/marketing/organizational-structure-of-starbucks-marketing-essay.php 45
 5. Corporate Affairs – In which a corporate affairs team is formed. The task of the
team is to make communication with the public, government and media
With a solid, creative, and innovative marketing team, Starbucks is able to expand their
market and maintain their brand recognition and equity and also brand loyalty.

 Financial Resources
- Capital
 Starbucks is concerned with maintaining its profitability and ability to pay liabilities. It
seems to understand the importance of effectively managing its net working capital. In
2011, Starbucks reported $3,794.9 million in current assets and $2,075.8 million in current
liabilities.  Thus, Starbucks net working capital in 2011 was $1,719.1 million. In 2010,
Starbucks reported $2,756.4 million in current assets and $1,779.1 million in current
liabilities. Therefore, Starbucks net working capital in 2010 was $977.3 million. Over the
course of one year, Starbucks increased its’ working capital $741.8 million.

 The improvement of Starbucks net working capital is achieved by maintaining balance of

inventories, account receivable, cash, and other forms of revenue and profitability. That is
why Starbucks closely monitor its inventory and employ over 500 employees on their
finance team, which includes everything from accounting, auditing, and corporate
development.

 Consistent Reinvestment of Profits

2004 2005 2006 2007 2008 2009 2010 2011

Retained Earnings 1.46B 1.94B 2.15B 2.19B 2.40B 2.79B 3.47B

Retained Earnings - 32.70% 10.92% 1.78% 9.73% 16.27% 24.27%

Growth

Chart 4.4 Starbucks Retained Earnings Growth

Starbucks has consistently retained profits. It can make Starbucks have a strong position to invest for
the future, by buying new machinery, investing in R&D or a number of other options. By excellently
using these earnings, the long term economic of Starbucks can be improved.

 Research and Development

46
 As stated in Starbucks’ website, they have a team of more than 200 people that responsible
for the science behind their products. There are two main components in this division:
Research and Development and Global Quality & Regulatory. Through this division, Stabucks
develops newfood, delicious beverages, and innovative brewing equipment. They create
innovative ideas for their new product, conduct research and testing of the product, and
make adjustments until the product is ready to take to market.

A strong research and development team within Starbucks plays a key role in shaping the
future frowth of Starbucks as they continue to expand into new outlets and countries 5.

 Operations (Supply Chain)

As a global company, delivering high-quality products to Starbucks’ branches worldwide depends on

the supply chain of the company. It has to be well maintained and controlled so that the company
will be able to create the Starbucks Experience starting from their supplier until it is delivered to
their customers and also to keep up with the company’s expansion globally.

Starbucks has an amazing supply chain. They control its coffee purchasing, roasting, packaging, and
global distribution of coffee used in its operation. The company brings coffee bean from Latin
America, Africa, and Asia to the United States and Europe in ocean containers (as seen in
Figure....below). By having quite many suppliers, Starbucks is able to supply the best ingredients for
a lower price.

Starbucks’ Coffee Roasting Regional Distribution Central Distribution Starbucks’

Plantation Centers Centers (DC) Centers (CDC)
Stores

Starbucks’ Supply Chain

From the port of entry, the unroasted beans are then trucked to six roasting centers. These roasting
centers make sure every single bean is prepared, manufactured, and packaged in the exact same
way and quickly through a series of well-designed manufacturing process.

After that, the finished product is trucked to regional distribution centers. Starbucks runs five
regional distribution centers (DC) in the US, two in Europe, and two in Asia. Not only coffee, they
also handle other items required by Starbucks' retail outlets, from furniture to cappuccino mix.

Depending on their location, Starbucks’ stores are supplied by either the large, regional DCs or by
smaller warehouses called central distribution centers (CDC). They carry dairy products, baked
goods, and paper items like cups and napkins to Starbucks’ own retail stores and other outlets that
sell Starbucks-branded products. Starbucks uses 33 CDCs in the United States, seven in the Asia-
Pacific region, five in Canada, and three in Europe.
5 http://www.starbucks.com/careers/corporate-careers/research-development 47
 Starbucks’ Coffee Plantation (taken from
http://www.supplychain247.com/article/behind_the_scenes_at_starbucks_supply_chain_operations/green)

Starbucks’ Sources, 2003 (taken from

http://www.supplychain247.com/article/behind_the_scenes_at_starbucks_supply_chain_operations/green)

 Human Resources

48
 In Starbucks world, they call it ‘partner resources’ and each of them is a strategic partner to the
business. They have more than 500 partners working in groups such as staffing, learning &
development, total pay, organizational development, and partner services. In addition to the
number, Starbucks also has innovative human resource practices. They create a supportive,
healthy and committed workplace for their employees/partners. The policy they make is always
balanced and fair. Employees are trained extensively on customer service and customer
satisfaction. Moreover, employee benefits like health insurance, promotion, rewards lead to
their working satisfaction and happy employees lead to satisfied customers.

Starbucks managers have designed a total compensation system. Using the pay model, the
strategic compensation is based on Starbucks’ objectives and the four basic policies :

1. Starbucks’ Objectives :
Grow by making employees feel valued. Recognize that every dollar earned passes through
employees’ hands. Use pay, benefits, opportunities for personal development to help gain
employee loyalty and become difficult to imitate.

2. Alignment :
Starbucks always deemphasize differences. Use egalitarian structures, cross train employees to
handle many job, and call employees “partners”

3. Competitiveness :
Starbucks pay just slightly above other fast food businesses (a low wage-industry). Beside,
Starbucks provide health insurance and stock option for all employees including part timers even
though most are relatively young and healthy and few stay long enough to earn stock options],
and give everyone a free pound of coffee every week.

4. Contributions :
Starbucks emphasize team performance and shareholder returns [options]. For new managers in
Beijing and Prague, provide training opportunities in the United States.

5. Management:
As members of the Starbucks “family”, our employees realize what is best for them. Partners can
and do get involved.

 Information Systems
49
Starbucks mainly uses four Information Systems which are known as Transaction
Processing System, Supply Chain Management System, Decision Support System, and
Customer Relationship Management System.

- Transaction Processing System (TPS)

TPS is an informational scheme for the storage , retrieval, alteration and collection of
transactions made by an organization. The purposes of Starbucks using TPS system are:
 To punch in every order
 To keep store information ( Sales, COGS)

The wastage IBM System is only used at the point of sale the outlets.

- Supply Chain Management System (SCM)

SCM is the reformation of business’ activities related to the supply side. Supply chain covers
all activities from product development, to production to the information systems required
to direct these actions.
Currently, Starbucks have two SCM systems at different hierarchical levels :
 At country level , Starbucks imply ZEAL system which is global software and
consulting organization with relentless focus on adding value to business by
providing outsourced IT solutions.
 At parent company , Starbuck imply High Jump system , which is a supply chain
management system which manage the flow of inventory and information from
supplier through manufactruing, distribution , and all the way to direct store
delivery.

- Decision Support System ( DSS)

DSS is a computer program application that analyzes business data and presents it so that
users can more easily take their business decision. Starbucks uses a Singular DSS system at
the parent company in USA, which is ORACLE system. ORACLE generates monthly reports on
which important decisions are based. Only the Parent company has the authority to make
decisions about products.
- Customer Relationship Management (CRM)
Based on Techtarget, CRM is a term for methodologies, software, and usually internet
capabilities that help a company manage customer relationships in an organized way.
Starbucks use two ways in using CRM which are Social Media and Starbucks Membership
Card. 50
 Table 4.1 Starbucks IFAS

How Information is transmitted between functional areas in starbucks

Chart 4.5 Functional Area in Starbucks

Based on the diagram, it can be seen how the information regarding whether to continue a product
or to introduce a new product is transmitted from one functional area to another.

IFAS MATRIX

The table below shows the summary of internal factors of Starbucks and what
elements that might affect its’ business process. The scores define the Starbucks
position due to the factors that stated.

Weighted
Internal Strategic Factors Weight Score Comments
Score
Strengths
S1 Global Presence 0.3 4.5 1.35 Starbucks has strong brand
image and well-known global
51
 brand. Thus, it does not need
heavy marketing.
S2 Specialty Coffee 0.15 3.7 0.555 They offer coffee drink with
unique taste.
S3 Stores Atmosphere 0.2 4 0.8 The stores are convenience for
customers to hangout.
Weaknesses
W1 Dependable on Suppliers 0.15 4 0.6 Starbucks profitability and its
coffee prices depend on the
coffee bean price.
W2 Self-cannibalization 0.15 2.5 0.375 Starbucks has many
franchises all over the world
W3 Product Variety 0.05 3.00 0.15 By adding more product
variety, some of Starbucks
products have lost their value
and increase the customers
ignorance toward old products
Total Scores 1.00 3.830

We use a VRIO framework to assess the importance of Global Presence, Specialty Coffee,
and Stores Atmosphere as Starbucks’ strengths. We have the highest weight score toward the
global presence factor (0,30) because Starbucks’ brand has been well known globally and it
has strong brand image. Therefore, it does not need any heavy marketing to promote any new
product and great promotion. Their global presence make the customers set in their mind and
put a trust that all Starbucks’ products are favors and worth to buy though there are many
coffeeshops provide more favor tastes than Starbucks. Beside, the global presence make
many customer become more pride in consuming Starbucks (they even ignore the taste). We
also give the highest rating score (4,50) in global presence factors because Starbucks’
management itself has been set in their corporate objective which is to “maintain Starbucks
standing as one of the most recognized and respected brands in the world”. One of the
strategy is giving license arrangement for other investors to open Starbucks globally so
Starbucks can be known rapidly.

The second biggest weight score of Starbucks’ strengths is Store Atmosphere (0,2) because it
plays an important roles in starbucks performance. Commonly, most customer around the
world choosing Starbucks as their hangout place because it has convenience atmosphere. The
atmosphere make the customer spend their time longer for having more cups of coffee. For
the rating, we give score around 4 because Starbucks’ management has been succeeded 52
enough in designing starbucks stores conveniently and cozy enough to be a third home for
customers.

The last factor of strength is Specialty Coffee(0,15). The unique taste and the variety of
Starbucks’ coffee make many customer become curious and addicted for having more
coffee.. We also giving rating score around 3,7 because Starbucks management has chosen
the best suppliers of coffee bean and in order to get the high taste in quality.

In weakness category, Starbucks should be really concern in the factor of depandable on

supplier (0,15) . This dependence really affect the Starbucks production, operation cost and
profitability. If the supplier give higher price of coffee bean, then it will reduce the amount of
total profitability directly or if the supplier late to give the coffee bean supply, then it will
inhibit the coffee production. For the rating, we give score around 4 because Starbucks
management has just set a multiple sourcing strategy to handle the dependence on suppliers.

We give weight around 0,15 for self canibalization because it plays an important role toward
weakness factor of starbucks. At the end of 2011, the total amount of Starbucks stores are
around 4.776 of licensed stores. Those stores are distributed around Asia Pacific,
Europe/Middle East/Africa, and Americas. The increase in stores amount , indirecty will
compete each other then will reduce the Starbucks sales volume, sales revenue, and even
market share. We give rating around 2,5 for Starbucks because the management itself does
not concern about self cannibalization problems and keep letting other investors to open more
starbucks store, whereas it could be threat for starbucks branding.

We give weight around 0.05 for product variety. When Starbucks provide more variety
products in a year, at a glance, it will make higher sales of Starbucks because it will increase
customer curiosity of consuming it; however, as a matter of fact it will trigger customer
ignorance toward the previous products and automatically will decrease the sales of previous
products. For the rating, we give score around 3 because the Starbucks management keep
launching new product variety on Starbucks menu without do an evaluation for previous
product variety sales. The management should do an observation and evaluation which
product variety should be put on the menu or not.

Summary of External Factors (EFAS Matrix)

53
 Table 4.1 Starbucks IFAS

The table below shows the summary of external factors of Starbucks and what
elements that might affect its’ business process. The scores define the Starbucks
position due to the factors that stated.

I. Analysis of Strategic Factors (SWOT)

a. Situational Analysis (List in SFAS Matrix, Figure 6-1,
p179)

IFAS MATRIX

Weighted
Internal Strategic Factors Weight Score Comments
Score
Strengths
S1 Global Presence 0.3 4.5 1.35 Starbucks has strong brand
image and well-known global
brand. Thus, it does not need
heavy marketing.
S2 Specialty Coffee 0.15 3.7 0.555 They offer coffee drink with
unique taste.
S3 Stores Atmosphere 0.2 4 0.8 The stores are convenience
for customers to hangout.
Weaknesses
W1 Dependable on Suppliers 0.15 4 0.6 Starbucks profitability and its
coffee prices depend on the
coffee bean price.
W2 Self-cannibalization 0.15 2.5 0.375 Starbucks has many
franchises all over the world
W3 Product Variety 0.05 3.00 0.15 By adding more product
variety, some of Starbucks
products have lost their value
and increase the customers
ignorance toward old products
Total Scores 1.00 3.830
54
 Table 4.2 Starbucks EFAS

EFAS MATRIX

Weigh Scor Weighted

External Strategic Factors Comments
t e Score
Opportunities  
O1 License Shares 0.10 4.00 0.4 License management
O2 Growing Worldwide Market 0.10 3.00 0.3 Worldwide distribution
O3 Asian Growing Market 0.15 3.00 0.45 Market strength in Asia
Loyalty of service
O4 The Market Loyalty 0.05 4.50 0.225
worldwide
O5 Sustain Business Model 0.05 3.00 0.15 Integrated business model
O6 Product Variety Development 0.02 3.10 0.062 Fast variety development
O7 Product Category
0.08 3.50 0.28 Product differentiation
Differentiation
Threats  
T1 Climate Changes 0.05 3.00 0.15 Plan for changes
T2 Climate Fluctuation 0.03 3.00 0.09 Fluctuation in seasons
Risks in worldwide
T3 Natural Disaster 0.05 2.00 0.1
plantation
T4 Pests and Plant Disease 0.02 3.00 0.06 Prevention system
Adapting to different
T5 Overseas Politics 0.05 3.00 0.15
politics
Worldwide business
T6 Inflation Between Countries 0.10 4.00 0.4
process
T7 Competition Within Industry 0.15 4.15 0.6225 Market leader
Total Scores 1 3.440   55
 Table 5.1 Starbucks SFAS Matrix

Duration
I
N
T
Strategic Factors E
S
(Select the most important R L
Weighted H
opportunities/threats from EFAS Weight Score M O Comments
Score O
and the most important strengths E N
R
and weaknesses from IFAS) D G
T
I
A
T
E
Starbucks has strong brand
image and well-known global
S1 Global Presence 0.23 4.5 1.035 X
brand. Thus, it does not need
heavy marketing.
The stores are convenience
S3 Stores Atmosphere 0.15 4 0.6 X
for customers to hangout.
Starbucks profitability and its
W1 Dependable on Suppliers 0.12 4 0.48 X coffee prices depend on the
coffee bean price.
Starbucks has many
W2 Self-cannibalization 0.11 2.5 0.275 X X
franchises all over the world.
O1 License Shares 0.08 4.00 0.32 X License management
O3 Asian Growing Market 0.12 3.00 0.36 X Market strength in Asia
T6 Inflation Between Countries 0.08 4.00 0.32 X Worldwide business process
T7 Competition Within Industry 0.11 4.15 0.4565 X X Market leader
Total Scores 1.00 3.85

The SFAS Matrix requires a strategic decision maker to condense these strengths,
weaknesses, opportunities, and threats into fewer than 10 strategic factors. This is
done by reviewing and revising the weight given each factor. The revised weights
reflect the priority of each factor as a determinant of the company’s future success.
The highest-weighted EFAS and IFAS factors should appear in the SFAS Matrix.

In our SFAS Matrix, the most important factors developed in IFAS and EFAS are
listed on Strategic Factors. Based on that factor’s probable impact on the Starbucks’
strategic position, we weight from 1.0 (Most Important) to 0.0 (Not Important) and
rate from 5.0 (Outstanding) to 1.0 (Poor) based on that factor’s probable impact on
the Starbucks’ strategic position. Also, we check the appropriate duration (short term
56
– less than 1 year; intermediate – 1 to 3 years; long term – over 3 years) for each
strategic factor.

Strengths
For Global Presence, it constructs long impact for Starbucks because the revenues
are contributed from global region includes:1) Americas, inclusive of the US,
Canada, and Latin America; 2) Europe, Middle East, and Africa, collectively referred
to as the “EMEA” region; and 3) China / Asia Pacific (“CAP”). Furthermore, the
company-operated and licensed store summary is explained below:

The mix of company-operated versus licensed stores in a given market will vary
based on several factors, including the ability to access desirable local retail space,
the complexity and expected ultimate size of the market for Starbucks, and the ability
to leverage the support infrastructure in an existing geographic region. For EMEA
and CAP region, the largest percentage of licensed stores state that Starbucks has
strong brand image and well-known global brand for local merchants.

For Stores Atmosphere, it creates medium impact for Starbucks to generate better
hangout experience because the customers’ needs trend approximately will change
in intermediate period (1-3 years). Store atmospheric cues, such as color, lighting,
interior decoration, music, scent effect consumers’ patronage decisions and have
significant impact on store image (Turley and Milliman, 2000). That’s why Starbucks
should try to improve store atmosphere innovation to attract the target customers
and therefore to increase the profitability.

Weaknesses
57
For Dependable on Suppliers, it generates intermediate and long impact for
Starbucks. It is not recommended for doing vertical integration strategy because it
increases the risk of climate changes, climate fluctuation, natural disaster, and pests.
Starbucks makes long-term contracts to several local suppliers for keeping the
inflation and cost fluctuation.

For Self-cannibalization, it affect the Starbucks in intermediate and long period. Too
many Starbucks outlet all over the world while the target consumers did not increase
may hurt the company’s operational costs. The increasing expenses from inefficient
cost and decreasing revenue from sales automatically can bring the company to the
great loss.

Opportunities
For License Shares, it supports Starbucks’ expansion by opening new stores in
many countries worldwide in a long time. Starbucks Americas segment is the most
mature business and has achieved significant scale, while certain markets within
EMEA and CAP operations are in the early stages of development and require a
more extensive support organization, relative to the current levels of revenue and
operating income, than the Americas operations. By making long-term contracts with
local suppliers, Starbucks can make sustainability system by maintaining stable
price, minimizing market penetration risk, and knowing the consumers condition.

For Asian Growing Market, it is a promising prospect for Starbucks to embrace more
in a long time. China / Asia Pacific operations open gold opportunity to enter huge
young-aged-people market by selling coffee and other beverages, complementary
food, packaged coffees, single serve coffee products and a focused selection of
merchandise through company-operated stores and licensed stores.

Threats
For Inflation Between Countries, it influences the demand and purchasing power in
intermediate period.

For Competition Within Industry, it generates long impact on Starbucks because it’s
58
difficult to predict how many competitors will exist in the future. Starbucks have to
 coordinate with local coffee shops to enter the “untouchable” niche market which has
the unique value.

b. Review of Mission and Objectives

Starbucks has a strong organization mission, objectives, strategies, and

policies. They were clearly listed and personified in the Starbucks’s
performance. In addition, the mission statement of Starbucks has an essential
meaning that their corporation is not only selling a coffee but also engage its
clients at an emotional level. For the objective of Starbucks, it can be clearly
indicated that the corporate, business, and functional objectives are consistent
with each other, with the mission, as well as with the internal and external
environment. Also, the strategy and policy created by Starbucks are consistent
with its mission objectives. In the face of ever-changing trends, Starbucks
should be able to adjust their mission and objectives by using the appropriate
strategy for sustaining their success on being leading company.

c. Generating Alternative Strategies by Using a TOWS

Matrix

INTERNAL Strengths (S) Weaknesses (W)

FACTORS S1 Global Presence W1 Dependable on Suppliers
(IFAS) S2 Specialty Coffee W2 Self-cannibalization
EXTERNAL S3 Stores Atmosphere W3 Product Variety
FACTORS
(EFAS)
Opportunities (O) SO Strategies WO Strategies 59
O1 License Shares Building an integrated Limiting the growth of the
O2 Growing Worldwide Market strategy of pushing the license shares within the same
O3 Asian Growing Market Starbuck’s brand country to avoid the self-
O4 The Market Loyalty acknowledgement to cannibalization.
O5 Sustain Business Model worldwide channel market
O6 Product Variety Development that gives more shares and
O7 Product Category Differentiation profit opportunity than recent
strategies.

Threats (T) ST Strategies WT Strategies

T1 Climate Changes
T2 Climate Fluctuation
T3 Natural Disaster
T4 Pests
T5 Overseas Politics
T6 Inflation Between Countries
T7 Competition Within Industry
Starbucks could generate To overcome the depending on
strategic rollup strategy to the suppliers Starbucks can grow
emerging competitors by its’ supplier to more and bigger
having parts of business channel of worldwide suppliers.
shares, so it can turn the So it can avoid the risks of
threat of competition to being political and natural by having
the strength of business more options and back-ups of
contribution by shareholding resources distributions.
to others competitors.

Strategic Alternatives

In our analysis authors are wanted to provide strategic alternatives in which can be
used and suit to the Starbucks in the foundation of its’ development in the future. The
Business Strategic Alternatives that will be provide are divided into 4 main segments,
which are

 Corporate Strategy
 Porter’s Generic Competitive Strategies
 Cooperative Strategies
60
  Functional Strategies

By the 4 of these Business strategic alternatives, we would like to give comprehensive

results that will be continued to be recommendations of program that can be
implemented to support Starbuck growth in the future to be one and always the best in
the industry and competition.

1. Corporate Strategies
The corporate strategy is a bigger scale strategy in which had direction
for a firm as a whole and the management of business and product. There are 3
types of corporate strategy in terms of scope and the uses of the strategy, there
are

 Directional Strategy
The firms overall strategy by growth, stability, or retrenchment
 Portfolio Strategy
Industries of market in the competition of its product and business by the
competitive and cooperative strategy (further explained on the Porter’s Generic
Competitive Strategy and cooperative strategy sub-chapter).

 Parenting Strategy
The coordination and management of business resources is on product
lines and business units.

The corporate strategies that will be implemented should consider all of

the elements and types of corporate strategy in order to provide the completed
strategies that can support company in all of the business aspects.

a. Directional Strategy
The directional strategy is the firm’s basic business strategy that involved
the main understanding of business positions in terms of its’ situation, whether
the business would like to grow for expanding company’s activities (Growth
Strategy), makes no change of current business activity (Stability Strategy), or
reduce the level of company’s current activity (Retrenchment Strategy).
61
 In author’s opinion, we agreed that Starbucks needs growth strategy. In
the overall analysis we can see that Starbucks is already having big activities and
most of it can be done good and generated the proper income for the business
sustainable strategies. However in order to give and react with more impactful
business units Starbucks has to be more focus on directional growth strategies
for its’ future business models. However there are also some arrangements in the
stability and retrenchment strategy in order to support the efficiency within the
company.
By the growth strategies Starbucks can push its’ business lane into
international entry options as main options besides concentration and
diversification. There are many different types of international entry options,
including; Exporting, Licensing, Franchising, Joint Ventures, Acquisitions, Green
Field Development, Production Sourcing, Turnkey Operations, BOT Concepts,
Management Contacts. The key of Starbucks business process is divided into two
parts, which are the distribution of ingredients processing and the distribution to
brands and sales.
On the Concentration Strategy, Starbucks may do the integration on
vertical and horizontal of business process. However, In author’s opinion
Starbucks must be focused on its’ development of its’ horizontal integration. In
the ingredients processing, Starbucks has already gone good by having long term
contracts in having high quality ingredients with the price-to-be-fixed strategy. It
minimalist the risks of price changes and the loss of any plantation risks due to
natural disaster or any pests threats. However Starbucks can grow its’ business
percentage on the horizontal business process by having more company-
operated stores rather than licensed stores in the percentage in overseas market,
especially in Asia since Asia is showing prospective growth over years.

62
 *Sales Distributions Growth Over Regions
(Annual Report 2012)

*China/Asia Pacific Segment Information

(Annual Report 2012)

By the ingredients processing, Starbucks used the channels of production

sourcing by working with many coffee bean plantation all over the world and
derived it to the same manufacturing site in order to maintain the quality of
coffee and its’ processing to be packaged by Starbucks. On the distributions of
63
brands and sales, Starbucks is supported with licensing arrangements all over
the world, with this licensing model of business Starbucks can penetrate to
worldwide market with growth over years by years.

*Distribution of Starbucks Store

(Annual Report 2012)

Due to the stability strategies, there are main concerns in which the
distribution of the licensing arrangements in the Asian market there are more
licensed store rather than the company owned stores. The company owned
stores are only 20% of the total stores while the sales growth of Asian market is
almost above 5% bigger than any regions which shows the growing potential of
Asian Market. By seeing this, authors believe that the stability strategy is needed
to stop having more activities in generating more licensing arrangements
between penetrated countries of Asia.

b. Parenting Strategy
64
 By the parenting strategy Starbucks is already held several product
brands under the Starbucks brand, such as Starbucks VIA and others consumer-
packaged goods. The table below shows all of the Starbucks products
distribution in terms of all its’ business units.

*Business Product Units Distribution

(Annual Report 2012)

However Starbucks has potential in dominating market if it can do several

steps in acquisition or shares and investment held in which there are similarities
in business units capabilities and resources. Starbucks has big developed
business process in which being coffee shops. Starbucks could develop more
sustain business not only by make its’ brand of business bigger but, also by
having others potential brand of coffee shops. By conquering the competition
within Starbucks can be the most success business brand by itself.

2. Porter’s Generic Competitive Strategies

Porter’s Generic Competitive Strategies is defined the competiti0on for
any business or organization can be alimented by 2 main generic, which are
lower cost strategy or differentiation strategy.

65
 There are 4 strategies that can be generated for a company to be chosen,
there are Cost Leadership, Differentiation, Cost Focus, and Differentiation Focus.
Company can choose which target that they would like to be focused on which
type of cost and how broad the market.
By these 4 strategies, Starbucks is most fitted and suited to develop itself
by the Differentiation Strategy. Starbucks give the best service and the
excellence of ingredients. Although it might result the higher cost but markets
are accepting this well as trade of the best cup of coffee. In the scale of market,
Starbucks can positioned itself to broad target market by its’ various line of
products and pricing strategy that is not categorized as high-end product but still
in the middle market preference.
By this characters of brand in terms of market and it product offers, based
on the Porter’s generic competitive strategies Starbucks can be optimum by
having focusing strategy on the differentiation strategy. Which in the future
development, it means Starbucks should give more differentiation on its’ unique
product offers with more product variations of flavor which will be accepted to
broaden market.
Strategic Rollup (pg 152)

3. Cooperative Strategies 66
 Cooperative strategy is generally used by company by co-working with
others company in order to gain competitive advantage within industry by
battling others firms. There many types of cooperative strategies that can be
implemented for a company, such as Collusion, Strategic Alliance, Mutual Service
Consortium, Joint Ventures, Licensing Arrangements, and Value Chain
Partnership.
There are 3 main focuses that authors would like to propose that suit to
the company profile and preferences of Starbucks. There are strategic alliance,
Licensing Arrangements, and Value Chain Partnership. These 3 kinds of
cooperative strategies is considered as the top three most impactful strategy for
Starbucks business process.
Strategic Alliance is partnership of two or more company units to achieve
more strategically significant objectives, which are mutually beneficial for both
companies. Starbucks can extent its’ brand and product line-ups by co-working
with others brands. There are many opportunities that can be discovered for
Starbucks through alliances strategy, such as ingredients branding and co-
branding alliance. By the ingredients branding Starbucks can alliance with brand
such as Oreo, Kit at, Snickers, Ovomaltine , or others and can produce new
product variants that more interesting to wider target market. While on the co-
branding alliance Starbucks can works with brands from far distanced industry
and make beneficial partnership, such as working with KLM airlines to make
Starbucks on-sky service. So, that the passenger can order their favorite
Starbucks menu on their flights and enjoy it between the skies.
Licensing Arrangements is a business strategy which is to open the
license of certain company to others third party in other countries to produce
and/ or sell a product with its’ brand.

67
 *Distribution of Starbucks Licensed Store
(Annual Report 2012)

This license arrangement is what Starbucks actually done in their business

strategy worldwide. It already helped Starbucks to grow its’ business in a rapid
lane. Starbucks can develop and attract more third-party in new countries in
order to develop more business opportunities, especially in Asian and Latin
American market.
Value Chain Partnership is close alliance relationship with distributor and
supplier for mutual benefits. Starbucks is already having this value chain
partnership with many distributors from all over the world, in order to provide
the best quality and wide range of coffee. Starbucks can extent its’ product line
ups moreover by having more various in the key ingredients. Besides widen the
various types of coffee, Starbucks can start to having more varieties in milk
sources for having good quality of milk, or maybe it can extent its’ product line
ups by having partnership with fruits and others fresh sources for additional
menus.

4. Functional Strategies
Functional Strategies the strategy that uses business functions as the
approach in order to reach business and corporate targets. The functional
strategy is included Marketing, Financial, Research & Development, Operations,
Purchasing, Logistics, Human Resource Management, and Information
Technology Strategies.
The functional strategy is used in the terms of appliance of every detailed
business function between the business functions, Authors are agreed that
Starbucks needs to gives more attention on three business functions, which are
Marketing, Finance, and Research & Development.

a. Marketing Strategy
On the Marketing Strategy, It emphasize on the main 4P’s, which
are Product, Price, Place, and Promotion. The marketing strategy focus in

68
the scope of market development with pull and push strategy in between
the uses.
Starbucks is strong and well known for its’ vision of being the
“third place”. Starbucks is described Third Place as place after your house
and working office. It sets Starbucks positioning as the best coffee shops
in market with worldwide retail that trusted mostly for the customers
between 19 – 45 years old. This segment is already shows the respected
growth among all markets worldwide. However, in the authors opinion
there is a gap that Starbucks can be entered in the further growth
strategies. Which are expanding its’ product line ups for the entire family
member. Because as we do our local observation we may see that
Starbucks is still lacks of children’s specialty menus. The Starbucks
responsive market between 28 – 45 years old is markets that at least
already have kids. Authors believes that instead of Starbucks widen its’
product variation through taste, It can also generate more market
development by touch the untouched-current-market-connection
development
In terms of the pricing strategy, Starbucks is already leads the
market shares by having the biggest market proportion among the
market. The pricing strategy that Starbucks implemented is already
implemented in the right way, since nowadays Starbucks is become the
market leader that sets price among its’ competitors.
In the Place Strategy, Starbucks is already having great
atmosphere development and the consistency in having the same store
layouts that become the branding commitment and market trust of their
association of Starbucks. In the distribution, Starbucks is apply its’
licensing arrangements strategy. The licensing strategy has been the good
role in business for Starbucks but, its’ also cost opportunity cost on The
Starbucks business incomes. There are big percentages that Starbucks can
take in exchange of the risks in overseas market. Starbucks actually can
grow with its’ Company-owned stores in the penetrated market in order
to gain bigger percentage in revenues.

69
 Starbucks is active in having promotion through various seasons
and local special days, such as election days and others. This is the great
promotion strategy that Starbucks done as it becomes the part of society
which grew customer’s brand loyalty to Starbucks. Along with Starbucks
advertisement pull strategy through many channels of social media, it
integrated the Starbucks marketing programs. This Implementation
should be continued in uses.

b. Financial Strategy
Financial Strategies is having main focus on financial implications
of corporate business-level strategic options and identifies the best
possible actions for company in terms of financial functions. Financial
strategy usually has the objective to maximize the financial value of a firm
or business corporation.

70
 Income Statement table below, shows us the Starbucks income
progress in terms of every regions of its’ business which are America,
EMEA (Europe, Middle East, and Africa), China/Asia Pacific, and by the
Channel Development. Channel Development segment includes whole
bean and ground coffees, premium Tazo® teas, Starbucks VIA® Ready

Brew, Starbucks® coffee and Tazo® tea K-Cup® portion packs, a variety
of ready-to-drink beverages, such as Starbucks RefreshersTM beverages,
and other branded products sold worldwide through channels such as
grocery stores, warehouse clubs, convenience stores, and US foodservice
accounts.
The table shows us, the biggest growth in revenue is generated by
the Channel Development with total value growth reach USD 431.7 71
million between 2011 and 2012. However as China/Asia Pacific has the
big chance of growth, the depreciation and amortization expense is grow
bigger by USD 5.1 million. Channel Development and China/Asia Pacific
contribution in equity by investment is shows amazing numbers if
compared to others. Moreover, This income from equity investees is in
stable growth.

From the table above, we can see that Starbucks is still lacks of
acquisition strategy on its’ business process. There is no any acquisition
72
 that has been done in China/Asia Pacific and on the Channel
Development. However, its’ push Starbucks business incomes by those
channels.
By the Financial Strategy, Authors examine that Starbucks is
already being the biggest coffee shop in the competition and retails.
However, Starbucks is already reach its’ maturity point by the decrease of
business growth. In order to deal with this symptoms Starbucks can step
further to acquisition or hold others competitors share in terms of the
competition so, that Starbucks can develop its’ business chain not only
under the Starbucks name.

c. Research & Development Strategy

The Research & Development Strategy should be integrated and
coherent wit Financial Strategy that shows us Starbucks can grow its’
business by acquisition of the operating business or hold shares on the
others competitors. By the analysis, Authors are having an opinion that
Starbucks’s Research & Development Strategies can be represented by
using the minority stakes. Which Starbucks can invested for others
enterprises or business and hold shares for its’ business while having
acquisition with others business with the objective to generate Starbucks
bigger income by having many brands association.

73
 Recommendations

By the strategic alternatives, Starbucks has many opportunities in development process

in order to generate business growth. The recommendations that authors would like to
provide is having an objective of growing Starbucks business chains on the overall
positions of company, instead on the specific segments. The authors agreed that the
objective of growth could be achieved by sub-objectives on several strategies, which are

 More Company-Owned Store in the business portfolio proportion

 Broaden Markey by Differentiation on product variations
 Acquisition or shares holding to others company

All of this core alternatives and consideration of strategy are having main concerns of
the business growth which are involved the potential market and current Starbucks
image, which are

 Growing China/Asia Pacific Market and Channel Development

 The maturity of segments and market regions
 The Starbucks acknowledgment to all of countries
 The Starbucks brand equity
 The customers’ association and brand loyalty to Starbucks.

By analyzing these alternatives, authors are composing and arranging programs that
are covering all of the needs of Starbucks growth and compact it into 3 types of different
programs, which are JUICIA by Starbucks, Starbucks Milkitte, and Starbucks
Entrepreneurship Assistant Program.

1. JUICIA Starbucks
JUICIA Starbucks, is the proposed programs that includes in
adoption of new brand under the Starbucks company, which is JUICIA.
JUICIA is a fresh served brand that offers fresh juice and others fresh and
74
 natural ingredients products. On the macro-market there is the uprising
of interest in the consumption of fresh, healthy, and natural sources of
products. However there is no any brand yet that has the channels of
product distribution and resource plantation that can cover the
worldwide business process.
However, Starbucks had it. Starbucks is already established its’
position by having best ingredients and resources from parts of
worldwide and distribution of service through worldwide licensed and
company-owned stores. The prospect of JUICIA is big in terms of widen
company’s shareholders value by having one directive big brands under
the Starbucks name.

2. Starbucks Milkitte®
Starbucks Milkitte is a product set for kids’ menus that authors
proposed for Starbucks. Although Starbucks already have choices of
product that could be consume by kids but, Starbucks didn’t make any
special menus set that is specifically made for kids. The basic reasoning of

Starbucks Milkitte®, is that Starbucks has target market of working and

dynamic people which in the majority already settle with a family.
Starbucks Milkitte is a fun product set for kids hat include several
cross-ingredients branding with brands that is already acknowledged for

kids such as Oreo®, MnM®, Toblerone®,Koko Crunch®, Milo®, or

others. This will be the sweet and colorful menu that Starbucks
specifically offered for kids.

Starbucks Milkitte® is having a supporting marketing program

that called Starbucks Junior Baristas. Starbucks Junior Baristas is
program for kids that held on Sunday from 9 A.M to 2 P.M which kids can

learn and serve Starbucks consumer with the Starbucks Milkitte ®

Program and once they are start serving they will have a badge of
Starbucks Junior Baristas. This supporting marketing program will be

75
 held for 1 month as the product launching promotion and presentation on
every Starbucks store.
The Starbucks Milkitte is having its’ competitive strength in its’

customer development program and rebuild the stronger relations among

the current customers. This Starbucks Milkitte® is a great set of strategy

in product variation and market development.

3. Starbucks Entrepreneurship Assistant Program

Starbucks Entrepreneurship Assistant Program is the Help
program for Entrepreneurs that having types of business models on
coffee shops and cafes. The program is series of assistant program, which
related with sending the entrepreneurs to Starbucks head-quarter of
regions. These entrepreneurs will have 1 week in America and learning
details of Starbucks business process, such as the management process of
coffee shops, growth business strategy, the selecting process of
ingredients, and the training of baristas. The chosen participant is also
receive Starbucks investment on its’ business for USD 2.000.
It gives Starbucks better acknowledgement as business that not
only selling a coffee but also grows a community. It will strengthen
Starbucks position in the eyes of community and market. On the other
side Starbucks is having big opportunity to have an acquisition. These
businesses will be local threats and competitors of Starbucks in the
future; maybe some of this business will grow into the multinational and
billion dollar in values company. Starbucks step into Entrepreneurship
assistant programs is giving Starbucks shares into these businesses so;
Starbucks can generate more income on these businesses. The
opportunity of having others small brands under the Starbucks name will
be a good deal for Starbucks in order to develop its’ business. Instead of
stuck growing the Starbucks as single brand, Starbucks can have some
local or Small-Medium Enterprise under Starbucks on its’ competition. As
this business grow it will not be a threat for Starbucks, instead it will be
Starbucks growth and strengths. 76
Although these strategy are could be implemented and give big growth impacts on
Starbucks business process, Authors are agreed to choose Starbucks Entrepreneurship
Assistant program as the first priority to be recommended to Starbucks.
The future explanation will be focused on the Starbucks Entrepreneurship Assistant
Program.

1. STRATEGY IMPLEMENTATION
Strategy implementation is the sum total of the activities and choices required for the
execution of a strategic plan. It is the process by which objectives, strategies, and policies,
are put into action through the development of programs, budgets and procedure.
Implementation is a key part of strategic management.
On the Strategic Alternatives and Recommended Strategy we have three choices of
strategy to be implemented. After considering many things, we pick “Starbucks
Entrepreneurship Assistance Program” as the strategy to be implemented. This chapter will
future explain about on how the program look like, how it is conducted, and how much the
cost will be spent.

a. PROGRAM
PROCEDURE
Starbucks Entrepreneurship Assistance Program is a whole packed assistance
program for those who interested in food and beverage industry especially coffee. The
one who want to open a coffee shop business will definitely get a really great benefit
and opportunity from this.
The purpose of this program is to increase the number of entrepreneur and
encourage people in this world to start a new business. Besides that, this also can be a
prove that Starbucks do care a lot about their surroundings.

To implement this program, we will divide the thing that Starbucks should be for
the short-term and long-term projection for this program.

1. Short-term Projection (3-6 months)

The very first thing Starbucks should do is to arrange all the programs that will
be offered. The program will be in form of a world-wide business plan competition
that all age range can join. The participant should arrange the business plan as
feasible as they can. The most feasible and the most creative one will be selected as
the winner. The winner will be flown to London to get the assistance program from
Starbucks. Some benefits will be given and definitely can be a guide to establish their
own coffee shop. The benefits are:
a. Starbucks will give the winner a whole-packed assistance program of coffee shop
establishment starting from the way to set the business model, how to make a
tasteful coffee until how to engage the customer and create a brand loyalty. 77
 b. The winner will get a chance to look at Starbucks’ operational process, to know
Starbucks’ way in engaging the customer and creating a loyal consumer, and lastly
to be this successful in coffee shop industry.
c. The most important thing is that Starbucks will invest 50% share to the winner as
the initial capital to open a coffee shop.
After Starbucks planned and arranged the program, the next thing is that
Starbucks should see its financial feasibility of creating this program. Starbucks
should calculate the cost that will be spent for this and do the projection whether
this program will give Starbucks benefit or loss.

2. Long-term Projection (7-12 months)

After Starbucks done the program and got the winner, what Starbucks should
do is that they evaluate the after effect of this program for Starbucks. Starbucks
should control the performance of the winner’s coffee shop. Starbucks will still guide
them until the winner becoming financially stable.

b. PEOPLE
The one who actually should contributed to this program is they who work on
every division in Starbucks starting from the CEO, marketing and sales division,
operational and production division, financing and bookkeeping division, and also
human resource department. Those whom are the head of each division should be
judges in order to evaluate and choose the winner of the competition later.

c. BUDGETING
This Starbucks Entrepreneurship Assistance Program may cost much and vary. The
budget for this program will be allocated to these following things:
a. Website
To ease the distribution of information, Starbucks should create separate
website for Starbucks Entrepreneurship Assistance Program. The website will
consist a very detailed information regarding the competition and else.
b. Advertising
This part will sure cost much since Starbucks should spread the information
regarding this program. The most viral one is Starbucks should create a
promote badge on Twitter and do a cooperation with Google in form of Google
Ads.
c. Accommodation and Transportation
After the winner is chosen, the winner will be flown to Starbucks London to see
the whole operational and assistance from Starbucks. The accommodation and
transportation sure will be provided by Starbucks itself.
d. Investment
This cost will be given to the winner in form of investment fund. This can be
the initial capital for the winner to establish a new coffee shop.

78
d. ACHIEVING SYNERGY
From this program, the synergy that will be created is the new business creation.
The definition of new business creation itself is exchanging knowledge and skills that
can facilitate new products or services by extracting discrete activities from various
units and combining them in a new unit or by establishing joint ventures among internal
business units.
From that definition, Starbucks’ goal is to invest to winner’s new business and
doing evaluation and assistance until the business become stable. The stable business
from the winner can definitely give Starbucks a lot benefit and credential. The
awareness of Starbucks as a well-known leader in coffee shop industry will increase
rapidly. The demand from people will be increasing by years. Starbucks will consider
about giving other assistance program like this again.

e. DRAWBACK
Even though the program looks promising, there are still some drawbacks that can
happened in the future or while the assistance program conducted.
a. Participant
The participants may happen if the advertising is not really encouraging. The
other cause maybe because the information is not well-spread. If Starbucks
only get a few numbers of participants, the result will be not that as it
expected. The quality of the participant will not be seen as the participant only
a few.
b. Winner
The most negative thing that can ever to the winner is that the winner will not
be that serious taking this assistance. It will only result waste of money
Starbucks spent.

79
EVALUATION AND CONTROL
A. CEO FEEDBACK
As the head of a company, a CEO should take an action by assessing the whole
program from his point of view. The CEO can get the data from the middle management
level and low management as they are the one who assess the entire program.

B. BRAND AWARENESS
The marketing staff should assess on how the awareness of Starbucks after this
program launched. After all the campaign launched, the marketing staff should asses
the awareness through brand inventory of Starbucks and after that doing the brand
exploratory by comparing it to its competitors.

C. MARKET SHARE
For this factor, the financing team should assess whether there are a lot of
investors or shareholders that want invest to Starbucks because of this program. If this
program will work out, then there must but tons of investors joining in.

• Strategic Audit Worksheet as seen in Figure 12-1,

pp 422 (Wheelen& Hunger, 2012) – di file satu lagi

80
81
 Financial Analysis
Table 1. Starbucks Corporation: Financial and Operating Performance, 2007-2011

82
The table above gives a broad picture of Starbucks financial and operating performance for period
2007-2011. As for the fiscal year, it ends on the Sunday closest to September 30. The fiscal year for
the past five years are included 52 weeks on the average.

On this chapter, we will overview the financial condition of Starbucks into two sections including:
Opeating Segment Overview and Financial Conditon

I. OPERATING SEGMENT OVERVIEW

In the end of fiscal 2011, Starbucks had three reportable operating segments: US, International, and
Consumer Packaged Goods (CPG). As for its subsidiaries like Seattle’s Best Coffee, will be accounted
as other segment. Both in the US and International, Starbucks operated through licensed retail store
and company-operated store. As we can see on the Table 1, the company-operated store
contributed about 82.325% of the Starbucks total revenue compared to licensed-store that only give
8.610% revenue contribution.In addition,the international segment has more percentage of licensed
stores than in US (Table 2), oftentimes it is because Starbucks has limited access to enter a new
market. Thus, it needs help from another party to penetrate the market.

Table 2. Company-operated and Licensed Store Summary as of October, 2011

Refer to the Table 3, 4, and 5, the International segment contributed about 22.44% of Starbucks
total net Revenue in 2011. While the US segment contributed for about 68.7% ,Global Consumer
Products (GCP) for about 7.4%, and other segment for about 1.5% of the total net revenue in 2011.
Thus, the US segment still have the highest share of Starbucks Corporation. It means that Starbucks
still have high opportunities to expand and explores to other segments besides US.

By comparing the revenue contribution growth in 2010 and 2011, we can see that theInternational
segment has increased its contribution to total revenue from 21.375% in 2010 to 22.44% in 2011. On
the other hand, the net revenue contribution of US segment decrease from 70.609% to 68.7%. Thus
it can be assumed that Starbucks has already realized to put a lot of effort and concern to expand its
operation abroad rather than only focus on the US segment in 2011.

83
 Table 3. International Net Revenues and Operating Income

Table 3. International Net Revenues and Operating Income

Table 4. United States Net Revenues and Operating Income

Table 5. Global Consumer Products Group Net Revenues and Operating Income

84
 Table 6.. Other Segment Net Revenues and Operating Income

II. FINANCIAL CONDITION

In analyzing the financial condition of Starbucks Corporation, we will use some steps as follow.
 Comparing the net revenue growthand cash flow
 Calculating the financial ratio

A. THE NET REVENUE GROWTH COMPARISON

Refer to the table 1, the net revenue was $ 11700.4 billion for fiscal 2011 compared to
$10707.4 billion for fiscal 2010. Therefore, the revenue growth was 9.27396% from 2010 to
2011. Thus, it is considered good although it is not significant.

As for the cash flow, Starbucks has $ 1704.9 operating cash flow in 2010 and $1612.4 in 2011
It means that Starbucks has lower ability to really get its money. In addition, Starbucks
financing cash flow was negative in 2011 because the company spent the cash to repurchase
its common stock, pay cash dividends and interest. Moreover, Starbucks investment cash
flow was also negative in 2011 that means Starbucks spent its cash to do some investment
like acquisition, new plant and properties. Starbucks 2011 annual report noted that the
company had been acquired Evolution Fresh,Inc., and store location in Austria and
Switzerland.

B. FINANCIAL RATIOS
We will measure four ratio to analyze Starbucks financial condition, which are liquidity ratio,
debt ratio, activitu ratio, and profitability ratio.

LIQUIDITY RATIO
CURRENT RATIO

Current ratio is used to measure the ability of Starbucks to pay its short term liabilities. In
order to have a clear picture of Starbucks’s liquidity. We will calculate the Starbucks current
ratio of period 2010 and 2011. Beside, we will also calculate the current ratio of Dunkin
Donuts, one of the biggest competitor, to be compared with Starbucks’s. We choose Dunkin 85
Donuts as the competitor because it operated globally and it has a relatively same
businesssize and producttypes with Starbucks.

 Current Ratio of Starbucks in 2011= Current Assets : Current Liabilities

= $3794.9 : $2075.8

= 1.828

 Current Ratio of Starbucks in 2010 = Current Assets : Current Liabilities

= $2756.4 : $1779.1
= 1.54

 Current Ratio of Dunkin Donuts in 2011= Current Assets : Current Liabilities

= $406474: $316540
=1.28

From the calculation above, it can be seen that Starbucks liquidity increased 18.7% from
1.54 in 2011 to 1.828. Besides, Starbucks current ratio is higher than Dunkin Donuts (1.828 >
1.28). Therefore, the liquidity of Starbucks is considered good because it is higher from the
previous year, above the competitor within the same industry, above 1.5 and closer to 2
(preferable condition).

QUICK RATIO
Quick ratio is tools to measure liquidity conservatively because it excludes inventory or other
current asset which are difficult to be converted into cash.

 Quick Ratio of Starbucks in 2011 = (Current assets-Inventory): Current

Liabilities
= ( $3794.9 -$965.8):$2075.8
= 1. 362
 Quick Ratio of Starbucks in 2010 = (Current assets-Inventory): Current
Liabilities
= ($2756.4-$543.3): $1779.1
= 1.243
From the calculation above, it can be seen that Starbucks quick ratio increased 9.57% from
1.243 in 2010 and 1.362 in 2011. The quick ratio is above 1, so Starbucks has a good liquidity.
Besides, the current ratio of Starbucks in 2011 is higher than the quick ratio, so the current
assets of Starbucks is quite dependent to inventory.

DEBT RATIO

To measure the debt position of Starbucks company, we will calculate the Debt Ratio and
Times Interest Earned Ratio.
DEBT RATIO

Debt Ratio is used to measure the proportion of total assets financed by the firm’s creditors.
86
  Debt Ratio of Starbucks 2011 = Total Liabilities : Total Assets

= $2973.1 : $ 7360.4

= 40.393%

 Debt Ratio of Starbucks 2010= Total Liabilities : Total Assets

= $2703.6 : $ 6385.9
= 42.337%

That value of Starbucks ratio indicates that the company has financed close to half of its
assets with debt.The value of debt ratio in 2011 and 2010 still falls in the acceptable range
between mid 30% to low 40%. Therefore, we can conclude that Starbucks has more assets
than liabilities.

TIMES INTEREST EARNED RATIO

Times Interest Earned Ratio is used to measure the ability of the company to make
contractual interest payments.

 Times Interest Earned Ratio in 2011 = EBIT : Tax

= 1728.5 : 563.1

= 3.069

 Times Interest Earned Ratio in 2010 = EBIT : Tax

= $ 1419.4 : 488.7
= 2.9044

The times interest ratio in 2010 is considered bad because it is below the acceptable range.
On the other hand, the times interest earned ratio for Starbucks Company in 2011 seems
acceptable because the value has been increased to 3.0609 (fall withinthe acceptable range
of 3 -5). However, Starbucks have to increase its sales or reduce inefficient cost in order to
have higher ability to make contractual interest payment. It often suggested that company
should have times interest earned ratio closer to 5.

ACTIVITY RATIO

The activity ratio that will be used is the total asset turnover ratio. That ratio can be used as
an indicator of the efficiency with which a company utilizing its assets.

 Total Asset Turnover of Starbucks in 2011 = Total Revenue : Total Assets

= $11700.4 : $7360.4
= 1.589
 Total Asset Turnover of Starbucks in 2010 = Total Revenue : Total Assets
= $10707.4 : $6385.9
=1.676
 Total Asset Turnover of Dunkin in 2011 = Total Revenue : Total Assets
= $628198 : $3224018
= 0.19

87
From the calculation above, we can see that the total asset turnover of Starbucks is
decreased 5.19% from 1.676 in 2010 to 1.589 in 2011. It means that the Starbucks ability to
optimize its asset usage is decreased. However, if we compare the total asset turnover of
Starbucks in 2011 with its competitor, Dunkin, it has significantly higher ratio. Therefore, we
can conclude that Starbucks is quite good in efficiency but it has to increase its performance
in the following year.

PROFITABILITY RATIO

The profitability ratio that will be calculated are operating margin, earning per share, return
on assets and return on equity.

OPERATING PROFIT MARGIN RATIO

The operating profit margin is used to measure the percentage of each sales dollar remaining after all
cost and expenses other than interest,taxes, and preferred stock dividends are subtracted.

 Operating Profit Margin of Starbucks in 2011=Operating Profit : Sales

=$1728.5: $11700.4

=14.7%

 Operating Profit Margin of Starbucks in 2010=Operating Profit : Sales

=$1419.4: $10707.4

=13.25%

The calculation of Starbucks’s operating profit margin shows that it has increased the ratio
from 13.25% to 14.7%. Therefore, we can conclude that Starbucks has higher earning per
dollar sales in 2011.
NET PROFIT MARGIN RATIO

Net profit margin ratio is used to measure how much out of every dollar of sales company actually
keeps in earning.

 Net Profit Margin of Starbucks in 2011 = Earnings available for common

stakeholders : Sales

= $1245.7 : $11700.4

= 10.6466%

 Net Profit Margin of Starbucks in 2010 = Earnings available for common

stakeholders : Sales

= $945.6 : $10707.4

= 8.83%

 Net Profit Margin of Dunkin in 2011= Earnings available for common

stakeholders : Sales 88
 = $34442:$628198
= 5.48%

It can be clearly seen that the net profit margin of Starbucks is increased from 8.83% in 2010
to 10.6466% in 2011. Besides, if we compare the net profit Starbucks to its competitor,
Dunkin, it has higher ratio that means it may have better control over its cost compared to
its competitor.

EARNING PER SHARE RATIO

Earning per share is a tool to represent the number of dollars earned during the period on
behalf of each outstanding share of common stock. It is an important indicator to measure
corporate success.

 Earnings Per Share of Starbucks in 2011= Earnings available for common

stakeholders : Number of shares outstanding

= $1245.7 : 748.3 = $ 1.66

 Earnings Per Share of Starbucks in 2010= Earnings available for common

stakeholders : Number of shares outstanding

= $945.6 : 744.4 = $ 1.27

The EPS of Starbucs is increase 30.708% from $ 1.27 in 2010 to $1.66 in 2011.
RETURN ON ASSETS

Return on assets is a tool to measure overall effectiveness of management in generating

profits with its available assets.

 Return on Assets of Starbucks in 2011 = Earnings available for common

stockholders : Total assets

= $1245.7 : $ 7360.4

= 16.924%

 Return on Assets of Starbucks in 2010 = Earnings available for common

stockholders : Total assets

= $945.6: $6385.9

= 14.807%

As we can see on the calculation above, the ROA of Starbucks increased from 14.806% in
2010 to 16.924% in 2011. Thus, it can be said that Starbucks has higher ability in managing
efficiently its asset to generate earnings.
89
RETURN ON EQUITY

Return on equity measures the return earned on the common stockholders in the firm.

 Return on Equity of Starbucks in 2011 = Earnings available for common

stockholders : Common stock equity

= $1245.7 : $ 4387.3

= 28.39%

 Return on Equity of Starbucks in 2010= Earnings available for common

stockholders : Common stock equity

= $945.6: $ 3682.3

= 25.679%

From the calculation above, we see that the ROE of Starbucks is increased from 25.679% in
2010 to 28.39% in 2011. Therefore, Starbucks is better efficiency in using its investment
funds to generate earning growth in 2011.

90
 REFERENCE (APA STYLE)

Geereddy, Nithin. Strategic Analysis of Starbucks Corporation

Starbucks Annual Report 2012

Referensi : http://www.starbucks.com/assets/ce97592533d140ed90d7f843622e7c8e.pdf

http://www.starbucks.com/responsibility/community/diversity-and-inclusion
http://www.businessholic.net/the-inside-of-a-starbucks-company/
http://jlwagner.webs.com/documents/Starbucks%20Analysis.pdf
http://www.starbucks.com/careers/working-at-starbucks
http://www.ukessays.com/essays/marketing/organizational-structure-of-starbucks-marketing-essay.php
https://www.scribd.com/doc/50040066/Analysis-of-Starbucks-and-its-International-Strategy-2011
http://en.wikipedia.org/wiki/File:Starbucks_Organization_Structure.pdf

References http://www.vuru.co/analysis/SBUX/financialStrength#sthash.U8QvGLUC.dpuf

https://www.elance.com/s/zealousys/
http://www.ukessays.com/essays/marketing/board-committee-organization-structure-of-starbucks-
marketing-essay.php
http://www.starbucks.com/about-us

http://online.wsj.com/articles/SB10001424052970203550304577138922045363052

http://www.statista.com/topics/1670/coffeehouse-chain-market/

http://nreionline.com/retail/starbucks-recaptures-its-position-head-us-coffee-market

http://www.entrepreneur.com/article/173256
91
http://www.forbes.com/sites/walterloeb/2013/01/31/starbucks-global-coffee-giant-has-new-growth-
plans/

http://www.industryleadersmagazine.com/starbucks-deepens-its-expansion-in-asia-as-it-opens-store-
in-vietnam/

http://www.washingtonpost.com/starbuckss-schultz-on-growth-strategy-asian-
markets/2012/05/01/gIQAjwDZtT_video.html

http://www.starbucks.com/responsibility/environment/climate-change

http://tasbul.blogdetik.com/?p=21

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10137010/Starbucks-pays-first-
tax-since-2008.html

http://uk.reuters.com/article/2012/10/15/us-britain-starbucks-tax-idUSBRE89E0EX20121015

http://www.starbucks.com/responsibility/global-report/ethical-sourcing/farmer-support

http://www.huffingtonpost.com/2013/03/21/starbucks-farm-costa-rica_n_2924436.html

92
Appendix

93
94
95
96
97