10/4/21, 11:10 PM Starbucks Corp - Profile Starbucks Corp | MarketLine Intelligence Center

SWOT Analysis

Starbucks Corporation (Starbucks or ‘the company’) is a premier roaster, marketer and retailer of specialty coffee. High liquidity position
stabilize its fund day to day operations, strong customer connects through value-added services and operational networks are major
strengths of the company, whereas dependence on Americas for major revenue and decline in revenue affects financial stability remains
a cause for concern. Positive outlook for foodservice industry in the us, positive outlook for global hot drink market, positive outlook for
increasing consumer spending in the us and investment in stores may enhance geographical presence and customer base are likely to
provide growth opportunities to the company. However, competition could impact profit margins, compliance costs associated with
government regulations and increase in raw material price could affect its business operation.

Strengths  Weaknesses
Building Strong Customer Connect Through Dependence on Americas for majority of revenue
Value-Added Services Decline in revenue affects financial stability
Operational network strengthens strategic
position
High liquidity position stabilize its fund day to day
operations S W

 Opportunities O T  Threats

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Investment in stores may enhance geographical Increase in raw material costs

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presence and customer base Competition could impact profit margins

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Positive Outlook for Increasing Consumer Compliance Costs Associated With Government
Spending in the US Regulations

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Positive outlook for global hot drink market

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Positive outlook for foodservice industry in the US
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 Operational   Financial  Strategic   Industry   Political Environment   Economic Situation  Socio-Cultural Environment 
 Technological Environment
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Building Strong Customer Connect Through Value-Added Services

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

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Operational network strengthens strategic position

Operational
Starbucks has a strong operational network to cater to its store needs efficiently. The company
operates through two types of stores, including company-operated stores and licensed stores.
As of September 2020, it operated 32,660 stores across Americas and International. As of
September 2020, the company operated 18,354 stores in Americas, in which 10,109 are
company-operated stores and 8,245 licensed stores; and operated 14,306 stores
Internationally, which includes 6,528 company-operated and 7,778 licensed stores.

High liquidity position stabilize its fund day to day operations

Financial
Higher liquidity places Starbucks at an advantage, enabling it to capture potential opportunities
arising in the market. At the end of FY2020, the current ratio of the company was 1 as
compared to 0.9 in FY2019. This was due to increase in its current assets from US$5,653.9
million in FY2019 to US$7,806.4 million in FY2020, which reflects an increase of 38.1% over
revenue for the previous year, resulting from increase in account receivables from US$879.2
million in FY2019 to US$883.4 million in FY2020.

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Dependence on Americas for majority of revenue

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Weaknesses Financial

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Geographic concentration is a cause for concern to the company. Though the company

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operates in Asia Pacific, Europe, Middle East and Africa, it generates the majority of its

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and financial performance and increase its business risks by exposing it to the economic and
geopolitical risks associated with the region, which could affect the demand for its products or
disrupt the supply chain, and reduce its market share and growth opportunities in the future. It
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also hinders the company’s growth in international markets. In FY2020, the company
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generated 69.6% of its revenue from Americas.

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Decline in revenue affects financial stability

Financial
Starbucks reported decline in financial performance in FY2020. The company reported
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revenue of US$23,518 million as compared to US$26,508.6 million in FY2019, with an overall

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decline of 11.3% in net sales in FY2019. This was primarily due to decrease in company-
operated stores, licensed stores and Others by 11%, 19.1% and 3%, respectively compared to
FY2019. The decline in licensed stores revenue was due to decrease in product and
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equipment sales. The decline in other revenue was due to increase in volume of transition
activities related to the Tazo brand and the Global Coffee Alliance sale. Weak financial
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performance could affect the company’s ability to pursue growth and expansion plans.
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Investment in stores may enhance geographical presence and customer base

Opportunities Strategic
Starbucks is focusing on business expansion to expand its geographic reach and customer
base. In August 2020, Starbucks South Korea opened its store in Yangpyeong, Gyeonggido,
South Korea. In July 2020, Starbucks opened a new store at JD headquarters in Beijing,
China. In June 2020, Starbucks opened its sign language store in Kunitachi, Tokyo, Japan.
Through its new store, the company offers service to deaf and hard of hearing customers in
Japanese Sign Language. This could expand its customer base. In May 2020, Starbucks
opened a new store in Federal Hill, Maryland, the US. In March 2020, the company announced
to open a US$130 million roasting facility in China. Through this initiative, the company
delivers original coffee roasting products.

Positive Outlook for Increasing Consumer Spending in the US

Industry
The company could benefit from the increase in consumer spending in the US. Growing
personal income, disposable personal income and personal consumption expenditure indicate
improvement in consumer spending in the US, which could increase the purchase of the
company’s products and enhance its performance. According to the US Bureau of Economic

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Analysis (BEA), in January 2020, the personal income (PI) in the US increased 0.2% or

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US$40.7 billion; disposable personal income (DPI) increased 0.2% or US$30.6 billion and

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personal consumption expenditure increased 0.3% over that in the previous month to reach
US$46.6 billion. In December 2019, real personal consumption expenditure (Real PCE)

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rs e increased 0.1% over that in the previous month. The personal consumption expenditure PCE
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price index increased 0.3% over the previous month.

Positive outlook for global hot drink market

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

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10/4/21, 11:10 PM Starbucks Corp - Profile Starbucks Corp | MarketLine Intelligence Center

Positive outlook for foodservice industry in the US

Industry
The restaurants industry in the US is forecast to have a strong growth. According to in-house
report, the US foodservice industry was valued at US$689.8 billion in FY2018. The market is
expected to grow at a CAGR of 3% during 2018-2023 to reach a value of US$798.9 billion by
the end of 2023, whereas the volume sales are expected to increase from 71 billion in 2018 to
76.3 billion in 2023. The United States accounts for 21.2% of the global foodservice industry
value. The Quick service restaurant & fast food is the largest segment of the foodservice
industry in the United States, accounting for 40.5% of the industry's total value. As the
company operates in the US, it is likely to benefit from the growth in restaurants industry,
which may provide it with new growth opportunities. The company sells Starbucks and
Seattle’s Best Coffee roasted whole bean and ground coffees, a selection of premium Tazo
teas, Starbucks VIA Ready Brew, and other coffee and tea-related products to institutional
foodservice companies that service business and industry, education, healthcare, office coffee
distributors, hotels, restaurants, airlines and other retailers. Therefore, Starbucks is well
positioned to tap the growing foodservice industry. As of September 2020, the company
operated 18,354 stores in Americas.

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Increase in raw material costs
Threats Industry

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Starbucks purchases, roasts, and sales of whole bean arabica coffee beans and related coffee
products. The price of coffee is subject to significant volatility and has undergone fluctuations

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

Industry
The specialty coffee market is intensely competitive. Competition in the global market is based
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on a number of factors, including product quality, service, convenience and price. The
company faces significant competition in each of its channels and markets. In the US,
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Starbucks faces direct competition from large competitors in the quick-service restaurant
sector and ready-to-drink coffee beverage market. For instance, it competes with Dunkin
Brands in the US, which has strong presence in the northeastern US. Its tea and coffee
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products sold through its channel development segment compete directly with specialty
coffees and teas sold through supermarkets, club stores and specialty retailers. It also faces
competition from well-established players like McDonald's in many international markets.
McDonald's, which sells specialty coffee through McCafe, has global presence and strong
brand recognition in most countries. This acts as a threat to Starbucks which is yet to build its
brand and presence in these markets. Starbucks also competes with other companies such as
Nestle, Peet's Coffee & Tea, The J.M. Smucker Company, Krispy Kreme Doughnut, and
Panera Bread Company. Therefore, increasing competition may lead to price wars, which, in
turn, could affect the market share of the company.
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 10/4/21, 11:10 PM Starbucks Corp - Profile Starbucks Corp | MarketLine Intelligence Center

Compliance Costs Associated With Government Regulations

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

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