Assignment A

STUDENT NAME
NORTHUMBRIA UNIVERSITY
Contents

 Introduction
 Identification of decision objectives
 Attributes for sensitivity analysis
 Evaluation
Introduction

 The organisations chosen for this study are coffee shops operating in England such as Starbucks, McDonalds

McCafe and Dunkin Donuts

 The specialty coffee industry exhibited rapid growth since 1987. Starbucks has been a strong competitor ever

since its establishment in 1971 with small scale and large scale coffee shops.

 Starbucks was established in Washington which basically sold coffee beans and had stand alone shop. Howard

Scultz bought Starbucks for $4 million in 1987 from Owners and continued to expand round the globe to

provide great coffee experience to international markets. It has more than 10000 retail stores round the globe
 Decision objectives or Alternatives
 Financial performance attributes

 Competitiveness

 Business strategy

These decision alternatives will be employed to choose the best organization among Starbucks, McDonalds
Café and Dunkin Donuts
Attributes for financial performance

 Weighted Average Cost of Capital

 Revenue growth pattern

 Cost growth pattern

 Initial revenue growth pattern

 CAPEX projection
Attributes for assessing business
competitiveness

 SWOT analysis
Strengths Weakness

Threats Opportunities
Attributes for evaluating business strategy
Business
strategy
analysis

Product
BCG matrix
differentiation
strategy strategy
 Financial Performance analysis Starbucks
Weighted Average Cost of Capital Revenue growth pattern Cost growth pattern
(WACC) • Based on last 10 year revenue growth • Variable cost growth relied on revenue
• The average WACC value of Starbucks is pattern, the growth of revenue is 6% in all growth at the rate of 6%.
6.14%. segments. • Fixed cost growth is blended rate of
inflation of growth from other segments
of Starbucks. The fixed cost growth rate
is predicted as 8%.

Initial revenue growth pattern CAPEX projection

The revenue growth pattern for CAPEX projection for Starbucks
next five years is 4% due to is $15000 for existing stores. The
transaction growth and 2% from strategic CAPEX for Starbucks is
ticket growth $60000 within next 5 years.
 Financial Performance analysis McDonald’s
Cafe
Weighted Average Cost of Capital Revenue growth pattern Cost growth pattern
(WACC) • Based on last 10 year revenue growth pattern, the • Variable cost growth relied on revenue growth at
• The average WACC value of McDonalds Cafe is decrease of revenue is 2.11 % in all segments is the rate of 6%.
4.54%. observed in McDonalds Café since 2006 - 2020 • Fixed cost growth is blended rate of inflation of
growth from other segments of McDonalds Cafe.
The fixed cost growth rate is predicted as 8%.

Initial revenue growth pattern
The revenue growth pattern for next five
years is -0.66% due to transaction
growth
CAPEX projection
CAPEX projection for McDonalds Café
is three times higher than operating cash
flow $4000 for existing stores. The
strategic CAPEX for McDonalds Café is
$15000 within next 5 years.
 Financial Performance analysis Dunkin
Donuts
Weighted Average Cost of Capital Revenue growth pattern Cost growth pattern
(WACC) • Based on last 10 year revenue growth pattern, • Variable cost growth relied on revenue
• The average WACC value of Dunkin Donuts the growth of revenue is 3% in all segments. growth at the rate of 3%.
is 6.36%. • Fixed cost growth is blended rate of inflation
of growth from other segments of Dunkin
Donuts. The fixed cost growth rate is
predicted as 5%.

Initial revenue growth pattern
The revenue growth pattern for next
five years is 2.15% due to
transaction growth
CAPEX projection
CAPEX projection for Dunkin
Donuts is $860 million for existing
stores. The strategic CAPEX for
Dunkin Donuts is $22 billion within
next 5 years.
 Considering the reduced revenue performance of Dunkin Donuts, it has been ruled out of
the analysis based on the sensitivity financial analysis.
SWOT analysis Starbucks

Strengths
Strong position in the market and Global brand Weakness
recognition Products are quite expensive
High quality products Self-cannibalization due to overcrowding of the stores
Aesthic ambiance of stores Highly dependent on US market
Diverse product mix Negative large corporate image
Loyal customer base Clash on American/English coffee culture
Employment of technology in mobile outlets

Opportunities
Expansion to new markets
Threats
Expansion on product mix
Increased competition due to market rivals
Implementation of technical advancements in stores
Price volatility of global markets
Brand extension
Developed market saturation
New distribution channels
Changing customer tastes and lifestyle choices
Expansion of retail operations
 SWOT analysis of McDonalds
Strengths
It has first market entrant advantages
High profit margin
Intellectual property rights for
innovative products in market
Robust domestic market
Threats
Increased bargaining power of
customers
Environmental regulations in new
Weakness
Poor inventory management
Lack of workforce
Poor organization culture
Need to implement latest technology
Low return on Investment
Opportunities
Benefits of new markets
Growing market size Expansion on
product mix
BCG matrix of Starbucks
BCG matrix of McDonalds
 Product Differentiation Strategy of Starbucks

 The store offers different kinds of products in Coffee and snacks such as baked goods, smoothies,
Frappuchinos, beverages etc.

 It acquiesced Teavana, Evolution fresh and Bay bread shops to diversify its products and did not follow
franchising model.
Product Differentiation Strategy of
McDonalds Cafe

 McDonald’s café differentiates its products based on low to high price category.
 McDonald’s sells products differing in each geographical location based on consumer
demand
 It includes regional cuisine taste in every nation for its products to attract the local
customers
Evaluation

 Considering the financial, business and competitive analysis among three chosen coffee
shops such as McDonald’s café, Donut Dunkins and Star bucks, Star bucks has been
chosen as organisation for further statistical analysis
 Starbucks possess strong financial and market position
 It has ideal product differentiation and business strategy suitable for its sustainability in
all global markets
 It stays top among its market rivals
VISA results
 Appraisal
 Starbucks shows strong growth is in its International segment. The emerging markets of Brazil, India, China, South Africa and
Mexico with a growing middle-class population continue to offer significant opportunities to add new stores and serve more
customers. Starbucks has already made significant inroads into the Chinese market but there still is a lot of untapped potential
growth in these markets.
 Starbucks should grow in these emerging markets by winning locally Starbucks must remain relevant to the customer in order
to grow in these markets, and its management teams should have the freedom to operate within their overall framework to
tailor store format, introduce local product mix and price points to the needs, lifestyles and tastes of each individual
market/community.
 Starbucks has great growth opportunities in Tea and Fresh Juice products mix. They should build up these products along the
same line of their core coffee products. Also as consumer tastes and lifestyle shift towards more snacks and beverages
options, Starbucks should tailor its menu’s and expand to give more healthy product offerings in its mix.
 Coffee beans are a significant input into Starbucks value chain and there have been wide fluctuations in the market prices of
high quality coffee beans. Starbucks could mitigate this price volatility risky by implementing an effective hedging strategy
like future contracts to lock in their estimated quantity inputs at a low swing price so that the future costs can be managed to a
greater extent.