Case_Study__Starbucks_Corporation

Introduction Wake up and smell the coffee – Starbucks is everywhere. The U.S.’s no. 1 specialty coffee retailer, Starbucks operates nearly 4,000 coffee shops in a variety of locations (office buildings, shopping centers, airport terminals, supermarkets) in some 20 countries worldwide. Starbucks sells coffee drinks and beans, pastries, and other food items and beverages, as well as mugs, coffeemakers, coffee grinders, and storage containers. The company also sells its beans to restaurants, businesses, airlines, and hotels, and it offers mail-order and online catalogs. Global Consumer Products (CPG) operations sell a selection of whole bean and ground coffees as well as a selection of premium Tazo teas through licensing arrangements in U.S. and international markets. CPG operations also produce and sell ready-to-drink beverages that include, among others, bottled Frappuccino beverages, Starbucks’ DoubleShot espresso drinks, and Discoveries chilled cup coffee, as well as Starbucks’ super-premium ice creams and Starbucks’ Coffee and Cream Liqueurs, through its joint ventures and marketing and distribution agreements. Company History Three Seattle entrepreneurs; Gordon Bowker, Jerry Baldwin, and Zev Siegl, started the Starbucks Corporation in 1971. Their prime product was the selling of whole bean coffee in one Seattle store. By 1982, this business had grown tremendously into five stores selling the coffee beans, a roasting facility, and a wholesale business for local restaurants. Howard Schultz, a marketer, was recruited to be the manager of retail and marketing. He brought new ideas to the owners, but was turned down. Schultz in turn opened his own coffee bar in 1986 based on Italian coffee cafes, selling brewed Starbucks coffee. By 1987, Schultz had expanded to three coffee bars and bought Starbucks from the original owners for $4 million. He changed the name of his coffee bars from Il Giornale to Starbucks. His intention for the company was to grow slowly with a very solid foundation. He wanted to create a top-notch management by wooing top executives from other well-known corporations. For the first two years, Starbucks losses doubled as overhead and operating expenses increased with Starbucks’ expansion. Schultz stood his ground and did not sacrifice long term integrity and values for short-term profit. By 1991, Starbucks’ sales increased by 84% and the company was out of debt. Starbucks grew to 26 stores by 1998. By 1996, it grew to 870 stores with plans to open 2000 stores by the year 2000. Case Abstract Starbucks Corporation (www.starbucks.com) is a comprehensive strategic management case that includes the company’s calendar September 28, 2008 financial statements, competitors information and more. The case time setting is the year 2009. Sufficient internal and external data are provided to evaluate current strategies and recommend a three-year strategic plan for the company. Founded in 1971 by Gordon Bowker, Jerry Baldwin, and Zev Siegl who joined forces to open their first coffee shop in Seattle, Washington, Starbucks Corporation is currently traded on the New York Stock Exchange under ticker symbol SBUX. Starbucks’ Vision and Mission Statement Vision Statement (Actual) To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time. Vision Statement (Proposed) We want to serve you the finest and refreshing blended coffee beans in your cup and provide a unified experience in a community. Mission Statement Our Coffee It has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our work is never done. Our Partners We’re called partners, because it’s not just a job, it’s our passion. Together, we embraced diversity to create a place where each of us can be ourselves. We always treat each other with respect and dignity. And we hold each other to that standard. Our Customers When we are fully engaged, we connect with, laugh with, and uplift the lives of our customers – even if just for a few moments. Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that. It’s really about human connection. Our Stores When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet with friends. It’s about enjoyment at the speed of life – sometimes slow and savored, sometimes faster. Always full of humanity. Our Neighborhood Every store is part of a community, and we take our responsibility to be good neighbors seriously. We want to be invited in wherever we do business. We can be a force for positive action – bringing together our partners, customers, and the community to contribute every day. Now we see that our responsibility – and our potential for good – is even larger. The world is looking to Starbucks to set the new standard, yet again. We will lead. Our Shareholders We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our shareholders. We are fully accountable to get each of these elements right so that Starbucks – and everyone it touches – can endure and thrive. Mission Statement (Proposed) We passionate about ethically sourcing the finest coffee beans roasting them with great care to provide the best coffee (2) for our customers (1) worldwide (3) using the latest technology available (4) and build a good relationship beyond a perfectly beverage (7). We focuses our efforts on providing a great work environment for our partners (employees) (9), making a positive contribution to our communities; working with coffee farmers to help ensure their long-term success and minimizing our environmental impact (6). At Starbucks, we strive to be a great enduring company by championing business practices that help produce social, environmental and economic benefits (5) for the communities in which we operate (8). We have suggested a new mission statement for Starbucks Corporation base on the element from Fred R. David in his book Strategic Management: Concept and Cases 13th edition. The nine elements that we had incorporated are: 1. Customer 2. Products or services 3. Markets 4. Technology 5. Concern for survival, profitability, growth 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees Starbucks’ External Opportunities and Threats Opportunities 1. Consumers in urban resident are willing to spend more on fine coffee. 2. Increase numbers of coffee consumption widely. 3. Demands in organic coffees are increase 10% this year. 4. U.S. adult population consumed specialty coffee on a daily basis growth by 3% and 4% of occasional consumption since 2002. 5. Costa Rican coffee plantations are expanding 5% annually. Threats 1. Increase awareness about nutritional value in public consuming. 2. Major competitors are offering coffees with their complementary items. 3. Fuel rate is increasing yearly. 4. Foreign exchange rate has decrease by 12% this year. CPM – Competitive Profile Matrix | Starbucks Corp. | Dunkin’ Donuts | Caribou Coffee | Peet’s Coffee and Tea | McDonald’s (MCD) | Krispy Kreme Doughnuts | Critical Success Factors | Weight | Rating | Weighted Score | Rating | Weighted Score | Rating | Weighted Score | Rating | Weighted Score | Rating | Weighted Score | Rating | Weighted Score | Advertising | 0.08 | 4 | 0.32 | 3 | 0.24 | 4 | 0.36 | 3 | 0.24 | 2 | 0.16 | 2 | 0.16 | Top Management | 0.05 | 4 | 0.20 | 4 | 0.20 | 4 | 0.20 | 4 | 0.20 | 3 | 0.15 | 3 | 0.16 | Customer Service | 0.10 | 4 | 0.40 | 3 | 0.30 | 3 | 0.30 | 3 | 0.30 | 3 | 0.30 | 3 | 0.30 | Technological Advances | 0.09 | 3 | 0.27 | 3 | 0.27 | 3 | 0.27 | 3 | 0.27 | 2 | 0.18 | 2 | 0.18 | International Market Sales | 0.07 | 3 | 0.21 | 3 | 0.21 | 3 | 0.21 | 1 | 0.07 | 4 | 0.28 | 2 | 0.14 | Global Expansion | 0.06 | 4 | 0.24 | 4 | 0.24 | 3 | 0.18 | 1 | 0.06 | 4 | 0.24 | 2 | 0.12 | Financial Position | 0.07 | 2 | 0.14 | 3 | 0.21 | 2 | 0.14 | 3 | 0.21 | 4 | 0.28 | 2 | 0.14 | Customer Loyalty | 0.11 | 3 | 0.33 | 3 | 0.33 | 2 | 0.22 | 2 | 0.22 | 3 | 0.33 | 3 | 0.33 | Market Share | 0.09 | 3 | 0.27 | 3 | 0.27 | 2 | 0.18 | 2 | 0.18 | 4 | 0.36 | 2 | 0.18 | Product Quality | 0.10 | 4 | 0.40 | 3 | 0.30 | 3 | 0.30 | 4 | 0.40 | 3 | 0.30 | 3 | 0.30 | Marketing | 0.10 | 4 | 0.40 | 3 | 0.30 | 4 | 0.40 | 4 | 0.40 | 3 | 0.30 | 3 | 0.30 | Price Competitiveness | 0.08 | 2 | 0.16 | 3 | 0.24 | 3 | 0.24 | 3 | 0.24 | 4 | 0.32 | 3 | 0.24 | Total | 1.00 | | 3.34 | | 3.11 | | 3.00 | | 2.79 | | 3.20 | | 2.55 | Competitive Profile Matrix (CPM) for Starbucks Corporation are use to identify the major competitors and its particular strengths and weaknesses in the industry. The CPM is use by analyst to assimilate and evaluate the information in a more presentable ways that other people can understand and at the same time, it is use for decision making and strategies implementation. Based on the CPM, we can see that Starbucks Corporation is better than their competitors; Dunkin’ Donuts, Caribou Coffee, Peet’s Coffee and Tea, McDonald’s and Krispy Kreme Doughnuts. From CPM table above, we can see that Starbucks has the highest score (3.34) compared to their competitors. Even though Starbucks score higher compare to their competitors, it does not indicate that Starbucks is better than their competitors in terms of financial position and price competitiveness factors. From CPM table above, we can see that McDonald’s compete aggressively alongside Starbucks. While MCD lack in advertising and technological advances factors compare to Starbucks, but they score higher in terms of financial position and price competitiveness factors. External Factor Evaluation (EFE) Matrix Key External Factors | Weight | Rating | Weighted Score | Opportunities | 1. Consumers in urban resident are willing to spend more on fine coffee. | 0.08 | 3 | 0.24 | 2. Increase numbers of coffee consumption widely. | 0.15 | 2 | 0.30 | 3. Demands in organic coffees are increase 10% this year. | 0.10 | 4 | 0.40 | 4. U.S. adult population consumed specialty coffee on a daily basis growth by 3% and 4% of occasional consumption since 2002. | 0.07 | 3 | 0.21 | 5. Costa Rican coffee plantations are expanding 5% annually. | 0.05 | 1 | 0.05 | Threats | 1. Increase awareness about nutritional value in public consuming. | 0.12 | 2 | 0.24 | 2. Major competitors are offering coffees with their complementary items. | 0.15 | 1 | 0.15 | 3. Fuel rate increasing annually. | 0.08 | 2 | 0.16 | 4. Foreign exchange rate has decrease by 12% this year. | 0.20 | 4 | 0.80 | Total | 1.00 | | 2.55 | Regardless of the number of key opportunities and threats included in an EFE matrix, the highest possible total weighted score for an organization is 4.0 and the lowest possible total weighted score is 1.0. The average total weighted score is 2.5. Total weighted score of 4.0 indicates that an organization is responding in an outstanding way to existing opportunities and threats in its industry. In other word, the firm’s strategies effectively take advantage of opportunities and minimize the potential adverse effects of external threats. A total score of 1.0 indicates that the firm’s strategies are not capitalizing an opportunities and avoiding external threats. As we can see in the EFE matrix for Starbucks note that the most important factors to being successful in this business is being aware of the increasing numbers of coffee consumption widely, as indicates by the 0.15 weight. On the Starbucks threats side, the company should focus on threat No. 4; foreign exchange rate has decrease by 12% this year, since this threat weighted 0.20 which indicates that it gave serious impact on Starbucks if the company doesn’t take any action or implement new strategies to minimizing the probable result – such as decreasing international retail store revenues, again! Finally, the total weighted score is 2.55 and it is about average (midpoint) of 2.5. It indicates that Starbucks business is doing average action, taking advantage of the external opportunities and avoiding the threats that facing this company. Other than that, Starbucks is positively responding to the external environment of the industry. Based on our research, we summarized that Starbucks is taking advantage of the opportunities in the industry and avoiding the threats by taking corrective action. Starbucks’ Internal Strengths and Weaknesses Strengths 1. Stores are providing comfortable atmosphere with internet wireless. 2. Employee morale is excellent. 3. Rated as top 10: the best workplace by ten Fortune. 4. Expanding the R&D constantly to generate new products. 5. Has a support office for coffee farmers in Costa Rican. 6. The company has website. 7. Memberships card are introduced to strengthening customer loyalty. 8. Strong brand recognition and customer loyalty. Weaknesses 1. Net income has decreased 72% whereas revenues decreased 7%. 2. Moody’s Investors Service downgraded Starbucks’ credit rating. 3. Closed 600 underperforming stores in U.S. in 2008. 4. Early stages international operation needs more extensive support. 5. International total net revenues had decreased 12.1%, compared to 2008. Internal Factor Evaluation (IFE) Matrix Key Internal Factors | Weight | Rating | Weighted Score | Strengths | 1. Stores are providing comfortable atmosphere with internet wireless. | 0.08 | 4 | 0.32 | 2. Employee morale is excellent. | 0.03 | 3 | 0.09 | 3. Rated as top 10: the best workplace by ten Fortune. | 0.07 | 3 | 0.21 | 4. Expanding the R&D constantly to generate new products. | 0.12 | 3 | 0.36 | 5. Has a support office for coffee farmers in Costa Rican to ensure the quality of the coffee beans meeting consumer needs. | 0.03 | 2 | 0.06 | 6. Store has website. | 0.05 | 2 | 0.10 | 7. Memberships card are introduced to strengthening customer loyalty. | 0.05 | 1 | 0.05 | 8. Strong brand recognition and customer loyalty. | 0.09 | 4 | 0.36 | Weaknesses | 1. Net income has decreased 72% whereas revenues decreased 7%. | 0.14 | 4 | 0.56 | 2. Moody’s Investors Service downgraded Starbucks’ credit rating. | 0.07 | 3 | 0.21 | 3. Closed 600 underperforming stores in U.S. in 2008. | 0.12 | 4 | 0.48 | 4. Early stages international operation needs more extensive support. | 0.05 | 2 | 0.10 | 5. International total net revenues were down 12.1%, compared to 2008. | 0.10 | 4 | 0.40 | Total | 1.00 | | 3.30 | In an IFE matrix, the total weighted score can range from a low of 1.0 to a high of 4.0, with the average score being 2.5. Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas score significant above 2.5 indicated a strong internal position. As we can see in the IFE matrix for Starbucks Corporation has a strong brand name and recognition in U.S., as well as worldwide in food and beverage market, most probably due to the company’s R&D in constantly generate new products. The company has problems with net income, operating income, and licensed owned and franchised retail stores that experience low performance managements. Overall, this company receives a 3.30 total weighted score, which on a 1-to-4 scale is above average, indicating there is definitely room for improvement in store operation and management, strategies and product range. Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix | Strengths | Weaknesses | | 1. Stores are providing comfortable atmosphere with internet wireless. 2. Employee morale is excellent. 3. Rated as top 10: the best workplace by ten Fortune. 4. Expanding the R&D constantly to generate new products. 5. Has a support office for coffee farmers in Costa Rican to ensure the quality of the coffee beans meeting consumer needs. 6. Store has website. 7. Memberships card are introduced to strengthening customer loyalty. 8. Strong brand recognition and customer loyalty. | 1. Net income has decreased 72% whereas revenues decreased 7%. 2. Moody’s Investors Service downgraded Starbucks’ credit rating. 3. Closed 600 underperforming stores in U.S. in 2008. 4. Early stages international operation needs more extensive support. 5. International total net revenues were down 12.1%, compared to 2008. | Opportunities | S-O Strategies | W-O Strategies | 1. Consumers in urban resident are willing to spend more on fine coffee 2. Increase numbers of coffee consumption widely. 3. Demands in organic coffees are increase 10% this year. 4. U.S. adult population consumed specialty coffee on a daily basis growth by 3% and 4% of occasional consumption since 2002. 5. Costa Rican coffee plantations are expanding 5% annually. | 1. Create a new line for organic coffee to be promoted in develop country.(S4, S5, S8, O1, O2, O3, O5) | 1. Open new stores in high demands of population consumed specialty coffee.(W1, W2, W4, O1, O2, O4) 2. Offer discount and make promotions to encourage occasional consumption to consume specialty coffee.(W1, W2, W5, O1, O2, O4) | Threats | S-T Strategies | W-T Strategies | 1. Increase awareness about nutritional value in public consuming. 2. Major competitors are offering coffees with their complementary items. 3. Fuel rate is increasing annually. 4. Foreign exchange rate has decrease by 12% this year. | 1. Improve website by adding actual facts about nutrition information as well as the coffee benefits.(S4, S6, S8, T1) 2. Give away free gifts or placing coffee as meals combination instead of soft drinks.(S7, S8, T2, T3) | 1. Increase a minor of the coffee and other beverage prices to support the foreign exchange rate in certain countries.(W1, W2, T4) | Strategic Position and Action Evaluation (SPACE) Matrix Financial Position (FP) | Rating | Starbuck total revenue increase to $10,383,000.00 in the year 2008 compare with $9,411,497.00 in 2007. There are increased of 10.3% in the total revenue. | 3 | Starbucks’ global consumer product (CPG) segment represent 24 percent of total specialty revenue and 4 percent of total net revenue | 4 | Starbucks’ operated retail revenues increased primarily due to the opening of 445 new company-operated retail store in the 2008 | 5 | Financial Position (FP) Average | 4 | Industry Position (IP) | Rating | Starbuck offer better quality coffee by opening a Costa Rican support office for coffee farmer and rewarding environmentally responsible farms. | 5 | Starbuck are reported have three operating segments. That is at United States, International and Global Consumer Product. | 3 | Starbuck strive to elevate the simple task of drinking coffee to a new level with its retail outlets seen as a place for socialization, relaxation and reflection. | 3 | Starbuck continues to be the “coffeehouse of choice” for many domestics and international consumers because their strategy remains one of progressive. | 4 | Starbucks’ CPG operations produce and sell ready-to-drink beverages that included, among other of their product. | 5 | Industry Position (IP) Average | 4 | Competitive Position (CP) | Rating | Starbuck have introduced the Starbucks’ card to strengthening customer loyalty | -4 | Starbuck has rated by ten Fortune as one of the best top 10 place to work. | -4 | Starbuck provided electrical outlets and also internet access. | -2 | Starbuck offer their product with a high quality and always to improving it from time to time. | -5 | Starbuck plans to open approximately 65 net new licensed stores in United States and approximately 320 net new licensed stores internationally. | -3 | Competitive Position (CP) Average | -3.6 | Stability Position (SP) | Rating | Starbuck provided their product in convenience stores, grocery store, department store, movie theaters, business, schools and even airports. | -3 | Starbuck encourage the use of it Web site, so their customer are able to register their Starbucks’ card, receive nutritional information about Starbucks’ product, shop online, search for careers and much more. | -2 | Starbucks relies more on it image advertising and part of it they change not only views the retail outlet but how responsible the company is to their communities and employees. | -4 | Starbucks began grinding coffee each time a new port is brewed, instead of grinding coffee only in the morning. | -4 | Starbucks want their customers to smell coffee aroma all day long. | -3 | Stability Position (SP) Average | -3.2 | Directional vector coordinates: X axis = FP + ES = 4 + (-3.6) = 0.4 Y axis = CP + IP = 4 + (-3.2) = 0.8 Conservative Aggressive 7 6 5 4 3 2 1 1 2 3 4 5 6 7 -7 -6 -5 -4 -3 -2 -1 -1 -2 -3 -4 -5 -6 -7 Competitive Defensive As we can see from the above graph, Starbucks’ directional vector is located in the aggressive quadrant (upper-right quadrant) of the SPACE matrix, indicates that Starbucks is in excellent position to use its internal strengths to (1) take advantage of external opportunities, (2) overcome internal weaknesses, and (3) avoid external threats. Therefore, market penetration, market development, product development, backward integration, forward integration, horizontal integration, or diversification, can be feasible, depending on the specific circumstances that face Starbucks. According to the example strategy profile pointed in our textbook (Strategic Management: Concept and Cases, 13th Edition), if directional vector falls in aggressive quadrant, it conveyed that a firm whose financial strength is a dominating factor in the industry. Starbuck must pursue a strategy that is Aggressive. The strategies that include in aggressive are backward integration, forward integration, market penetration, market development, product development and diversification which include related and unrelated diversification. In our opinion, Starbuck should use more market development on the new area around the world because today, the company almost does their business more on the United Stated area and some on the international area. So, when they are doing more market development at the new area, there is more change to their company to get more consumers to buy their product. The other strategy that the Starbuck can use is product development. From time to time, the company must doing their product development, so then, they will give to their customer with the new line product and they can move on first before their competitor do and the customer will fine the different of their product with the other competitors. The Internal-External (IE) Matrix The IFE Total Weighted Score Average 2.0 to 2.99 Low 1.0 to 1.99 High 3.0 to 3.99 I III II High 3.0 to 3.99 IV V VI Starbucks Corporation The EFE Total Weighted Score Medium 2.0 to 2.99 Low 1.0 to 1.99 IX VII VIII The IFE Total Weighted Score: 3.30 The EFE Total Weighted Score: 2.55 The result from EFE and IFE Total Weighted Score position Starbucks at the IV division, that is mark as “Grow and build”. The suggestions for this division are: * Backward, Forward, or Horizontal Integration * Market Penetration * Market Development * Product Development Quantitative Strategic Planning Matrix (QSPM) | | STRATEGIC ANALYSIS | | | 1 | 2 | | | Create a new line for organic coffee to be promoted in develop country | Offer discount and make promotions to encourage occasional consumption to consume specialty coffee | Key Factor | Weight | AS | TAS | AS | TAS | Opportunities | 1. Consumers in urban resident are willing to spend more on fine coffee | 0.08 | 4 | 0.32 | 3 | 0.24 | 2. Increase numbers of coffee consumption widely | 0.15 | 4 | 0.60 | 3 | 0.45 | 3. Demands in organic coffees are increase 10% this year | 0.10 | 4 | 0.40 | 1 | 0.10 | 4. U.S. adult population consumed specialty coffee on a daily basis growth by 3% and 4% of occasional consumption since 2002 | 0.07 | 1 | 0.07 | 4 | 0.28 | 5. Costa Rican coffee plantations are expanding 5% annually | 0.05 | 3 | 0.30 | 1 | 0.05 | Threats | 1. Increase awareness about nutritional value in public consuming | 0.12 | - | - | - | - | 2. Major competitors are offering coffees with their complementary items | 0.15 | - | - | - | - | 3. Fuel rate is increasing yearly | 0.08 | - | - | - | - | 4. Foreign exchange rate has decrease by 12% this year | 0.20 | - | - | - | - | TOTAL | 1.00 | | 1.69 | | 1.12 | Strengths | 1. Stores are providing comfortable atmosphere with internet wireless | 0.08 | - | | - | | 2. Employee morale is excellent | 0.03 | - | | - | | 3. Rated as top 10: the best workplace by ten Fortune | 0.07 | - | | - | | 4. Expanding the R&D constantly to generate new products | 0.12 | 4 | 0.48 | 1 | 0.12 | 5. Has a support office for coffee farmers in Costa Rican | 0.03 | 3 | 0.09 | 1 | 0.03 | 6. Store has website | 0.05 | - | | - | | 7. Memberships card are introduced to strengthening customer loyalty | 0.05 | - | | - | | 8. Strong brand recognition and customer loyalty | 0.09 | 3 | 0.27 | 1 | 0.09 | Weaknesses | 1. Net income has decreased 72% whereas revenues decreased 7% | 0.14 | 1 | 0.14 | 4 | 0.56 | 2. Moody’s Investors Service downgraded Starbucks’ credit rating | 0.07 | 1 | 0.07 | 4 | 0.28 | 3. Closed 600 underperforming stores in U.S. in 2008 | 0.12 | - | | - | | 4. Early stages international operation need more extensive support | 0.05 | - | | - | | 5. International total net revenues were down 12.1%, compared to 2008 | 0.10 | 1 | 0.10 | 4 | 0.40 | TOTAL | 1.00 | | 1.15 | | 1.48 | SUM TOTAL ATTRACTIVENESS SCORE | | 2.84 | 2.60 | Based on measurements made ​​from QSPM we find that the first strategy is better and has a fairly close relationship compared with that strategy. However, the differences in the sum total attractiveness score between the two strategies are small. Advantage and Disadvantage Strategy 1 Create a new line for organic coffee to be promoted in develop country. Advantage 1) R&D section is constantly in pursuit of the new products and service that are both trendy and stable. 2) Opening a Costa Rican support office for coffee farmers to ensure better quality coffee in fulfill the customers’ needs for organic coffee. 3) By the end of 2006, specialty coffee sales had reached $12.27 billion, up from $11.05 billion in 2005 and $8.3 billion in 2001. 4) Strong brand recognition and customer loyalty among competitors. 5) Stores are providing comfortable atmosphere with internet wireless. Disadvantage 1) Foreign exchange rate has decrease by 12% this year resulting in decrease in sales revenues for international retail stores against U.S. dollar. 2) Starbucks have to provide new range of complementary food with their coffee in order to compete with their competitors. 3) Public is concerned about the nutritional value of such products as those offered by the specialty coffee sector. 4) Economic slowdown from the effect of worldwide economic recession in 2007. Strategy 2 Offer discount and make promotions to encourage occasional consumption to consume specialty coffee Advantage 1) Sixteen percent of the U.S. adult population consumed specialty coffee on a daily basis, whereas 63 percent indulged occasionally. 2) In response to recent economic times, the company has adjusted prices on certain of its more popular products in an effort to show responsiveness to the more budget-conscious consumer. 3) Company’s website encouraged interactivity among their customers as well as their potential customers. Disadvantage 1) Discount rate may be small or cannot been exercise outside U.S. market since foreign exchange rate has decrease by 12% in 2008 and its may further decrease sales revenues from international retail stores. 2) States must be sensitive to current economic developments. Conclusion Strategy 1 is addressed primarily because Starbucks business as seen as too dependently on U.S. sales revenues and it is viewed very risky given the U.S. economy is very unstable. Strategy 1 is more attractive because it can help spread the sales of specialty coffee to many countries other than U.S. market and it also can help boost the sales revenues for Starbucks. Strategies and long-term objectives Financial Ratio Analysis (September 2006 - 2009) There are five types of key financial ratios: 1. Liquidity ratios measure a firm’s ability to meet maturing short-term obligations. * Current ratio * Quick (or acid-test) ratio 2. Leverage ratios measure the extent to which a firm has been financed by debt. * Debt-to-total-assets ratio * Debt-to-equity ratio * Long-term debt-to-equity ratio * Times-interest-earned (or coverage) ratio 3. Activity ratios measure how effectively a firm is using its resources. * Inventory turnover * Fixed assets turnover * Total assets turnover * Accounts receivable turnover * Average collection period 4. Profitability ratios measure management’s overall effectiveness as shown by the returns generated on sales and investment. * Gross profit margin * Opening profit margin * Net profit margin * Return on total assets (ROA) * Return on stockholders’ equity (ROE) * Earnings per share (EPS) * Price-earnings ratio 5. Growth ratios measure the firm’s ability to maintain its economic position in the growth of the economy and industry. * Sales * Net income * Earnings per share * Dividends per share Table below are data for each of five key financial ratios for three consecutive years provided in Starbucks Corporation case study. Ratios | 2006 | 2007 | 2008 | Liquidity ratios | * Current ratio | 0.79 | 0.79 | 0.8 | * Quick ratio | 0.46 | 0.47 | 0.48 | Leverage ratios | * Debt-total-assets ratio | 0.50 | 0.57 | 0.56 | * Debt-to-equity ratio | 0.99 | 1.34 | 1.28 | * Long-term debt-to-equity ratio | 8.79 | 0.24 | 0.22 | * Times-interest-earned ratio | 84.39 | 61.23 | 28.03 | Activity ratios | * Inventory turnover | 2.45 | 2.35 | 2.24 | * Fixed assets turnover | 3.40 | 3.26 | 3.51 | * Accounts receivable turnover | | | | * Average collection period | | | | Profitability ratios | * Gross profit margin | 0.59 | 0.58 | 0.55 | * Operating profit margin | 0.12 | 0.11 | 0.05 | * Net profit margin | 0.07 | 0.07 | 0.03 | * Return on total assets (ROA) | 0.13 | 0.13 | 0.06 | * Return on stockholders’ equity (ROE) | 0.25 | 0.29 | 0.13 | * Earnings per share (EPS) | | | | * Price-earning ratio | | | | Growth ratios | * Sales | NA | 0.01 | 0.01 | * Net income | NA | 0.012 | 0.005 | * Earnings per share | 0.73 | 0.87 | 0.43 | * Dividends per share | NA | NA | NA | Earning Per Share/Earning Before Interest and Tax (EPS/EBIT) Analysis Amount needed: $600 M EBIT Range: - $300 M to + $100 M to + $300 M Stock Price: $20.76 Tax Rate: 30.1% Interest Rate: 5% # of Shares Outstanding: 746 M Common Stock Financing | Recession | Normal | Boom | EBIT | $300 | $600 | $900 | Interest | 0 | 0 | 0 | EBT | $300 | $600 | $900 | Taxes | 90 | 180 | 270 | EAT | $210 | $420 | $630 | #Shares | 300 | 300 | 300 | EPS | (0.93) | 0.52 | 0.94 | Debt Financing | Recession | Normal | Boom | EBIT | $300 | $600 | $900 | Interest | 15 | 15 | 15 | EBT | $315 | $585 | $765 | Taxes | 0 | 0 | 0 | EAT | $315 | $585 | $765 | #Shares | 746 | 746 | 746 | EPS | (0.34) | 0.43 | 0.77 | Combination Financing 70 Percent Stock – 30 Percent Debt | Recession | Normal | Boom | EBIT | $300 | $600 | $900 | Interest | 15 | 15 | 15 | EBT | $315 | $585 | $765 | Taxes | 0 | 0 | 0 | EAT | $315 | $585 | $765 | #Shares | 210 | 210 | 210 | EPS | (0.93) | 0.52 | 0.94 | 70 Percent Debt – 3- Percent Stock | Recession | Normal | Boom | EBIT | $300 | $600 | $900 | Interest | 35 | 35 | 35 | EBT | $405 | $390 | $585 | Taxes | 0 | 0 | 0 | EAT | $405 | $390 | $585 | #Shares | 100 | 100 | 100 | EPS | (0.34) | 0.43 | 0.77 | * Combination Financing (70% Stock-30% Debt) was chosen for financing the strategy because if recession continues and the company does not increased their profit, the company will have to chose a drastic steps such as not paying any/or reduce dividend payment for their shareholders. * Increasing in equity means that it has an existence of capital gain in order to support the implementation of opening new retail stores in develop countries. Recommendation The strategy we proposed for Starbucks is to create a new line for organic coffee to be promoted in developed country. Since Starbucks founded by three entrepreneurs in 1971, this company is very dependent in their revenues from U.S. retail stores. This decision is a very risky business because when U.S. economic collapse in 2007, Starbucks faced a 72% decreased in their sales revenues for three consecutive years. That is why we proposed that Starbucks ventures the specialty coffee sector outside U.S. market and into developed countries worldwide. The worldwide economic forecasted to be more stable with the new currency being promoted (Euro) and it reported more stronger than U.S. dollar. It can help increasing revenues from international retail stores. At the same time, the second strategy; offer discount and make promotions to encourage occasional consumption to consume specialty coffee, can be implemented slowly at the U.S. market and eventually at the international level in order to compete with their competitors, especially McDonald’s. References 1. http://www.starbucks.com 2. http://moneycentral.msn.com 3. David, F. R., Strategic Management, Concept and Cases, 2009, Pearson Education, Inc.