Stabucks_Swot

Business Analysis William Ekpenyong MGT/521 21TH November, 2011 Instructor – Mike Riha Business Analysis COMPANY OVERVIEW According to Starbucks, (2011). Starbucks Corporation is a dealer in coffee retailing, its product is known as specialty coffee product, with operation in many countries around the globe, headquartered in Seattle Washington State of the United States of America. Its operation includes regions like the Asia Pacific the Europe, Middle East, and Africa, presence is also felt in the Latin American region. The Starbucks Corporation has employees of about 137,000 people. With most of the retail stores operating under franchise licenses. The revenues Starbucks recorded were $10,707.4 million in the financial year ending September 2010 (FY2010), boasting an increase of 9.5% compared to the FY2009. The Corporation had operating profit of “$1,419.4 million in FY2010 compared to an operating profit of $562 million in FY2009. The net profit was $945.6 million in FY2010 compared to a net profit of $390.8 million in FY2009” (Starbucks, 2011). .SWOT ANALYSIS The Starbucks Corporation known for its delicious premier retail roasted specialty coffee has its influence in 50 countries of the world, the operation is done under its exclusive signature ownership and licensed retail franchise stores. The presence of Starbucks in global market, is an indication of its intention of establishing its operation worldwide, while expanding into new regions of the world living its foot print and reducing its dependency on few markets. The Corporation may in future by the increasing cost of its major raw coffee bean (Starbucks, 2011). Strength The increasing expansion into many geographic regions Continued expansion into new distribution channels Relentless research and development results in innovation and strengthened the product quality. Weakness Recall of appliances and associated coffee products could affect the brand image Opportunity Constant growth in the Asian markets The use of technology to improve customer service. Expanding presence in the growing single-serve coffee market in the US Threat Increasing cost of the Starbucks coffee can impact its profit margins. Increasing cost of labor in the country of origin, the United States. Economic downturn in the United States economy. Strengths The expansion of Starbucks to various regions of the globe in about 50 countries is a remarkable sign of performance needed for a company positive growth. The developed and third world countries have felt the presence of the Starbucks Corporation; the operation is through its stores and the licensed retail franchise stores. Record shows that in the FY2010, 6,707 stores were operational in the United States, while 2,126 stores were operational internationally. The total net revenue realized was 84% in FY2010. The company issues licenses to local indigenes to operate retail services, while obtaining royalties from the agreement. Record shows that 4,424 licensed stores were operational in the US market, while 3,601 licensed stores in the international markets. Royalties and fees realized from the United States market recorded 50% of revenues, specialties operation accounted for 16% of the total revenues in 2010. Starbucks expanded its ownership in Brazil by assuming 100% control through acquisition of the Cafes Sereia do Brasil Participacoes. By this approach, Starbucks could compete as the largest in its retail category in South America. Its continued expansion in the global scene is done by partnering with local companies and new markets as well. Corporation de Franquicias America became another example of Starbucks dominance in Central America. Its presence was also felt in countries like San Salvador, El Salvador in November 2010. Many more countries also experienced Starbucks influence. Plans are on its way to expand to 1,500 stores in China by 2015 (Starbucks, 2011). The intention of Starbucks expansion into international scene is an indication of establishing its presence in the retail environment at the same time reduces its dependency on few markets. Starbucks widens its distribution channels in various environments, such as the shops, offices, grocery stores, airports, offices and more. Starbucks somehow affiliates itself with some beverage manufacturers and own a licensing arrangement for products of Starbucks brands. A good example is the joint venture with Pepsi- Cola with 50% of investment with North American Coffee Partnership, licensed with production of and marketing of “ready-to-drink beverages, including bottled Frappuccino beverages, Starbucks DoubleShot, and Seattle’s Best Coffee espresso beverages in the US and Canada markets. Starbucks also has licensing agreement with a partnership formed by Unilever and Pepsi-Cola Company for the manufacturing, marketing and distribution of Starbucks super-premium Tazo Tea beverages in the US” (Starbucks, 2011). Starbucks additionally sales its packaged products of tea and coffee internationally to warehouse clubs, such as Costco Wholesale warehouses. Its distribution channels also include hotel rooms such as the partnering with Courtesy Products who is the sole distributor of Starbucks coffee in hotel rooms, record shows about 500,000 luxury hotel rooms in the United States alone in 2011 (Starbucks, 2011). Weaknesses When companies products are being recalled it brings a setback to the business sometimes temporarily and permanently, depending on how the situation is being contained, when it plays defensive game and do not retrieve the recall item from the market immediately following information to consumers, the effect could be detrimental. Starbucks has gone through some recalls of some products accessories, such as the incident of January 2010, where 11,000 and 1,200 units of glass water bottles supplied in the US and Canada, were recalled. This was due to reports of shattering glass resulting in lacerations, also earlier in 2009, 530,000 barrister blade grinders were recalled, noting its failure to turn off after use, another item that also faced recalled was the peanut butter. All of these were recalled by the Consumer Product Safety Commission (Starbucks, 2011). Opportunities Starbucks rapid expansion globally is an opportunity, its expansion into the Asian market is a significant breakthrough in global marketing expansion, taking into consideration the population in China and India. The growth in economic development couple with the population of middle class which is expected to double in China by 2025 makes this moves desirable. Furthermore, the middle class population in China is expected to double by 2025. With the factors there is the assumption that the population would desire the use of the products of Starbucks. For this to be practical, the company has begun its plan of opening 1,000 and more new locations in China, increasing the store count in China to 1,500, which would commence operation in 2015. It would account for about 32% of international units that would be open in between 2011 and 2015. Recent development shows in the first quarter of 2011, registration of stores was more than 20%, China Starbucks generated unit margins of 22% for Starbucks in the world (Starbucks, 2011). Furthermore, Starbucks shows determination to expand into the Indian market, to introduce its tea to the region of tea lovers, notwithstanding, a good population also drink coffee, the rise in the middle class has created this shift. “According to the Tea Board and Coffee Board of India, Indians consumed around 700,000 tonnes of tea in 2010 compared to 75,000 tonnes of coffee” (Starbucks, 2011). The statistics shows high demand of coffee and tea consumption an indication of market potential. Starbucks is not going alone on this, it partners with Tata Coffee.This arrangement was sign in January 2011, “a non-binding memorandum of understanding on collaborating for sourcing and roasting of high-quality green coffee beans in Tata Coffee's facility at Coorg, India. Tata Coffee, one of the leading coffee producers in India, owns the Eight O’Clock Coffee Co. in the US” (Starbucks, 2011). By affiliating with the local indigenous stores, it is foreseeable that Starbucks growth in international market is a success. Technology has changed the ways business are conducted, and Starbucks has tapped into the usefulness of this latest customer interface, where customers could make payment through their Smartphone’s, it launched in January 2011 the mobile payment device at all 6,800 of its stores and 1000 stores operated by Target in the United States. The use of Starbucks Card Mobile App is also another means of enhancing customer experience, where the display of a barcode could be used for purchase just as the Starbucks card. It is reported that about more than 3 million have used this method of payment (Starbucks, 2011). Threats Unlike every other product that is faced with rising prices, the price of coffee continue to rise, which this would affect the profit generated, it is noticed that the rise has been increasingly going higher in the past few years. Starbucks buys its products from various parts of growers around the world; some of these regions may face political changes that could hinder the delivery of product. The increase in shipping handling and regulations of foreign countries may also be a setback. Also to be considered is the labor cost that has consistently risen in the United States, labor demands for higher benefits, such as healthcare and other related benefits. All of these taken into consideration may slowdown the profit margin of the company. Slowdown in the US economy - The United States is experiencing poor economic times, as the economy is making gradual recovery; most people are out of work and may consider such product a luxury, whereby, the consumption rate is minimized. The pace of growth is seen to be slow, “Consumption expenditure which forms approximately 70% of the country’s Gross domestic Product (GDP), grew by only 1.7% in 2010 over 2009. Further, in February 2011, the personal consumption expenditure grew by 0.7% over the previous month. The growth in the personal consumption rate remained sluggish as customers continued to save more. The average personal savings rate increased to 5.8% in 2010 compared to 4.3% in 2009. Additionally, personal saving as a percentage of disposable personal income was 5.8% in February 2011, compared to 6.1% in the previous month. The unemployment rate which remained at 9.4% towards the end of 2010 is also one of the reasons for customers keeping their spending at low levels. Though the unemployment rate reduced to 9% in January 2011 and to 8.9% in February 2011, it still is significantly high and is expected to remain steady at around 8% in 2011. High unemployment rate adversely affects consumer spending as the consumers feel insecure about the future income prospects. Thus, slow economic growth in the US can pressurize Starbucks’s top line growth and profit margins” (Starbucks, 2011). The analysis shows the strength weaknesses and threat of the Starbucks corporation, in the overall review, the company has many potentials, its expansion into the global market, would not allow for much effect of low revenue if the economic situation of one country gets bad. It could balance its profits when revenues are derived from various stores worldwide. Also the affiliation of the Starbucks Company with local investors and stakeholders makes it possible to maintain market stability. Another important thing is that, the company revenue since inception is increasing substantially. Its strength and opportunities surpass the threat and weakness. Reference: Starbucks Corporation, (2011) SWOT Analysis. https://ehis.ebscohost.com/eds/pdfviewer/pdfviewer'vid=3&hid=22&sid=00d83dca-2e9b-4a15-b0fe-51f1c7f8a819%40sessionmgr