Starbucks_Strategic_Plan

Starbucks Corporation Date Submitted: November 20, 2006 ECON: 309-01 [pic] Stacey Belsterling Table of Contents Overview page page 3 Historical Overview page 4 Mission, Vision, Values and Objectives page 6 Internal Organization Analysis (SWOT) Financial position and capacity page 7 Organizational structure/culture page 8 Human resources page 9 Operations/production page 10 Product/service overview page11 Marketing page11 Research and development page 12 Management information systems page 12 IFE Matrix appendix C External Environment Analysis (SWOT) Economic page 13 Social, cultural, demographic and natural environment page 14 Technological page 15 Competitive page 15 International page 15 Political/Legal page 16 EFE Matrix appendix D Consumer profile page 17 Strategic direction page 17 Appendices A page 20 B page 22 C page 24 D page 25 References page 26 Overview Page Company name and name of relevant subsidiaries Starbucks Corporation Corporate Headquarters address 2401 Utah Avenue South Seattle, Washington 98134 Telephone number (206) 447-1575 Fax number (206) 447-0828 Web site address www.starbucks.com CEO name Orin C. Smith Annual sales volume 6.4 billion in global sales Total number of employees 115,000 Number of branch locations in the United States 5,393 company operated, 2,952 licensed Listing of international locations 1,357 company operated in Australia, Canada, Chile, China, Germany, Ireland, Singapore, Southern China, Thailand, U.K., Hawaii and Puerto Rico. 2,082 joint venture and licensed in Austria, Bahrain, Beijing, Canada, Cyprus, France, Greece, Hong Kong, Indonesia, Japan, Jordan, Kuwait, Lebanon, Macau S.A.R., Malaysia, Mexico, New Zealand, Oman, People’s Republic of China, Peru, Philippines, Qatar, Saudi Arabia, South Korea, Spain, Switzerland, Taiwan, Turkey, Bahamas, United Arab Emirates. NAICS/SIC numbers and description of core NAICS/SIC areas Core NAICS-311920 coffee and tea manufacturing Core SIC-2095 roasted coffee Secondary NAICS 453998 all other miscellaneous store retailers, except tobacco stores 311520 ice cream and frozen dessert manufacturing Secondary SIC 5999 miscellaneous retail stores 2024 ice cream and frozen desserts Historical Overview The original idea of creating the Starbucks coffeehouse giant came from three men from Seattle in 1971. They had a small business going and recruited a man by the name of Howard Schultz in 1982 because he had a great reputation in the business world. Schultz was just the addition that the company needed. He was on a business trip in Italy and took notice to the overwhelming amount of coffee bars there and how customers frequented the establishments more than once throughout the day. Howard immediately recognized this as a huge opportunity. He wanted to bring this kind of lifestyle to the American culture and did not take no for an answer when his business partners at Starbucks refused to take part in the offer. Howard Schultz opened a coffeehouse by the name of II Giornale in Seattle and sold Starbucks coffee there. He had great success and offered to buy Starbucks from the three owners in 1987, who agreed for the price tag of $4 million. Howard changed the name of his three stores over to Starbucks and did not look back after that point. He knew that Americans would eventually be turned on to the idea of the coffee bar scene, and in 1991 the firm turned over a profit. This same year, Schultz established an agreement CARE and in 1992 the firm was made public, starting out at $17 a share. Schultz made it a point to company own all its stores in North America, with the exception of the licensing agreements in airports. Then the company split into Starbucks North America and Starbucks International with the onset of Starbucks’ first joint venture in 1995 with Sazaby Inc., a company based in Japan. This started Starbucks’ move to the international market, while still keeping focus on expanding stores throughout America. Starbucks also began its music industry in 1995, selling compact discs. Starbucks began to introduce new products to its line, including the Frappuccino, a low fat iced coffee using light cream for the more health consciences coffee drinker. Another new product was Starbucks’ line of ice cream, to be sold in grocery stores with licensing agreements. By 1996, the Starbucks line of coffee ice cream and ice cream bars were the number one brand of coffee ice cream in the United States. This same year, the North American Coffee Partnership was established, joining Starbucks and Pepsi-Cola Company to sell bottled versions of the Frappuccino. By pushing expansion further, there were 2,135 Starbucks locations by 1999. The Starbucks International branch expanded to China, Kuwait, Korea and Lebanon. They also made a big step in their tea industry, acquiring Tazo teas. This was a big step for Starbucks because prior to this they did not have a good grip on the tea industry and with expansion to tea drinking countries such as China, they needed this strong addition. The Asian market is one that is proving to be important right now for Starbucks, so another big advancement came in 2001 when the 300th store was opened up in Japan. Other events in 2001 included charitable moves on the part of Starbucks. The Starbucks Foundation awarded grants for schools and community organizations across North America totaling $4.2 million. The Starbucks Company along with its partners also contributed $1.2 million in funds for the tragedy of September 11th. This year was also a good year for improving customer relations with the firm, supplying high-speed wireless internet service in retail stores. Starbucks further expanded to Switzerland, Israel and Austria, bringing their total location count to 4,709. Some domestic moves for Starbucks came in 2004. The firm reached an agreement with Jim Beam Brands to further their product line expansion into the coffee-liqueur branch to be supplied in the United States. The Hear Music media bar was launched and a licensing agreement was signed with Borders Books and Music stores to distribute Starbucks coffee in the 400 stores across the United States. Mission Statement Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow. Vision Starbucks wants to become as large internationally as they are in the United States, developing 20,000 establishments domestically and 20,000 establishments internationally. Values Starbucks is committed to product quality, diversity, employee and customer relationships and improving the environment. Objectives Become the foremost retailer of coffee and coffee products worldwide. Internal Organization Analysis Financial Position and Capacity Starbucks has 383,721,055 shares outstanding with only 13, 900 shareholders in the company. Of the shares already bought, 200,116,611 of them are owned by officers or directors. The annual net revenue of Starbucks is in excess of 20% since 2004. In September 2006, Starbucks plans on adding 2,400 new locations in 2007. The return on equity is expected to reach 25% in 2006. Starbucks expects earnings per share to be up to 25% this year. Starbucks has had 177 months straight of positive store sales growth as well as 15 years which included growth of 5% or higher. Annual sales for Starbucks stores in the United States alone average over $1,000,000 per store in 2005. In 2005, 84% of Starbucks’ sales came from the United States, while the remaining 16% came from international locations. In 2005, 84% of the company’s sales came from company-operated retail, while the remaining 16% came from specialty operations. In 2005, Starbucks’ net revenue was $6,369,300,000, which was an increase of $1,075,000,000 since the previous year. The net income for 2005 was $494,500,000, which was an increase of $103,900,000 since 2004. Net profits for 2005 were 7.8% of the net revenue, which was an increase of .4% since 2004. The one year sales growth was 20.3%, and the one year income growth was 26.6%. In 2006 Starbucks had earnings per share ratio of .72, which is good because for every share of stock they have, they make $.72 on each share. Starbucks also had a price-earnings ratio in 2006 of 47.59, which is also good because it makes Starbucks more attractive to potential stockholders on equity markets. The current ratio for Starbucks in 2006 was 1, which seems to be good for the company because their liabilities do not exceed their assets. The quick ratio was .5 in 2006, which isn’t as good as the current ratio, most likely because inventory is not included. The Debt to Equity ratio was .08%, which also counts as a positive for Starbucks because this shows that Starbucks doesn’t use much credit at all, and because of this, not as much debt. The total assets turnover was 2, which means Starbucks’ sales account for twice as much as its assets. Finally, the inventory turnover was 10.9 in 2006, which is good because it means that they sell their products 10.9 times more than they keep in inventory. Organizational Structure Starbucks is operated by a few key employees; the two major positions are President and CEO, and the Chairman. Jim Donald has carried the title of President and CEO of Starbucks since 2005, and has also been a Director of the company since April 2005. Jim Donald joined Starbucks in 2002 as President, North America. Another important face to Starbucks is Howard Schultz. He is not only the Chairman of Starbucks, but he also founded the company. Mr. Schultz served as Chairman of the Board and CEO from 1985-2000, where he then served as Chief Global Strategist from 2000-2004. Two other important men towards the organizational structure would be Martin Coles and Jim Alling. Martin Coles is President, Starbucks Coffee International, and Jim Alling is President, Starbucks Coffee United States. Following these few top positions are the “partners” or employees of Starbucks. They strive to exceed the expectations of every one of the customers to achieve a delicate balance between touching people’s daily lives while building a thriving and multifaceted business. The most important key factor to Starbucks organization is the farmers who produce the high-quality coffee bean. Starbucks is reducing their overhead price by using energy-efficient equipment or lighting. This involves initial investments but in return delivers long-term environmental and cost-saving benefits. However, Starbucks had decided to increase their prices of selected drinks in company-operated stores. This increase went into effect October 3, 2006, having a $.05 increase or an average of 1.9%. The reason for the increase is because costs, including fuel and energy, are going up. A $.50 increase has also affected coffee beans per pound, an average of 3.9%. Although, this is the first price hike in two years for drinks, and nine years for the coffee beans, the quality of the coffee drinks will still be the same. Human Resources Starbucks’ top employees consist of three major sectors, executive board, non-executive board, and senior management. Mentioned above was Executive Board President and CEO, Jim Donald, Non-Executive Chairman, Howard Shultz, and Senior Management Executive VP, Chief Financial Officer, Chief Administrative Officer, Michael Casey. There are many more co-workers of the few listed that fall under Non-Executive Board and Senior Management, but all hold different job titles. They all range in age, including some who retired and came back into the business. Most joined Starbucks in the early 1990’s, and a few in the late 90’s early 21st century. Starbucks is controlled under the Compensation and Management Development Committee, also known as the “Committee”. They are responsible for working with management to establish suitable compensation practices for the “Company” (Starbucks Corporation), and to determine the compensation and other benefits for “officers” of the Company. The Committee is also responsible for overseeing the development and implementation of management development plans and succession planning practices ensuring that the Company has sufficient management depth to support their continuing growth and the talent needed to perform long-term strategies. The Committee is based on three members, each shall be a member of the Company’s Board of Directors, meet the independence requirements of The Nasdaq Stock Market, Inc., qualify as a “non-employee director” (under Rule 16b-3 promulgated under the Exchange Act), and also qualify as an “outside director” (under Section 162(m) of the Internal Revenue Code). The Board of Directors can exercise the removal or appointment of a member with or without cause of the Committee and a Chair on the recommendations of the Nominating and Corporate Governance Committee. The Board of Directors then shall appoint a new member(s) if there is a vacancy on the Committee that reduces the number below three (explained above) or if the Board of Directors determines that the number of members on the Committee should be increased. The dominant value that not only the top managers but middle managers and partners carry out is diversity. Starbucks views diversity as “all the ways we differ and are the same”. This concept encompasses, but is not limited to, human differences with regards to race, gender, ethnicity, culture, and physical ability. Starbucks also consider issues like style, tenure, and their individual roles within the company. Operations/Production Starbucks objective is to establish themselves as the most recognized and respected brand in the world. By doing this, Starbucks purchases and roasts high-quality whole bean coffees and sells them together with rich-brewed Italian style espressos, pastries, and confections. Customers find themselves walking into a comfortable and upbeat meeting place with welcoming faces and first-rate music playing. Starbucks goal is to build a personal relationship with each customer, rekindle America’s love affair with coffee, and bring romance and fresh flavor back to the brew. Along with the high-quality coffee, Starbucks uses high-quality, up to date equipment to compete with today’s competition. They also sell espresso makers, coffee makers, coffee presses, and grinders online for their customers to enjoy a great cup of coffee or espresso in their own home. Starbucks strives to constantly create new tastes and temptations to surprise and delight their customers. Starbucks facilities supply wireless broadband Internet throughout North America, offering T-Mobile HotSpot in the U.S. and Bell HotSpot in Canada, giving their valued customers a work friendly environment. The newest Starbucks edition is T-Mobile Wi-Fi, where customers are able to watch complimentary Wi-Fi content from Hear Music. In the past year Starbucks purchased renewable wind energy to offset their largest portion of the total GHG emissions used. This matches up to 5% of the energy needed to power their company-operated stores in Canada and the United States, offsetting emissions of 34.2 million pounds of CO2. Starbucks is ranked number 22 in the largest purchasers of green power in the United States. Starbucks has been working with U.S. Green Building Council for several years now developing LEED (Leadership in Energy and Environmental Design) to update their facilities to a more economical coffeehouse. The measures Starbucks will engage in consist of numerous new designs. Cabinetry made from 90% post-industrial material, efficient lights that use less energy, paints with lower amounts of volatile organic chemicals, flooring tiles made from 70% post-consumer recycled content, 10% post-industrial content, and store designed to capture available natural daylight. Starbucks is expanding their stores all over the world, with roughly 12,000 Starbucks coffeehouses now. In the 50 states plus the District of Columbia there are 5,393 Company-operated coffeehouses, and 2,952 licensed locations. International locations consist of 37 countries out of the United States, Company-operated: 1,357 coffeehouses, and Joint Venture and Licensed locations: 2,082. This past year Starbucks opened 1,672 stores on a global basis, ahead of the targeted 1,500 stores. Starbucks core is not only growing and building the foundation for future success, but also increased their revenue growth by 20% resulting in record revenues of $6.4 billion. Starbucks long-time goal is to reach 40,000 stores (20,000 in the U.S., and 20,000 internationally), opening 5 stores a day. Product/Service Overview Starbucks is a specialty coffee retailer and also specializes in other areas of products. Beverages include brewed coffee, espresso, iced beverages, packaged coffees, Tazo teas, juice, soda, and coffee liqueur. Foods include sandwiches, salads, pastries and ice cream. Non food items include coffee machines, coffee supplies, coffee preparing products for home use, compact discs, games and gift cards. Marketing Starbucks has an extremely inexpensive marketing strategy when it comes to product advertisement. The firm mainly relies on word of mouth advertising, leaving it to satisfied customers to hype up the company to friends and co-workers. This cheap approach leaves more money for activities such as new product launches. Starbucks has many channels of product distribution, all of which can be broken down and placed into three main categories: company operated retail stores, specialty licensing and foodservice and other. Company operated retail stores are the main sellers for Starbucks, accounting for almost 84% of total revenue for 2005. This channel of distribution includes all of the stores that are spread throughout the world that customers visit on a daily basis. These stores are set up in high profile, high traffic areas with high populations and usually high incomes. They are many times clustered together in close proximity. The specialty licensing channel includes uses third parties with license agreements with food service companies, grocery stores, warehouse clubs, direct-to-consumer channels and joint ventures. These channels resulted in about 11% of revenue in 2005. Starbucks gets its products out to the consumer with these channels in ways that it cannot with regular retail stores. Grocery stores and warehouse clubs stock bottled drinks and sell them for Starbucks. Starbucks also enters joint ventures and only has to assume half the risk as the company would with a wholly owned subsidiary and can get its product overseas. The company receives company equity as well as royalties with this approach. The foodservice and other department returns the least amount of revenue, amounting to about 5% in 2005. This distribution channel is also important though. It gets the company’s ground coffee out to foodservice companies who are involved with businesses, hotels and restaurants. In this way, both Starbucks and the third party company benefit from the gourmet products Starbucks has to offer. This division is also where Starbucks entertainment falls, including the company agreement with XM Satellite Radio. Agreements like the one with XM are important because it is just another way that the Starbucks name gets out. Research and Development Starbucks has launched the first-ever hot paper cup to contain 10% post consumer fiber in Canada. This idea has been under development since 2001 working with pulpmaker Mississippi River Corp., paper mill MeadWestvaco, and Solo Cup. It didn’t get FDA approval until 2004 paving the road for similar businesses to create the eco-minded packaging. In January 2006, the eco-friendly cup launched at selected locations and by August of this year will be in all United States and some Canadian stores. This new cup marks the first time post consumer recycled content developed by Mississippi River Corp. will be in direct contact with food. Starbucks’ attempts in the previous years failed because the cup was either not strong enough to hold the beverage, or the cup put off an odor. With the new post consumer fiber cup there will be a positive impact on the environment. Switching to the new cup will result in statistics calculated to saving five million pounds of paper a year, equivalent to 78,000 trees. The cup will decrease solid waste by 113 kilograms, save enough energy to supply 53 homes for a year, and enough water to fill 6 Olympic-sized swimming pools in the first year. Starbucks is working to embed corporate social responsibility and innovation as culture and values into its core business operations. This includes buying, selling, and using environmentally friendly products, and also developing new and innovative solutions to bring environmental change such as adhering to environmental standards in designing and building stores. To also limit waste Starbucks encourages their customers to bring in their own commuter mug by offering a $.10 discount. Management Information Systems One way that Starbucks is utilizing the future need for information systems is by using the internet to sell their products. A consumer can buy things such as packaged coffee and coffee brewing supplies online, which reduces costs through low inventory and faster delivery. The use of information systems has also led to an increase in communication between executives and store owners, decreasing decision making time and improving overall quality. External Environment Analysis Economic An economic opportunity and threat to Starbucks is the United States economy. Over 83% of revenue for Starbucks comes from the United States and it is a good thing because of the present wealth of our country. The threat comes from the fact that our economy is in a decline right now and that brings down the ability of consumers to purchase Starbucks coffee at their high prices. This same threat is a big problem in China because of the vast poverty there. Social, Cultural, Demographic and Natural Environment One trend going on in America is that people are now living longer than ever before. More people are being born and average life span is also increasing all over the world. The Japanese are the longest living group of people and there is an enormous amount of the world’s total population in Asia. This also means that the Baby Boomer generation, the generation with the highest current population in the United States, will have a longer average life span. This generation has a large interest in restaurants and also has a trend of moving out of northern sections of the United States and into the southern sections, mainly due to the warmer climate. Another trend is that more and more Americans are buying products online because of the convenience factor of this type of purchase. There has also been a weather trend going on, which many point to global warming, of an increase in violent storms. A social opportunity Starbucks has is to increase marketing towards the Baby Boom Generation because they have the highest generation population in America. A threat they are looking at though is the fact that they are marketing instead to younger crowds, including college graduates, college students and even high school kids. An example of a cultural threat is that the Chinese prefer tea to coffee. Although Starbucks does offer Tazo teas, their main concern is coming out with new flavors of coffee. If Starbucks wants to proceed with developing a large business in China, they are going to have to put more research into their tea products. A cultural opportunity is Starbucks’ move towards selling coffee making products online. With more Americans buying products online, they can take advantage of this trend by further development of products available to buy on the internet. A demographic opportunity is the fact that the Baby Boom Generation is acquiring a preference for the southern states. This gives Starbucks the opportunity to focus on building up stores in this region of America because they know where the majority of Americans are going to be living in the future. An environmental threat is the increase in violent storms. If coffee bean crops become damaged by these storms, Starbucks could suffer with coffee bean shortages which would lead to an increase in their purchasing price and higher prices on their products. Technological With today’s technology it is crucial to be up to date with everything especially the Internet. Starbucks started out offering wireless broadband Internet in the coffeehouses, today they have collaborated with T-Mobile HotSpot in the United States, and Bell HotSpot in Canada, and now introduced Wi-Fi. With Wi-Fi customers are able to watch complimentary movies, and music through Hear Music. Starbucks also has been working with Apple announcing the availability Starbucks Hear Music catalog on the iTunes store. This gives iTunes users the opportunity to preview, buy, and download a vast variety of Starbucks popular Hear Music titles. Competitive A major competitive threat Starbucks is facing is intense industry competition. There are many other specialty coffee brands that sell their products through supermarkets and retailers much the same as Starbucks does. Cafe Nero is a strong retail competitor of Starbucks and Dunkin’ Donuts is also a top competitor, along with McDonald’s. For retail store operations, Starbucks is a price leader which increases Starbucks’ profitability as opposed to competitors profitability. International In the past year, China has become a large topic in headquarters. Executives are not talking about marketing campaigns or new items on the menu, but about the “China Club”. This establishment consists of more than 300 senior company officials, including Starbucks Chairman Howard Schultz. In 2005 China had accounted for 10% of Starbucks sales making them the firm’s largest market outside of North America. Starbucks success in being accepted in this small time frame gives them plenty of opportunity to opening numerous stores all over Asia in the future. In the future, Starbucks goal is to establish new stores in 40 countries by the fiscal 2007. The few listed countries are Brazil, Russia, India, and Egypt. Starbucks International growth strategy will balance accelerated development in-line with long term retail potential of existing countries, while entering several promising new markets. Political & Legal Many coffee farmers around the world are going into debt and losing their jobs as a result of very low coffee prices. The Free Trade act is supposed to be a helpful tool for farmers so that they can get more money back than the cost of production, which doesn’t happen in most cases, resulting in numerous coffee farmers going into debt and losing their jobs. Farmers only sell approximately 20 % of their coffee at the Free Trade price of $1.26 per pound. The rest of the coffee is sold at the world price, which is a result of deficiency in demand. The only reasonable solution to ease the situation of lack of demand and provide adequate profits for free trade farmers would be for coffee companies like Starbucks to lower their coffee prices so that there is a higher demand for coffee. Instead Starbucks Corporation keeps the excess money, made from their high prices for themselves, leaving poor farmers in debt. Starbucks Corporation has had some people that are against their choice to defy the free trade act. Since the rise of this topic, Starbucks has tried to appease their consumers and the market by purchasing more certified Free Trade Coffee. Although Starbucks has made an effort to pacify the critics of their non-free trade coffees, it is a extremely mild effort. Of all the coffee that Starbucks offers, a mere 3.7% of their coffee is certified free trade coffee. They infrequently offer Free Trade coffee as their coffee of the day, which is a policy that was created by Starbucks Corporation. Another situation that leaves a bad taste in consumer’s mouths is the fact that they use milk in their products that comes from cows that are injected with bovine growth hormones. These genetic hormones are called rBGH or rBST. Nearly every industrial country has banned the use of these hormones except the United States. The use of these hormones not only hurt the health of the cows but they also can cause damage to humans. If Starbucks were to halt the use of the milk from these genetically altered cows, the dairy industry would have to reflect on the use of these hormones on bovine since Starbucks contributes considerable to the dairy industry in America. Consumer Profile Starbucks in general targets people with an active career. These types of people usually have money but lack of time. For instance, many people don’t have time to wait for their coffee to brew at home in the morning, so they chose to visit Starbucks instead and pay a premium price for gourmet coffee. Since they offer a variety of pastries and confections, people can go there and try something new each day. Many people prefer the ambience of the Starbucks atmosphere itself and prefer to go there instead of any other coffee shop. Another reason that many people chose Starbucks is because they are around many similar types of people, and feel more comfortable in this type of setting. These types of people are often trend-setters who belong to the “life-style” generation. They enjoy different variations of blended beverages as well as gourmet breakfast and snack foods. The bottom-line for Starbucks consumers is that they are willing to pay more for the quality products and atmosphere that Starbucks provides. They are price-indifferent and aren’t deterred because of premium-priced products, because they find value in them. Strategic Direction The main objective of the last four or five years for Starbucks has been growth, especially internationally. The firm is extremely reliant on the American market, with 84% of sales in 2005 taking place in North America. The problem with this is the economy in the United States is in a decline and there are so many options left for Starbucks to take advantage of internationally. The long term goal is for Starbucks to establish 20,000 stores, both domestically and internationally, totaling 40,000 stores in the end. The firm seems to be on its way in North America to achieve that goal but they were moving a little slower internationally in the past, that is until it became a main focus. Strict goals have been set such as the goal of opening 1,500 stores globally in 2005. This challenge was met with the opening of 1,672 new stores. The new goal is to open 1,800 stores in 2006 and it remains to be seen if this will be achieved. Vertical integration has been a main focus of Starbucks, concentrating on both forward and backward vertical integration. Forward vertical integration, or the gaining of ownership or control over a firms distributors or retailers, can be seen in many of Starbucks domestic and international moves. When Starbucks enters licensing agreements with companies that sell their products, the firm likes to have strict demands over the quality of their product being sold to ensure that the integrity and standards of the Starbucks name are upheld. Starbucks does not just deal out their products to retailers. They arrange partial ownership in the company and stay close to the way operations are performed. This type of activity is seen in licensing agreements with grocery stores as well as with Borders Books and Music stores, a notorious book retailer with over 400 locations throughout the United States. Backward vertical integration is another important integration strategy Starbucks is involved in. This strategy of gaining ownership over a firm’s suppliers can be seen in examples of the firm acquiring ownership over prestigious coffee bean fields to ensure that no other firm can match their quality of coffee. One major step in this integration was accomplished in 1992 when Starbucks outbid European companies for the Narino Supremo Bean crop located in Volcano Galero. This crop was recognized for producing the best coffee beans in the world and the purchase of the entire crop guaranteed that no other firm would be able to use the bean to possibly match the quality Starbucks brings to the table. Market development has been an important intensive strategy for Starbucks and it is becoming even more important today. The firm is trying to end being so reliant on the American market and go more international with their stores. They are developing new markets all around the world with their present coffee, tea, ice cream and entertainment products. The firm’s major development goals are focused on China right now, which they believe will become their biggest market other than the United States in the future. With only a little over 200 stores in China, the firm is pulling in huge profit and has plans of continuing expansion to China, as well as Hong Kong and Taiwan. The company’s narrow product mix is one of their main internal weaknesses and it is something they hope to change with related diversification. The main product of Starbucks is obviously beverages but research and development is working towards new innovations in their coffee making equipment as well as their music industry to gain more revenue from these branches of the industry to compliment their firm grip on the coffeehouse industry. Appendix A |As Reported Annual Income Statement |10/02/2005 | |10/03/2004 | |09/28/2003 | | |Currency |US Dollar | |US Dollar | |US Dollar | | |Auditor Status |Not Qualified | |Not Qualified | |Not Qualified | | |Consolidated |Yes | |Yes | |Yes | | |Scale |Thousands | |Thousands | |Thousands | | | | | | | | | | | |Company-operated retail |5,391,927 | |4,457,378 | |3,449,624 | | | |Store operating expenses |2,165,911 | |1,790,168 | |1,379,574 | | | |Operating income (loss) |780,615 | |610,117 | |424,713 | | | |Interest & other income, net |15,829 | |14,140 | |11,622 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |Earnings before income taxes |796,444 | |624,257 | |436,335 | | | | | | | | | | | |  |Weighted average |7|  |7|  |7| | |shares outstanding |8| |9| |8| | |- basic |9| |4| |1| | | |,| |,| |,| | | |5| |3| |5| | | |7| |4| |0| | | |0| |6| |6| |Currency |US Dollar | |US Dollar | |US Dollar | | |Auditor Status |Not Qualified | |Not Qualified | |Not Qualified | | |Consolidated |Yes | |Yes | |Yes | | |Scale |Thousands | |Thousands | |Thousands | | | | | | | | | | | |Operating funds & interest bearing deposits |62,221 | |219,809 | |- | | | |Accounts receivable, gross |193,841 | |142,457 | |119,257 | | | |Prepaid expenses & other current assets |94,429 | |71,347 | |55,173 | | | | | | | | | | | | |Equity & other investments |- | |- | |144,257 | | | | | | | | | | | | |Other assets |72,893 | |85,561 | |52,113 | | | |Accounts payable |220,975 | |199,346 | |168,984 | | | |Accrued compensation & related costs |232,354 | |208,927 | |152,608 | | | |Accrued occupancy costs |44,496 | |65,873 | |56,179 | | | | | | | | | | | | |Long-term debt |2,870 | |3,618 | |4,354 | | | | | | | | | | | | |Common stock |90,968 | |956,685 | |959,103 | | | |Other additional paid-in capital |39,393 | |39,393 | |39,393 | | | |Retained earnings (accumulated deficit) |1,939,359 | |1,461,458 | |1,069,683 | | |  |Accumulated other |20,914 |  | | |comprehensive income | | | | |(loss) | | | |Strengths | |1. Brand image |0.2 |4 |0.8 | |2. High profitability |0.11 |3 |0.33 | |3. Global locations |0.13 |3 |0.39 | |4. Not much long-term debt |0.08 |3 |0.24 | |5. Fortune Top 100 Companies to Work For in 2005 |0.07 |3 |0.21 | |Weaknesses | |6. Reliance on U.S. market |0.15 |1 |0.15 | |7. Narrow product mix |0.09 |2 |0.18 | |8. Low revenue per employee |0.06 |2 |0.12 | |9. Don’t accommodate poorer countries |0.11 |1 |0.11 | |Total |1.0 | |2.53 | Starbucks has an IFE matrix weighted-score of 2.53. Because a score of at least 2.5 indicates an average internal position, Starbucks is above average. Their score of 2.53 means that they are .03 points above the average, which means that they show a slightly stronger than average internal position. Appendix D EFE Matrix |KEY INTERNAL FACTORS |WEIGHT |RATING |WEIGHTED SCORE | |Opportunities | |1. Entry into new markets |0.20 |4 |0.80 | |2. New stores |0.15 |4 |0.60 | |3. Growth in coffee market |0.12 |3 |0.36 | |4. Co-branding with other manufacturers of food and |0.14 |4 |0.56 | |drinks | | | | |Threats | |5. Growing competition |0.18 |1 |0.18 | |6. Volatile coffee markets |0.08 |2 |0.16 | |7. Unstable U.S. economy |0.08 |2 |0.16 | |8. Decline in popularity of coffee |0.07 |2 |0.14 | |Total |1.0 | |2.96 | Since the EFE matrix total score is 2.96. This score shows that Starbucks has an external position that is .46 above the average of 2.5. References Credeur, Mary Jane, (2006, October 5’). “Starbucks Raises Target to 40,000 Stores,” Chicago Tribune http://www.chicagotribune.com/business/chi-0601005starbucks-story,0,1638608.story'coll=chi-business-hed Datamonitor, (2006). Starbucks Corporation Retrieved September 28, 2006 from EBSCOhost database. Global Exchange (April 1, 2005). “Starbucks Campaign.” October 10, 2006 http://www.globalexchange.org/campaigns/fairtrade/coffee/starbucks.html Holmes, Stanley. (2006). What’s Behind Starbucks’ Price Hike. Business Week Online, Retrieved October 3, 2006 from EBSCOhost database. Mergent Financial Online (2006). Starbucks Financial Retrieved on October 1, 2006 from http://www.mergentonline.com/compdetail.asp'company= 1&company_mer=73271&type=financials Organic Consumers Association “Protest Starbucks.” October 10, 2006 http://www.organicconsumers.org/starbucks/index.cfm Perry, Nancy O. “Strategic Alliances: For Profit and Non-Profit Partnerships.” Harvard Business School Quarterly Report on Research, Vol. III, (IV). Starbucks.com (2006). www.starbucks.com