Starbucks Coffee Business

Starbucks Coffee Business Introduction Starbucks started its coffee outlets in 1971 at Seattle. The founders of the company included Jerry Baldwin, Zev Siegel, and Gordon Bowker. Howard Schultz joined Starbucks in 1982 as the heading of marketing and overseeing retail division (Thompson and Gamble, 1997). Schultz had a different vision for the company.Advertising We will write a custom essay sample on Starbucks Coffee Business specifically for you for only $16.05 $11/page Learn More He wanted to create a community of coffee consumers. Under Schultz’s leadership as the CEO and chief global strategist, Starbucks has become the world’s largest coffee retail outlet. It is gaining international presence in most emerging economies due to reorganization of the company’s business strategy since 1987. Starbucks has grown as the premier coffee retailer with happy employees, quality coffee products and satisfied customers. The report focuses on the Starbucks’ Global Quest 2006: Is the Best Yet to Come? in order to develop a strategic management proposal for the company’s board of directors. The proposal focuses on the future of the company through an economic assessment, marketing assessment plan, a financial plan, an organizational structure recommendation, and supporting rationale. An Economic Assessment Today, Starbucks is a strong company in the US and other regions as shown through its success. Hence, the company needs to expand to other emerging markets. This expansion would require understanding of economic factors in the coffee retail business. The coffee retailer would be able to seize opportunities in emerging economies early enough to make it a market leader. The BRIC countries would be critical for the Starbucks’ global growth in years ahead because of the large number of a growing middle class with disposable incomes. The expansion will ensure that Starbucks gets new customers, follows its global customers, and become s cost-effective in its operations. Although the company is already in some parts of the global market, it will have to consider economic factors as it expands into other BRIC countries because they could have both short-term and long-term effects on the Starbucks’ global quest. Specifically, Starbucks will evaluate inflation rates, tariffs, interest rates, monetary policies, economic growth, freedom of conducting business, and exchange rates.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More In addition, the company will also have to evaluate unemployment rates in foreign countries, qualified labor, and labor costs. Still, the company will have to focus on changes in political leadership of various countries because these changes in leadership may or may not encourage foreign investments due to rigid policies. Starbucks will evaluate entries into new markets. It shall have t o consider a Greenfield foreign direct investment or a strategic alliance. Foreign entries would be easier through strategic alliances rather than a Greenfield investment. In this regard, Starbucks would evaluate what other partners can bring to the business. Local firms already understand the local market, culture, and business activities than Starbucks. Starbucks will have to consider reputable firms in the coffee retail business, with good brand names, and firms that show strong relationships with coffee consumers. Starbucks will also have to review its position in the global retail coffee market and available opportunities. The global expansion presents significant opportunities for the company in terms of revenue growth and customer retention. Starbucks can take the advantage of the growing middle class and create communities of coffee consumers around the globe. The BRIC countries also have growing populations with large numbers of coffee consumers. On this note, it must focus on India and Brazil. However, Starbucks must account for consumers’ preferences in these countries. The international coffee prices have risen considerably. This has attracted other big brands like McDonald’s into the retail coffee business. Starbucks must face fierce future competitions and fluctuating coffee supplies in the global markets. Any interruption could have negative impacts on the brand’s name. In other words, the company must have reliable suppliers in order to cater for its globe strategies and a huge number of coffee consumers. The study shows that the Asian market is growing rapidly, particularly China. Starbucks must focus on expanding its outlets to other areas within China. This shows that economic elements favor the company’s growth strategies.Advertising We will write a custom essay sample on Starbucks Coffee Business specifically for you for only $16.05 $11/page Learn More Although Starbuck is likely to fac e competitions in the future, effective global strategies will ensure that the company maintains its leadership position in new markets. Starbucks would achieve competitive advantages through its expertise, employees, and product positioning strategies. Conversely, Starbucks must note that international markets could be repulsive against high prices. On this note, the company will have to review its premium coffee prices in order to meet the prevailing economic conditions of various countries. The quest for a global strategy also involves considerable costs. The company will have to evaluate whether it is cost-effective to venture into some globe markets. It will also review entry requirements and any factors that could hinder its smooth operations. A Marketing Assessment Plan From the Starbucks’ global quest, the growth has been impressive. The company’s goal would be to maintain its image in all markets in which it shall operate. Starbucks has recognized that it has a huge growth potential in oversea markets. For this reason, the company should accelerate growth, promote its brand, maintain its global leadership position, and become a globally respected brand. The company must formulate new growth strategies and a marketing plan for the global market. Starbucks must look for strategies that would allow it to continue to explore new opportunities in foreign markets. For instance, it can acquire small coffee shops in foreign countries and develop its brand. This strategy may help the company to avoid negative publicity or total rejection as witnessed in Primrose Hill, London (Kotha and Glassman, 2003). The market analysis shows that Starbucks commands a large share of the market. Coffee retail business is likely to improve globally, and this presents a good opportunity for the company to grow too. The growth may even be resilient to changes in economic situations like recession. The company must continue to provide great services to its consumers in order to maintain them and attract new ones.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Starbucks will have to consider new products to cater for consumers who do not prefer dark roasted coffee. This would increase its customer base and revenue growths. However, this process requires a thorough market study. In the global quest, the company must maintain the design of its coffee outlets and its brand in order to provide consumers with the same environment available in the US. The quest for the global market will require the company to differentiate its market. Marketing segmentation would ensure that Starbucks has different products for various coffee consumers. Marketing segmentation would ensure that the company caters for low-income earners, students, and other consumers who may not be able to afford premium coffee. This is a strategic marketing strategy in new markets, which would ensure that Starbucks draw new consumers from various segments of the market. The company will formulate new target market strategies in new locations. Starbucks must never forget that it will expand into emerging economies in which high prices may not attract its target consumers. The company will have to review its prices downwards in order to accommodate these segments. Many consumers would like to have premium coffee, but high prices have been major hindrances. The company should diversify with regard to locations in order to accommodate majorities. Emerging markets have discerning coffee consumers, who may prefer good coffee but do not go for premium coffee due to pricing. Starbucks will conduct a constant industry analysis in order to determine the rate of growth, competitions, and changes in external conditions. From the study, the coffee industry has grown steadily as global sales and revenues rise. The company must study the international patterns of coffee consumption in various locations in which it intends to run new outlets. Although Starbucks holds the leading position in the retail coffee market, the company must understand impacts of competition on i ts business growths. It must understand the fraction of the market segment that buys from its competitors. In new markets, Starbucks will outdo the small local brands. Although they present competition challenges, small local coffee outlets shall retain a small share of the market because small brands in foreign markets do not present biggest threats to Starbucks. The case study shows that Starbucks has been able to establish close and intimate relationships with its customers. The company has been able to experience such a growth because of its employees, who have established close relationships with customers. Starbucks believes that happy employees lead to happy customers, increased revenues, and growth. In this regard, the company should focus on quality coffee and services and implement favorable employment policies in all its global market outlets. The company believes that happy employees are critical for its success and competitive advantages. Therefore, the company must con tinuously review its employment practices and improve them if necessary. This is a culture of empowering employees in order to ensure that they are productive. Starbucks employees in other parts of the world will have to receive generous compensations, training, and employee stock ownership just like others in the US. The company will also focus on multiple channels of product distribution. In other words, Starbucks must rise above its stand-alone retail outlets and offer new areas of distributing coffee to its consumers. Hence, it must consider other popular spots like supermarkets, airports, banks, and office buildings among others. The company will have to seek for strategic partnerships with service providers, suppliers, grocery stores, airlines, and other firms, which can distribute coffee to consumers throughout their designated areas. The company will also improve its corporate social responsibilities, particularly in areas in which it sources its coffee. This is important fo r reducing the notion that Starbucks pays poorly to farmers (Kotha and Glassman, 2003). It will improve the focus on environments, workers’ welfare, and children’s rights. Any controversies about the company’s interactions with these critical parts of the supply chain could damage its global reputation. For instance, there should be no negative publicity that the company exploits farmers while making huge profits from the same coffee. On this note, the company must improve its public relations and manage bad publicity, particularly by paying attention to the media. The company will have to focus on the use of technology to retain its customers. In the future, many consumers will use technologies and social media for interacting and conducting online purchases. Online platforms will drive customers’ feedback and by extension customer service. They will be able to post and criticize the company openly. The company will have to integrate effective online pla tforms and loyalty programs to drive customers to its outlets. Online platforms will also act as distribution channels for Starbucks. In addition, these are also strategies for improving customer loyalty, growing the brand, providing excellent values, and customer convenience. They also result in increased revenues and profits for shareholders. Technology will be a differentiating tool for Starbucks. The social media, mobile apps, loyal cards, and e-gift cards will differentiate the company and drive the global growth for Starbucks (Starbucks Unveils Accelerated Global Growth Plans, 2012). On the same note, Starbucks will use technologies to enhance efficiency in product delivery and develop quality products. It will invest in advanced coffee equipment. These are coffee machines with precise technologies to maximize the coffee flavor at an ideal temperature during preparation. Technologies will create competitive advantages for Starbucks because not many competitors will have the fi nancial strength required to acquire such equipment. They will enhance product management and operational details of the company. A Financial Plan Today, Starbucks’ business and financial activities are healthy. This gives the company an opportunity and a better position to execute its global strategies. The company generates enough revenues and profits, which can support its growth plan in all continents. This would make the company one of the most successful coffee retails globally. Table 1: Income Statement (2009-2012) – these growths over the years indicate that the best is yet to come for Starbucks 2012 2011 2010 2009 Period End Date 09/30/2012 10/02/2011 10/03/2010 09/27/2009 Stmt Source N/A 10-K 10-K 10-K Stmt Source Date 09/30/2012 11/16/2012 11/16/2012 11/22/2010 Stmt Update Type Original Updated Updated Updated Currency Code USD USD USD USD Â   Total Revenue 13,299.5 11,700.4 10,707.4 9,774.6 Â   Cost of Revenue 5, 813.3 4,915.5 4,416.5 4,324.9 Gross Profit 7,486.2 6,784.9 6,290.9 5,449.7 Â   Selling, General and Administrative 4,719.3 4,344.2 4,176.5 3,878.1 Depreciation, Amortization and Depletion 550.3 523.3 510.4 534.7 Special Income/Charges 0.0 0.0 53.0 332.4 Other Operating Expenses 429.9 392.8 279.7 264.4 Operating Expenses 5,699.5 5,260.3 5,019.6 5,009.6 Â   Operating Income 1,997.4 1,728.5 1,419.4 562.0 Â   Net Interest Income -32.7 -33.3 -32.7 -2.1 Other Income/Expense, Net 94.4 115.9 50.3 0.0 Pretax Income 2,059.1 1,811.1 1,437.0 559.9 Â   Provision for Income Tax 674.4 563.1 488.7 168.4 Minority Interest 0.9 2.3 2.7 0.7 Net Income 1,383.8 1,245.7 945.6 390.8 Â   Dividend Per Share 0.68 0.52 0.23 0.00 Tax Rate 0.327522 0.310916 0.340084 0.301144 Â   Basic EPS 1.83 1.66 1.27 0.53 Diluted EPS 1.79 1.62 1.24 0.52 (Starbucks Corporation, 2013) Starbucks will expand globally in order to succeed and grow its balance sheet, revenues, and profits. However, this process will bring about many issues, specifically financial. Starbucks will have to focus on global budgeting, forecasting, planning, and reporting. In addition, the company will also have to conduct financial risk assessment and promote global accountability (Castellina and Jan, 2012). The company will conduct workforce planning, maintain profit and loss accounts, balance sheet, and financial planning in different systems. Moreover, it will have to set global sales targets. However, these financial details may present challenges because of their fragmented nature. They are likely to increase operational costs, maintenance costs, and compliance costs. These are internal issues. On the other hand, Starbucks will also have to deal with fierce competitions from coffee retails in foreign markets and others at home. These competitions will also exert financial pressure on the company. Starbucks will not rely on the traditional annual budget alone. Instead, it will be flexible and track daily sales to quarterly sales in order to understand financial growths in foreign countries. This may also require a knowledgeable financial team and efficient financial tools. Starbucks will also meet many, global statutory requirements, including employees’ welfare and benefits, GAAP, and IFRS. This implies that the company will need to integrate all its financial activities at various levels and consolidate financial reports for reporting. In short, Starbucks will invest in financial tools, which would streamline financial management and reporting in order to improve efficiency. An Organizational Structure Recommendation The complex nature of global operations may require slightly different organizational structure. Figure 1: Proposed Starbucks global organizational structure This is a Starbuck’s basic structure of managing home and global operations. The company’s senior managers and executives will control all operations from the head office at Seattle, Washington. The district managers will be responsible for domestic operations in their designated states or areas. As the company expands to different continents, it will introduce regional managers or presidents to oversee operations across different continents or regions. Regional presidents and district managers will report directly to senior executives at Seattle. The store managers may take the role of the outlet chiefs, and they work alongside shift supervisors. Shift supervisors may also assume the role of chiefs in their absence. Starbucks has other employees below the supervisors, who will be responsible for running daily operations of the company. These are baristas. The company also has licensed stores, which would be strategic areas like bookshops, airports, grocery stores, and in locations where Starbucks may not be available. Starbucks will still control all licensed stores and other distributors. Moreover, they must maintain all Starbucks’ standards and stringent company’s guidelines. Starbucks must approve all their products. This is critical for protecting the Starbucks’ brand globally. Starbucks considers all employees who work in retail outlets as partners. The company believes that this is an integration process for all employees into the system irrespective of their role or title in the company. Partners are responsible for repeat business, happy customers, excellent services, products, and other activities that involve contact with customers. Supporting Rationale Since Howard Schultz took over Starbucks, it was clear that the company would grow significantly. However, it was not until 1990s when industry observers noted that the company was expanding rapidly. The company focused on domestic expansions within a specific period. Starbucks aimed to be the most recognized coffee retailer in the world. As a result, the company has achieved global recog nition and established itself as the most respected coffee brand. Today, the company has expanded its operations to several continents with many retail outlets. Financially, the company can achieve global expansion because it has the capital for strategic partnership, joint ventures, or as a sole investor. Management has focused on improving the ways in which the company does business globally. As a result, Starbucks has increased its presence in most of the emerging economies. Financial statements indicate that the company is still profitable despite widespread investments in new ventures. Strategic alliances and licensed stores have facilitated the company’s growth and profitability. From the analysis of economic factors, the industry is favorable and most foreign countries encourage foreign investors. This presents good opportunities for Starbucks’ global expansion strategies. The company’s marketing plan recognizes critical areas for its global expansion. It has premium products. However, Starbucks has learned to adjust prices to fit emerging economies where high prices may hinder acquisition of new customers. The market mix has worked for Starbucks while the focus on technologies has improved customer services and operations. Starbucks controls the largest market share in the coffee retail business. Hence, competition may not be a major hindrance to expansion and profitability. Schultz believes that the company must strive for the best in order to develop and maintain the global brand, take meaningful risks, and establish new market segments. From such risks, the company has developed elegant coffee outlets, developed better rewards, and compensation for employees and improved customer satisfaction. Starbucks has provided a new line of products in order to create new experiences for customer and attract potential coffee consumers. Such new products have resulted in new coffee products, which have attracted customers who were not coffe e consumers. Starbucks continues to search for new strategies for the global expansion in order to establish its coffee brand as the most recognized and respected globally. References Castellina, N., and Jan, W. (2012). Effective Financial Management for International Expansion. Retrieved from prophix.com/common/pdf/whitepapers/aberdeen-effective-fin-mgmt- for-international-expan.pdf Kotha, S., and Glassman, D. (2003). Starbucks Corporation: Competing in a Global Market. Retrieved from http://faculty.bschool.washington.edu/skotha/website/cases%20pdf/starbucks_Int l%20copy.pdf Starbucks Corporation. (2013). Retrieved from http://investing.money.msn.com/investments/stock-income- statement/?symbol=SBUX Starbucks Unveils Accelerated Global Growth Plans. (2012). Retrieved from http://finchannel.com/Main_News/Business/120790_Starbucks_Unveils_Accelera ted_Global_Growth_Plans_/ Thompson, A., and Gamble, J. (1997). Starbucks Corporation. Retrieved from mhhe.com/business/management/thompson/ 11e/case/starbucks- 2.html