Starbucks Case Study, SWOT, Internal and External Analysis

MGM 4139STRATEGIC MANAGEMENT CASE STUDY

by : Anaseri Zulkifli EX2833Hafizullah Mohd Amin EX2906Michelle Lim Li Yoke EX2885Mohd Osman Mohd Hassan EX2894Mohd Johan Khair Azmi EX2889Rashidi Jaffri Jaafar EX2815

Contents

• Introduction• Vision & Mission Statement• Analysis & Matrix

• Internal Analysis• External Analysis

• SWOT Matrix• BCG Matrix

• Recommendation• Financial Analysis

• EPS – EBIT Analysis• Ratio Analysis

• Conclusion• Reference

STARBUCKSJourney

Founded as Seattle coffee bean roaster and retailer

1971 1992

The word “Coffee, Tea and Spices” were under the word “Starbucks”.

1987

The original owners sold the Starbucks chain to

Howard Schultz

The word “Coffee, Tea and Spices” were

removed the word “Starbucks”.

They made the mermaid in the center larger showing just her

face and fins Starbucks changed its logo for their 40th anniversary.

2011

IPO. 140 outlets, with revenue

$73.5m

19991996

First store in Japan

20081989

46 stores, roasting over 2,000,000

pounds of coffee.

Acquires Tazo

2003

Acquires Seattle's Best Coffee and

Torrefazione Italia

Purchased Clover Brewing System

2012

Acquires Teavana

2014

21,160 outletsin 63 countriesRevenue $15b

182k employees

Vision“Starbucks is committed to ethically

sourcing and roasting the highest quality Arabica coffee in the world. With

stores around the globe, we are the premier roaster and retailer of specialty

coffee in the world”

STARBUCKSInternal Analysis

1. Huge market expansion to China, Brazil, India and Russia

Weaknesses

0.15 4 0.60

0.05 4 0.20

0.05 3 0.15

0.05 3 0.15

0.06 4 0.24

0.03 4 0.12

0.05 4 0.20

0.03 3 0.09

0.05 4 0.20

0.03 3 0.09

0.08 1 0.08

0.02 2 0.04

0.07 1 0.07

0.03 2 0.06

0.03 2 0.06

0.03 2 0.06

0.05 1 0.05

0.05 2 0.10

0.03 1 0.03

0.06 1 0.06

2.04 0.61

4. Too dependent on the main competitive advantage

5. Strong presence in US but not in other countries

6. Reputation of product dev. and creativity is vulnerable

7. Customers not willing to wait for long queue at store

8. Customers not willing to wait for long queue at store

9. Failure to understand what are the customers' wants and needs

10. Merchandise items sold at exorbitant pricing

Strengths W R S W R S

4. Starbucks has monopolistic advantages over its competitors

5. Acquired Ethos healthy water for 8million in 2005

6. Acquired Tao in 1999 at 8.1million

7. Owns the trademark for Frappuccino

8. Aggressive Marketing Team for promotions

9. Great loyalty card/cash card system

10. Great designs for merchandise product line

2. Provide a great work environment

3. Apply high standards of excellence in services

1. High pricing for coffee, cappuccino and latte

2. Less advertising campaign for its products

3. Products are not available in all supermarkets worldwide

Strengths2.04

Weaknesses0.61

TOTAL IFE = 2.65

STARBUCKSExternal Analysis

1. Globalization makes it easy to enter international market

Threads

0.01 4 0.04

0.05 3 0.15

0.05 2 0.10

0.05 3 0.15

0.05 3 0.15

0.05 4 0.20

0.03 3 0.08

0.05 3 0.15

0.03 2 0.05

0.03 2 0.05

0.01 3 0.03

0.15 3 0.45

0.05 2 0.10

0.05 2 0.10

0.05 3 0.15

0.03 3 0.08

0.03 2 0.05

0.03 3 0.08

0.03 2 0.05

0.03 3 0.08

1.48 1.42

4. Increasing competitors in the market

5. Competitors start to market their products in hypermarkets

6. Increase in supply chain cost due to competitive market

7. Brand boycott in Malaysia due to conflicts between country

8. Global expansion barriers i.e.: India

9. Environmental: Green techniques are more costly

10. Social-Cultural issue: Food served contains too much carbohydrates

Opportunities W R S W R S

4. Demand for healthy and non-chemical F&B products

5. Go Green marketing campaign attracted the public

6. Coffee imports are duty-free & quota for purchases is unlimited

7. Coffee is a daily routine for a lot of working adults

8. Social Media can be a useful tool for marketing

9. Demand for light food and coffee over meetings with client

10. Demand for packed instant coffee

2. People are looking for free internet connection

3. Express food are getting popular to save time

1. ↑inflation rates creates a demand in lower priced products

2. Many companies are pricing their products cheaper

3. Increase in hypermarkets and economical supermarkets

Strengths2.04

Weaknesses0.61

TOTAL IFE = 2.65

Opportunities1.48

Threads1.42

TOTAL EFE = 2.90

TOTAL IFE = 2.65

TOTAL EFE = 2.90Threads

1.42Opportunities

1.48

Strengths2.04

Weaknesses0.61

STARBUCKSInternal – External Matrix

Strong 3.0 to 4.0

Average 2.0 to 2.99

Weak 1.0 to 1.99

High 3.0 to 4.0

Medium 2.0 to 2.99

Low1.0 to 1.99

I II III

IV V VI

VII VIII IX

IFE = 2.65

EFE = 2.90

Grow & Build • Backward, Forward, or

Horizontal Integration • Market Penetration • Market Development • Product Development

Hold & Maintain • Market Penetration • Product Development

Harvest or Divest • Retrenchment • Divestiture Hold and maintain strategy

Focus on increasing market penetration and product development The tactical strategies should focus on market penetration and product development.

STARBUCKSSWOT Analysis

Strength Weakness

Opportunity Thread

• No. 1 brand in coffeehouse segment.

• Strong brand image • Largest coffeehouse

chain in the world

• Competitors price is the major influence over firm’s profit

• Product pricing

• Negative publicity

• To extend supplier network

• Increase product offerings

• Expansion of retail operations

• Rising coffee beans and dairy products

• Increased competition from local cafes

• Supply disruptions

• Product boycott

S W

O T

STARBUCKSSWOT Matrix

SO Strategies• Add a few new in-store (S2, O1)• Offer a new product instead of

coffee. (S3, O3, O2)• To carry out improvements and

diversity on existing products (S1, S3, O2)

WO Strategies• Purchase land to build new store

(W1, O3)• Reduce price (W2, W1, O3)• Do a promotion (W2, O2)• Do some charity work to avoid

customer negative thinking (W3, O3)

ST Strategies• Build a coffee plantation (S3, T1,

T3)• Maintain and diversify the

product. (S1, T2)• Show support to a number of

global issues such as creating a campaign on social (S2, T3)

WT Strategies• Make sure not biased to

anyone. (W3, T3)• Do not be overstaffed (W1, T2)

Strength WeaknessO

pp

ort

un

ity

Thre

ad

STARBUCKSBCG Matrix

High

High

Low

Low

Ind

ust

ry G

row

th R

ate

Relative Market Share

star

dog cash cow

?

Recommendation

• Starbucks should reduce their price by producing a new product of coffee using cheaper beans.

• Special discounts promotions to increase the sales. This is also to face competition from nationwide coffee manufactures.

• Starbucks can effectively pursue Focus-Based Strategy

• Advertisement can be developed through internet, give brochures, do road shows

EPS Analysis

Earnings Per Share (EPS)

Earnings Per Share : Net Income – Dividend on Preferred Stock

(EPS) Weighted Average Common Shares Outstanding

• Also called net income per share

• Market prospect ratio that measures the amount of net income earned per share of stock outstanding

• A good measure of profitability

• Gives a view of the comparative earnings or earnings power of the firm.

EPS Analysis

Earnings Per Share (EPS)

$0.87

$0.43

$0.52

$1.24

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

2007 2008 2009 2010

EPS

EBIT Analysis

Earnings Before Interest & Taxes (EBIT)

• Also referred to as "operating earnings", "operating profit" or "operating income“

• Measures the profitability of a company without taking into account its cost of capital or tax implications.

• Important because it is an indirect measure of efficiency

• Higher the operating income, the more profitable a company's core business is

EBIT = Revenue – COGS – Operating Expenses

EBIT Analysis

Earnings Before Interest & Taxes (EBIT)

$1,053.90

$503.90 $562.00

$1,419.40

$-

$200.00

$400.00

$600.00

$800.00

$1,000.00

$1,200.00

$1,400.00

$1,600.00

2007 2008 2009 2010

($'million)

EBIT

Ratio Analysis

Liquidity Ratio

• The higher the better

• 2008 : 0.8 increased to 2010 : 1.5 = CR

• 2009 : 0.6 increased to 2010 : 1.2 = QR

• Starbucks has good ability to clear of its current liability.

Ratio Analysis

Leverage Ratio

• The lower the better

• 2008 : 0.2 decreased to 2010 :0.1

• Starbucks relies less on debt financing.

• Good internal or capital financing capabilities of the company.

Ratio Analysis

Activity Ratio

• The higher the better

• ITR, TATR, ACPR show declining pattern

• Slow movement in business activities.

• ARTR is increasing , good payment from debtors.

Ratio Analysis

Profitability Ratio

• The higher the better

• Very good indication. Good sales and return ratio towards all stakeholders.

• Example, Net Income increased by 200% in 2009-2010.

• Good strategies, operation, asset managements, and sales promotions.

Conclusion

• Overall Starbucks has maintained a competitive advantage since creating its original blue ocean of bringing quality, bistro-style coffee choices to the masses.

• In order to stay current it will need to focus on its core competencies.

• To remain competitive, they need to create new value innovation.

• Rather than creating more new products, we think their strength lies in their brand and by enhancing the connection to their loyal customers

Conclusion

• Overall Starbucks has maintained a competitive advantage since creating its original blue ocean of bringing quality, bistro-style coffee choices to the masses.

• In order to stay current it will need to focus on its core competencies.

• To remain competitive, they need to create new value innovation.

• Rather than creating more new products, we think their strength lies in their brand and by enhancing the connection to their loyal customers Thank You