Essay about Financial Analysis of Starbucks Corporation

Topic: An examination into the rise and fall of Starbucks Coffee Company and its relationship to certain microeconomic principles.

The survey questions mostly consisted of multiple choice questions, two open-ended questions, allowing written responses, and one qualitative response question. These questions were chosen to establish consumers differences and comparative perspective of Starbuck’s competitors, their daily usage of the social media platforms, the coffee shops visited frequently, and their opinions on consumers who frequent Starbucks. The survey contains one matrix/rating scale question ( Appendix I, Question 5) based on how important qualities are when choosing a coffee shop. Lastly, there were two demographic questions. The demographic questions are for a general understanding on consumers behavior based on age group and gender. For an overview of the survey, see appendix I.

Starbucks Corporation, generally known, as Starbucks Coffee is the leading retailer and a brand of world’s forte coffee in the world, with more than 15,000 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim, wherever in this world where premium quality coffee is in demand. Starbucks is the largest coffeehouse company in the world ahead of UK rival Costa Coffee, with 20737 stores in 63 countries and territories, including 11910 in the United States, 1496 in China, 1442 in Canada, 1052 in Japan and 772 in the United Kingdom. The first Starbucks was open in 1970. The name was inspired from Herman Melville’s Moby Dick, a definitive American novel regarding the 19th century whaling industry. The nautical name matches seamlessly for a store that imports the world’s finest coffees to the cold thirsty people of Seattle. In May 1998, Starbucks have finally successfully entered the European market through its acquirement of 65 Coffee Company stores initially originated from Seattle in the UK. Both companies shared a common culture, focusing on a great commitment to customized coffee, similar company values and a mutual respect.

1. In the beginning, how was Starbucks different from other coffee options for coffee drinkers in the United States? What activities and assets did Starbucks leverage to differentiate itself from competitors?

Starbucks is known for their Frappuccino’s; unfortunately they are on a downward spiral in sales due to competitors such as McDonalds. In 2008 Starbucks admits to its losses due to their competitors. “Company executives now freely admit that such thinking is largely to blame for the woes that led to Tuesday’s announcement that Starbucks will close 600 U.S. stores and eliminate thousands of jobs. The coffee giant’s missteps have come at a spectacularly bad time, hitting as the economic slump deepens and consumers are seeing their discretionary spending eaten up by rising gas prices and grocery bills (Linn).”

In this assignment, a savvy financial analyst researching companies in which to invest a U.S. publically-traded company that would be a good investment was chosen. After a lengthy search, a company that my family is unduly familiar with, Starbucks, was chosen and in the following pages a financial analysis will be described.

In 1971, Starbucks started as a small coffee shop which targeted a specialized market of coffee purists. Howard Schultz, who later owned the company and initiated the high growth period, joined Starbucks’ marketing team in 1982. Main concept of Schultz marketing strategy was too make Starbucks “America’s third place” considering home and work the two other places where Americans spend most of their time. In 1992, Schultz acquired Starbucks and made an initial public offering. Despite Wall Street’s doubts about the IPO, $25 million was raised by Starbucks.

Starbucks’ lead in the specialty coffee industry exemplifies the result of deftly executing a well-planned business strategy. Moreover, Starbucks is well positioned for what is expected to be a continuing rise in the popularity of specialty coffee products. The question before Starbucks’ leadership, however, is what avenues will lead to Starbucks’ goal of remaining true to its core, the highest quality coffee products while providing a “total coffee experience” for its customers?

Starbucks generates strong cash flows has solid liquidity. The company executes rigorous cost cutting initiatives to improve its bottom-line. However, throughout fiscal 2008, Starbucks continued to experience declining revenue, particularly in US operation. The decline is largely attributed to lower customer traffic.

The company that I am writing about is Starbucks, the international coffee shop chain. The company's financial statements for this analysis are from the FY2011 Annual Report and 10-K. The company has 10787 stores in the United States, of which 38% are franchised and the remainder are company-owned. The franchise model is more common when the company operates internationally. There are 6216 Starbucks stores internationally and of these 63% are franchises, with just 37% company-owned. The franchise model for international expansion has been utilized to help Starbucks expand quickly in foreign countries and to mitigate foreign political risk and to ensure that the product/service offering is tailored to local tastes (Thompson, 2012). The company is now in the process of buying back some overseas franchise stores in order to retain more profits for itself (Franchise Press, 2011). This paper will take a look at the company's most recent annual report to analyze the financial statements.

1.Analyze the business-level strategies for the corporation you chose to determine the business-level strategy you think is most important to the long-term success of the firm and whether or not you judge this to be a good choice. Justify your opinion.

Starbucks dates back from 1971 and is based in Seattle, Washington. The company was founded by Gordon Bowker, Jerry Baldwin and Zev Siegl and it

Nothing like the fresh scent of brewed coffee in the morning – “Starbucks” a well-known coffee house that is still growing and expanding their operations today is considered the number one specialty coffee retailer around the world and abroad. Therefore, the supply and demand for coffee is on the incline and is regarded as one of the most rapid growing organizations in the world. According to the National Coffee Association, adults between the ages of 18 and 39 are more likely to purchase coffee out-of-home, then older consumers (2016). Even coffee statistics conducted in 2016 indicates “50% of the population, equivalent to 150 million Americans, drink espresso, cappuccino, latte, iced/cold coffee” (E-Imports, 2016). Other statistics numbers show that an estimated of total Americans consuming coffee would be up by 1.5% and specialty coffee up from 20% in this year alone. Even the global consumption will increase by 12% over the next years. Therefore, a key question is how will the “law of demand” predict how the consumers will behave (Lorenzetti, 2016)? Namely, will the higher demand for coffee beans impact what the consumer at Starbucks will pay for a cup of coffee? Therefore, companies such as Starbucks should analyze and understand the microeconomic model to get a clear picture of the price elasticity, cost to produce, and the overall market to make the most effective business decisions and recommendations that will have an

Starbucks extends their coffee experience to everyone: kids, teenagers and adults. Part of their success comes from their ability to create new products that fit the culture of the country. In Japan, for instance, Starbucks launched green tea lattes, which later became popular in other countries (Allison). Starbucks is well established in countries like Canada, Japan, and the United Kingdom. In the US alone, Starbucks sells 4 million cups of coffee per day (Horovitz). Their products and services have transformed the way customers view coffee. Changing the way customers order, Starbucks makes it very chic to purchase custom drinks. Starbucks is like no other coffee shop: the dimmed lights

can order and pay for their drinks in a flash while stacking up rewards for each purchase made. This Strategy has significantly drawn people to Starbucks due to its highly anticipated services, products, and marketing strategies that differ from most fast food restaurants. The next service is the Starbucks webpage where the customers can go onto the site and view product and also make purchases. This service is quite excellent for those that want to checkout items online through the site, because it incorporates a similar process as the application on your smartphone. Starbucks also incorporates equipment and drinkware to their massive line of products. First their Drinkware consists of cups and mugs that are affordable to the customers. These cups come in many colors and aesthetic values, which make people interested in purchasing. Starbucks had the right idea when they decided to manufacture these cups out to their customers because not only were they a huge success for the business, but it also made Starbucks distribute more merchandise. Cold cups, which were from stainless steel containers. These containers made a rise once the popularity rose for other merchandise. These containers were sold very often to customers and once again made a surprise since it was from the same line of cups and mugs category. As more popularity grew in their products so did the equipment used to make customers coffee. First Starbucks decided to manufacture coffee makers, presses, and expresso