Starbucks Main Strengths Includes Their Financial Performance

Thesis: While Starbucks has been an industry leader in the specialty coffee market, rapid overexpansion and current economic conditions have caused it to lose its market dominance. Is the company strong enough to recover?

Within the coffee industry Starbucks Corporations has grown from a small shop to a leading coffee distributor, proving to have financial strength and determination to continue growth. With the weakening economy the continued success of Starbucks

And in addition to expanding the areas that are able to recycle the materials Starbucks' cups are made out of, the next biggest step is getting consumers to switch up their habits of tossing the cup in the garbage bin to tossing it in the recycle

Starbucks has developed a brand image that has revolutionized coffee drinking experience. It has created an ambiance that is designed to attract customers and keep them coming back to Starbucks stores. It offers wide varieties of services such as comfortable seating areas with unique music and free wireless Internet for their customers while sipping their favorite coffee. This distinctiveness sets Starbucks apart from most of its competitors and has allowed the company to successfully grow and profit while charging premium prices for their products.

Starbucks shares have gone up and down during the past 3 weeks. “The results, announced after markets closed, sent Starbucks shares down 3.5% in after-hours trading.”(Weise,E) I bought 100 stocks from Starbucks; it first started off at 55.37 and increased to 56.31. I expected for Starbucks performance to be the best, but its stocks are unreliable. Their percentage week change fluctuates. When I initially started doing research on Starbucks the week percentage was at -1.02% and has reach to 2.41%, but later went down to .66%. Their stocks have been unsteady and their weakness is that the prices of their coffee is expensive. “By contrast, a year of drinking at Starbucks, based on two $2 cups a day, will run more than $1,400--not including any snacks

Starbucks’ D/E ratio has seen an increase, almost doubling between 2012 and 2013. Years prior to that it was holding steady. Sbux appears to be utilizing more debt in their expansion.

The determinants of Starbucks profitability over time are variable costs and fixed costs. “A variable cost is a cost that change in direct proportion to a change in the level of activity (dict). Variable costs for Starbucks would include labor, coffee beans, dairy, and plastic products. A fixed cost is indirect costs of business expenses that remain unchanged (dict). Fixed costs for Starbucks include rent, taxes, and insurance as well as advertising. In the figure below (fig 1) we have Starbucks financial data in millions for the year of 2015. This includes their operating expenses, net revenues, such as company-operated stores, licensed stores, CPG, food service. It also includes their total net revenues and their balance sheet. As we can see “Operating costs dropped in the fiscal year

Since the number of paper cups that Starbucks goes through on an annual basis is in the billions, a reduction of these cups would have a great positive impact on the environment. Walk into any Starbucks store and a wide variety of reusable cups are available for sale. They vary in size, shape, price, and design, but all encourage the same thing – recycling. Starbucks even offers a discount of ten cents when a customer brings in their own cup, which they display in print on their menu reader board. In early 2013, a Whittier Daily News article announced the roll out of a new Starbucks reusable plastic cup priced at only a dollar. Starbucks is trying to reduce the amount of paper cups that end up in a landfill every year. The plastic reusable cup can withstand about thirty washings in the dishwasher and then once it’s no longer usable, the cup can be recycled, as well. Starbucks kept the cup the traditional white and green themed design to emulate their standard cup, attempting to reinforce customer’s continued loyalty to the brand (Scauzillo, 2013). Currently, Starbucks is offering a white and red holiday themed plastic reusable cup for $2.00.

Several key success factors exist for Starbucks, a leader in the coffee industry. They include

Starbucks strategies have successfully made them one of the biggest names in the coffee market globally. Starbucks has been able to survive the high competitive market and to differentiate themselves from other coffee shops by producing high quality coffee. Also, Starbucks successfully create a huge numbers of loyal customers worldwide by providing great services and high quality products. Starbucks was able to survive 2008 financial crisis successfully. In 2008, Starbucks net income was -53% that means Starbucks was losing so much many yet, 2009 Starbucks was able to not only stop their losses but also to gain a profit of 24%. However, Starbucks should be worry from the possibility of another financial

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.

Thus, it is evident that the Starbucks is well positioned around its strengths, which far outweighs its weaknesses. The company must maintain its supplier relationships, and continue to offer compelling and premium products to its customer base in order to stay relevant and compete against other coffee giants.

The next exhibits show payroll structure and income volume per location in 2002 and product mix for North American company-operated stores. Exhibit 6 shows US retail coffee market predictions till 2005 years. It clearly shows changing in Americans’ coffee drinking style into specialty coffee. It is very important for Starbucks because company’s main market is specialty coffee. Next of the exhibits, shows positive customer snapshot scores for North America stores. Those snapshots suggest further company’s success. The only issue we can find is the product quality. According to the exhibit product quality went down during 3rd quarter of 2002.

The company has a focus on innovation through an emphasis of introducing new products and coffees such as “instant coffee” Via which generated a large sales growth of over 200 million. These new products consistently help Starbucks evolve as a

Starbucks has a reputation for new product development and creativity. But new ideas can not come so often and even if they do they may not be on target. Moreover, almost the ¾ of their shops are located in the U.S. which means they are depended too much on one country. They need to spread into another group of countries in order to spread the business risk. Also organization is dependant on a main competitive advantage, the retail of coffee. This could make them slow to diversify into other sectors should the need arise.