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MGTA05 – Fall 2018

Writing Assignment #1

Name: Wong, Faye

Subject Business: Starbucks Corporation

Student Number: 1005109419

E-mail: [email protected]

Executive Summary

This report analyses Starbucks Corporation in terms of its products, competition, financial performance and notable information. Starbucks is a coffee brand, recognized globally as a premier roaster, marketer and retailer of specialty coffee, tea and food items. Starbucks has several signature drinks such as their freshly brewed coffee, frappuccinos and lattes. They are known in the beverage industry for releasing innovate drinks every season. The company also retails a collection of Starbucks branded items through its retail stores and independent grocery/convenience stores. There are currently 28,720 stores in 75 countries worldwide, 49% are company operated stores (Starbucks Corporation 2018).  Starbucks employed approximately 277,000 people globally as of October 1, 2017 (Starbucks Corporation 2018). The headquarters is located in Seattle, U.S. with majority of their stores in North America. Starbucks Corporation also owns several well known brands such as Seattle's Best Coffee, Teavana, Tazo, Evolution Fresh, and Ethos Water. The company's common stock trades on the NASDAQ Global Select Market under the symbol SBUX. As of October 1, 2018, the stock price was $55.62 USD (1.23 or 2.16%) (Marketwatch 2018). Starbucks aims to be a global leader in corporate social responsibility, through their environmental initiatives and charitable activities. Furthermore, the firm is currently interested in adding stores in newer, higher growth markets such as China (Patton & Bloomberg News 2018).

Well Known Executives

Kevin Johnson (CEO, president) — founder and has served as executive chairman since April 2017. Served as president of Il Giornale Coffee Company, Starbucks' predecessor.

Howard Schultz (Chairman Emeritus) — Starbucks director since March 2009, served as Chief Executive Officer of Juniper Networks from 2008-2013.

Key Products

The types of products available at Starbucks are provided in the chart below.

Value package:

Products: Identify as higher-end convenience goods; higher quality products justify the slightly higher cost as compared to other coffee chains (ex. Med. coffee:  $1.79 (Tim Hortons) vs. $2.10 (Starbucks))

Features: New trendy drink flavours, hip interior decor (has an aesthetic), personalized drinks

Benefits: Brand value/recognition, convenience (vast amount of locations, customizable drinks), loyalty program provides customers with free drinks and exclusive offers

Starbucks has been highly successful in creating seasonal drinks that customers look forward to all year. Famous products include their signature fall Pumpkin Spiced Latte and Peppermint Mocha during Christmas season. The signature Frappuccinos which are reminiscent of the summer are available year-round, however, they offer special “limited time only” editions. Starbucks has also been notorious for their secret menu drinks that trend online such as the “Pink Drink” and “Dragon Frappuccino” because of their pleasing visuals and aesthetics.

In terms of the product life cycle, Starbucks is at the stage of Product life cycle extension, considering that the company and its brand is recognized globally, with millions of loyal customers. As they are a part of the booming coffee industry, there has been little to no decline for its demand.

Competition

Starbucks is constantly researching and delivering new, creative products in various methods. Their affinity for innovation is a key factor that sets them apart from the competitors. They have launched the Starbucks app, which is linked to their loyalty program and can even be used as a method of payment. The app also allows consumers to “skip the line”, as they can order and pay through the app and pick it up in store. Starbucks has recently collaborated with UberEats to test delivery services. In addition, Starbucks has been highly successful in bringing non-coffee drinkers into the market with their creative and fun menu.

General Competitive Advantages

Higher quality, fresher ingredients, ethical consumerism, upscale & mature atmosphere (excellent study/work location), offers more types of coffee, more customizable (ex. Soy, amount of fat or sweeteners, shots of flavouring, etc.), attention to detail, loyalty program grant free drinks.

General Competitive Disadvantages

Starbucks is more expensive (and there is an abundance of affordable alternatives). Ordering drinks may be intimidating for some customers (complicated terminology and customizable options may be confusing).

Key Competitors

Tim Hortons (Canada)

Both companies offer coffee and baked goods, however Tim Hortons is not seen as an artisanal specialty coffee chain. They are widely recognized in Canada and associated as a national symbol. Tim Hortons has been successful in launching products that may be less innovative but will be habitually repurchased (ex. Launching a new blend of coffee vs. Starbucks' releasing the Unicorn frappuccino).

Specific Competitive adv.: Starbucks is recognized internationally whereas Tim Hortons is predominantly popular in Canada.

Specific Competitive disadv: Tim Hortons offers a wider range of food items and pastries, and has started their own credit card/loyalty program.

McDonald's McCafe

McDonald's McCafe is an addition to their fast-food chain that mimics a higher-quality coffee-house with a fraction of the price.

Competitive adv: all stores offer wider range of baked goods (only select McDonald's have McCafe), McCafe uses more chemicals and lesser quality ingredients.

Competitive disadv: wider and better food menu (for lower the price), more accessible (available on majority of the food delivery apps), faster turnover rate.

Recent Financial Performance

Within the past 5 years, the gross income steadily increased. However from 2016 to 2017 the increase is much smaller compared to the year before.

The chart below describes the percent income growth since 2013. From 2016 to 2017, the growth was a mere 1.41% (Marketwatch 2018); which may highlight some potential performance issues.

The company is reportedly growing in foreign ventures (ex. Asia)  but “faltering” in North America. When analysing the comparable ales, there have been fewer transactions but the amount of money spent on each purchase has increased (Butler 2018). Furthermore, Starbucks announced that 150 stores in the US will be closing next year (Starbucks Corporation 2018), suggesting that Starbucks opened too many stores in saturated areas

Notable Information

Starbucks plans to stop offering plastic straws by 2020 (Starbucks Corporation 2018) which heavily benefits the environment and appeals to environmentally cautious customers; smart consumerism is on the rise. Furthermore, they have also pledged to donate 100% of unsold good at US stores by 2021 and is currently operating similar programs at a local-level in Canada (Starbucks Corporation 2018). Additionally, in multiple statements, Starbucks has expressed their interest in expanding into Asia, and is currently cooperating with Alibaba for delivery services (they have also opened an online store).

Areas of Concern

The company recently announced that the company will be laying off employees, starting from the corporate level (Patton & Bloomberg News 2018). The statement also announced large-scale changes to the company's structure (which may be hinting at an underlying issue within the system). Starbucks seems to have recognized that there is an issue with stagnant profits and aims to correct it. There has also been an issue of racist employees (made several headlines for kicking out customers with minority backgrounds and falsely calling the police for trivial issues). This has had a negative impact on the company image as protests and boycotts have occured in the past year.

Conclusion

In summary Starbucks is a consistently developing company that is bringing innovation. It also leading the industry with their environmentally responsible policies. If considering the company as a possible business partner, it is crucial to be aware of the reduced growth of profits and discuss the recent stagnant sales, along with the wounded reputation from the racism scandals. Starbucks has had many successful collaborations in the past and is currently with many other internationally recognized companies. Previous experience reduces the risk of an unsuccessful partnership. Therefore, with careful consideration and planning, Starbucks would be an excellent prospective partner.

Works Cited

Butler, Dave. “Starbucks: Don't Be Fooled.” Seeking Alpha, Seeking Alpha, 31 July 2018,

https://seekingalpha.com/article/4192260-starbucks-fooled?page=2?referrer=https://seekingalpha.com/article/4192260-starbucks-fooled?referrer=

Patton, Leslie, and Bloomberg News. “Starbucks Planning Layoffs amid 'Significant

Changes' to Company's Structure.” Financial Post, Financial Post, 25 Sept. 2018, https://business.financialpost.com/news/retail-marketing/starbucks-planning-layoffs-amid-significant-changes-to-companys-structure

“SBUX Annual Income Statement - Starbucks Corp. Annual Financials.” MarketWatch,

MarketWatch, www.marketwatch.com/investing/stock/sbux/financials.

Starbucks Corporation, Starbucks Fiscal 2017 Annual Report. Seattle, Washington: Starbucks

Corporation, 2017. https://investor.starbucks.com/financial-data/annual-reports/default.aspx

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