Key Areas That Affect Profitability And Continued Growth Marketing Essay

Key Areas That Affect kaleability And Continued Growth Marketing leavenThe objective of this report is to discuss secern aras that affect dineroability and move return at Starbucks and to provide strategic recommendations. This report rotter be used to take apart current strategic decision making potentiality as well as provide a roadmap for Starbucks act advantage. conjunction BackgroundStarbucks is a publicly traded fellowship (SBUX) founded in 1971 in Seattle, WA and is a leverager and roaster of whole bean umber berry trees. Starbucks produces and roasts high- bore whole bean coffee trees and sells them along with food items and coffee relate accessories through everywhere 7000 plus comp any executed retail stores. Starbucks also licenses its trademark through other(a) channels cognize as specialty ope symmetryns.Industry DefinitionStarbucks has a variety of effort code crystalizeifications including SIC code 2095 -roasted coffee and NAICS code311920 dee p brown and afternoon tea Manufacturing. Starbucks is a specialty eatery serving some(prenominal) food and beverage products. bang Statement AnalysisStarbucks mission statement is simple to inspire and fosterage the human spirit- integrity person, one cup, and one neighborhood at a time. Backing Starbucks mission statement argon its six principles on how they operate found in Appendix A. These principles encompass their product, clients, partners, stores, commwholeies, and dole awayholders and provide the company vision. A well throttled company mission statement should implicate the companys product, grocery store and aras of emphasis that reflects the mensurates of the strategic decision makers in the company (Regis University, 2009). Pearce and Robinson define a mission statement as a unique intention that sets a company apart from others of its type and identifies the domain of its operations (Regis University, p. 18).As a result of our analysis, we found that Starbu cks mission statement coupled with their principles defines the scope of the company operations and aligns with there current strategies.External Environment door move oners 5 Forces AnalysisThe Porter 5 forces analysis is a framework for labor analysis and logical argument dodge development developed by Michael E. Porter in 1979. Michael Porters framework sees five major factors that influence a melodic line scourge of reserve products, negotiate bureau of suppliers and buyers, rivalry between competitors and terror of unseasoned entrants to a commercialize. The porters five forces model will help differentiate where improvements can be made through the current warring force, threat of potential entrants, bargaining power of buyers, bargaining power of suppliers and the threat of substitute products. Using Porters framework as a guide, Starbucks should consider the hobby cause of Suppliers Starbucks prides itself on its guiding principles one of which states, Our Coff ee-It has always been, and will always be, close feeling. Were passionate about ethically sourcing the finest coffee beans, roasting them with great care, and astir(p) the lives of people who grow them. Therefore, in keeping with their mission and principles, Starbucks must vouch that the type and quality of coffee it notchs is always the like. This means they would use the same suppliers that integrate their standards.Coffee is one of the largest traded commodities in the world. Starbucks is directly affected by Central America in barriers of production of the Arabica beans they purchase. The bargaining power of suppliers to the specialty coffee assiduity would be exerted by either an add-on in the outlay of the beans which are used in the production process, or by a threat of decline in the quality or quantity of the coffee beans themselves. An everywhere-populated market could also concur the suppliers to a greater extent than bargaining power. Starbucks needs to be a ware of supplier power and potential price increases.Power of Buyers/Customers A buyer group is powerful if the persistences product does non save the buyer money (Pearce and Robinson, 2007) This is a plus for Starbucks as their coffee products are higher in price and considered a sumptuousness nock. Starbucks is very lots much concerned with the quality of their product versus price. However the other consideration is small local coffee companies that were around before Starbucks alikek all over the marketplace. These little coffee shops may shit their core nodes who will not give their business to anyone else.Available Substitutes Starbucks must be aware of substitute products. addicted the current grave economic crisis, consumers are vying towards slight expensive alternatives than the luxury coffee Starbucks provides. This effect could alter Starbucks current set strategies. As more substitutes become available, the current pricing model would become more comprom ising since customers have more alternatives. Potential substitutes include bottled water, healthy water/ juice drinks, and at home espresso machines.Current Competitors period companies like Dazbog and Caribou Coffee appear to be the most obvious competitors, McDonalds and Dunkin Doughnuts are Starbucks tops competitors. twain these organizations can compete with Starbucks in destinations of sandwich items and coffee cerebrate products. More of a concern with these two competitors is their pricing modules. Both competitors are priced less than Starbucks products.Threat of New Entrants Starbucks provides a luxury good that consumers much carapace back on when they want to save money. In 2007, Starbucks saw its shares fall more than 30% partly down to customers deserting it for cheaper rivals. As McDonalds and other chains like Dunkin Doughnuts realize the money in luxury coffee more companies will begin to enter the marketplace offering analogous product lines for less cost. Remote Environmental FactorsEconomic- Economic factors concern the constitution and direction of the deliverance in which a plastered operates. Current ceding back trends imply a reason for concern for a luxury blot like Starbucks with regard to the companys financials.Social- Promoting the health benefits of coffee remains a argufy for the industry and consumers are often confused with the myths propagated by the media. Social concerns regarding caffeine, and it addictive properties also need to be considered.Political-Current tensions in the Middle East and boycotts of American made products are strategic concerns for Starbucks worldwideization plans. Starbucks also imports their coffee beans and thusly any changes in import laws should also demand special attention. ecological Factors- Starbucks also has a self-coloured environmental mission statement. Starbucks promotes ethical sourcing, contributes staunchly to their communities, as well as continually tenses to b uy, sell and use environmentally friendly products. Starbucks uses key performance indicators to be sure they are metre the degree to which they fulfill their social and environmental responsibilities. Starbucks should maintain abreast of any changing environmental legislation that could impact their corporal strategies. Technological Factors -Starbucks has been continually looking for ways to enhance the customer experience. They have also expand their partnership with ATT. ATT offered consumers WiFi service in more than 7,000 Starbucks messs in the U.S. in spring of 2008.Industry and Competitive EnvironmentsWhen in a recession, luxury products be to decline and coffee is no exception. Consumers dont find as much expenditure in spending $4.35 for a cup of coffee when they can purchase the same size coffee at 7-eleven for $1. 75.However, Starbucks has an immediate plan for continued growth including the introduction of its instant coffee line. Despite the challenging economic e nvironment, Starbucks is profitable, has a strong balance sheet and generates solid money from operations, tell Schultz, CEO of Starbucks Corporation.The company is also making strategic investments in key initiatives byEntering the $17 billion instant coffee market earlier this month with the launch of Starbucks VIA Ready Brew instant coffeeGrowing its consumer products, licensed stores and foodservice channels andFocusing on disciplined world-wide store enlargement in key markets.Operating EnvironmentPearce and Robinson (2007) stated, The operational environment factors in the immediate competitive situation that affects a firms success in acquiring needed elections. Starbucks current operating environment includes threats from competitors and upgrade expenses including fluctuating be of dairy products. Price increases could have a disconfirming impact on traffic. As of 2007, Starbucks has less than a 10% share of all of the coffee consumption in North American, and less than 1% internationally.International EnvironmentStarbucks is an organization that operates in an international market two with regard to retail locations and use of international suppliers. Thus, Starbucks needs to consider the countries come to in its international partnerships and the impact it can have on their business strategies with regard to political, social, economic and legal locality concerns and events.Internal Analysis dress up is an acronym for the internal strengths and weaknesses of a firm and the environmental opportunities and threats facing that firm (Pearce Robinson, 2007, p.153). Starbucks has some(prenominal) strengths, weaknesses, opportunities and threats that are listed in Appendix B.Strengths Key strengths for Starbucks include the value of their employees and their corporate culture. Starbucks considers its employees partners which provides a sense of inclusion for those who work there. Also, Starbucks was one of the first organizations to offer full benefits for part-time employees. Another key strength for Starbucks is disfigurement fealty and name recognition. Howard Schultz, CEO, has created an every day item and turned it into a mega brand similar to Nike. Starbucks is on every street corner, in your local supermarket, and in your bookstores and campuses nation wide.Weaknesses A key weakness for Starbucks is weakened innovation and creativity. agree to Schultz, the Starbucks experience is about passion for a quality product, excellent customer service, and people. With over 4500 coffeehouses in 47 countries Starbucks coffee becomes somewhat of a commodity. In a February 2007 memo, Schultz warned top executives about over saturation of the brand. Diminishing growth opportunities are likely.Opportunities Starbucks is a global corporation that sells its coffee in more than 16,000 coffee shops in more than 35 countries. Continued global expansion is an important opportunity. Starbucks has established relationships with Peps iCo, Barnes and Nobles, Dreyers Ice Cream and other major brands. Opportunities include continued co-branding with major manufacturers of food and drinks that have greater potential and modify further global expansion. Finally, another key opportunity is the creation of additive coffee related products and an expanded menu.Threats Substitute products influence the demand for a companys product. More substitutes offer a bigger choice for customers and thus Starbucks has to be aware of potential substitutes available. Given the weakened economy, these substitutes become more suited if they are a lesser cost than Starbucks offerings. With a weakened economy also comes an increase in purchasing cost for coffee related products and dairy products both of which impact the return on investment and loot for Starbucks.Resource Based View (RBV) AnalysisResources are the distinct gang of assets, expertnesss, capabilities and intangibles of an organization (Pearce Robinsons, 2007, p. 164 ). Examination of Starbucks resources can provide a method to analyze strategic advantages and assist with strategic planning. There are three grassroots resources reviewed when using this method tangible assets, intangible assets, and organizational capabilities.Tangible Resources-Tangible resources are the physical and financial means a company uses to provide value to its customers (Pearce Robinsons, 2007, p. 165). Examination of Starbucks balance sheet shows inventories make up largest portion of their assets at 692.8 million of the 1, 748 billion in total current assets. Interestingly, cash and cash equivalents make up a mere 269.8 million of current assets. Starbucks owns 5 Roasting and Distribution locations, 9000, company operated retail stores, 205, 000 sq foot office construction with 36,000 sq ft plot of land totally 2,956.4 million in terminate assets.Intangible Resources A companys intangible resources are also important to the boilers suit business advantage. Brand recognition is a key intangible resource for Starbucks. Starbucks reputation is positive and they are known for high quality coffee coupled with high quality customer service day in and day out. Starbucks has also used their brand recognition to introduce new products including bottled coffee drinks ice-cream products, and home espresso machines, and this intangible asset provides overall reliability that is grueling for competitors to penetrate. Other intangibles include quality of locations skill at citing new shops employee training, skill at customer service, and morale employer of choice-Forbes 100 Best Companies to Work for 2007, 2008.organisational Capabilities Howard Schultz continues to strengthen Starbucks top management team, hiring people with extensive experience in managing and expanding retail chains. Starbucks also maintains and continues to expand its ownership of desirable locations so location analysis is a capability which allows the company the ability to inc rease quality of the same input factors as their competitors.Value Chain AnalysisThe term value chain describes a way of looking at a business as a chain of activities that transform inputs into outputs that customers value (Pearce and Robinson, 2007, p.158). direct Functions Include High quality product, Ethical coffee sourcing and fair trade, global responsibility, and Baristas (quality of customer service).Inbound logistics negotiation with coffee providers, purchasing, receiving, processing, distributing raw materials to service sites. clog up Functions Include Coffee Master training program, desirable locations, and modern technologies and inquiry and development. Plus traditional organizational support functions such(prenominal) as HR admin, accounting and finance, marketing, etc.Strengths of the value chain for Starbucks include their high quality product and the sourcing and creation of their product. Starbucks is committed to ethical sourcing and fair trade. Starbucks is a lso globally responsible and has introduced a shared planet program thus producing a sustainable image. This differentiates their product from their competitors.Weakness of the value chain for Starbucks include over saturation of the brand and diminishing growth opportunities due to buying out their competitors in choice real estate locations.Financial Analysis liquid stateStarbucks 2008Industry MedianCurrent balance0.800.89Quick proportion0.500.50A current ratio sums how well Starbucks is able to meet its short term obligations. A warm ratio measures the same, minus inventories. Starbucks current ratio aligns with the industry median which means their current ratio is considered a norm for the industry. Their quick ratio also aligns with the industry median suggesting that the company doesnt have too much of its liquid assets tied up in inventory and that they are not dependent on the sale of that inventory to finance operations. The ratios higher up generally imply that Starb ucks is able to pay its short term obligations including items such as vendor bills, rent, utilities and payroll. This number also registers that Starbucks is credit worthy because they have enough cash to pay off their short term debt and revelatory that they pay their bills on time.ActivityStarbucks 2008Industry MedianInventory swage8.329.2Total Asset Turnover11.2Inventory Turnover dimension describes how quickly product is being sold. Starbucks inventory turnover is 8.3. The industry median is 29.2 suggesting that Starbucks is lagging in ability to turn over its inventory compared to its competitors. With a ratio of 8.3, Starbucks essentially filled and sold everything on its shelves eight clock in the year 2008, while the competition filled and sold 29 times.Total Asset Turnover offers managers a measure of how well the firm is utilizing its assets in order to generate sales revenue. An increasing ratio would indicate that the firm is using its assets more efficiently. Star bucks 2008 ratio was 1, slightly lower than the industry median, and their 2007 ratio was 1. This implies that Starbucks hasnt changed the way its using its assets. As this number also indicates pricing strategy and thus suggests that Starbucks has not changed its pricing strategy in the aside two years of data.ProfitabilityStarbucks 2008Industry Median glaring Profit borderline55.30%42.16%Net Profit Margin0.88%7.67%Gross Profit Margin represents a firms money left over after the cost of goods sold. Gross Profit Margin helps the company pay for future liabilities and future savings. Starbucks take in 10,383 million in revenue for 2008. Their ratio of 55% indicates that they made roughly a little more than 50 cents for every dollar gain after the cost of goods sold was subtracted.Net Profit Margin Ratio depicts how much of every dollar earned a company keeps in earnings. Starbucks is much lower than its industry median. A higher profit delimitation indicates a more profitable co mpany thathas better control overits costs compared toits competitors. As Starbucks markets itself as a luxury brand and charges on fair four dollars for a cup of coffee, its no wonder its much lower than its competitors. This number can also indicate that Starbucks operating costs to produce their luxury coffee is increasing in cost. These items include dairy products, coffee beans, cups, syrups etc.Finally Starbucks has a high gross profit compared to a low net profit. This could suggest that Starbucks isnt very good a controlling their expenses.Leverage, earnings Per Share, Price/EarningsStarbucks 2008Industry MedianDebt to comeliness1.281.17Debt to Assets0.56The debt/equity ratio shows how much a firm has borrowed as a percentage of its communication channel equity. Often, the lower, the better. Starbucks ratio suggests that it is not borrowing heavily against the stock equity compared to its competitors.Debt to assets ratio shows what portion of funds is being provided by c reditors. Starbucks ratio shows that they are using very little credit.Price to Earnings Ratio 127According to Benjamin Graham, and investment is considered speculative stock when it has a P/E higher than 15, regardless of industry. Warren Buffet currently trades on this rationale. Using this rationale, that would suggest that Starbucks is severely overvalued. If we were to follow Benjamin Grahams theory on speculative stock, Starbucks should be trading at a 1.80 per share. The industry average for P/E is approx 20-25 under current finance ratios. This number fluctuates ground on current stock price. Therefore Starbucks range should be from 2.40-3.00 per share.Earnings Per Share-12 Cents (1 Q, 2009)Earnings Per Share shows how many dollars in profit were earned per expectant shares of the common stock. The current EPS would show that Starbucks business has pulled back considered since 2008s quarterly reports which listed EPS at 43 cents per share. Therefore, based on this informat ion, an investor could make the assumption that Starbucks debt is virtually adequate to there income. And given one more or two more quarters of loss, the income would be less than the debt and would set the company up for a loss. This could generate from closed stores, overstock of inventory, and inflation.Strategy RecommendationA generic strategy is a core idea about how a firm can best compete in its current marketplace (Pearce Robinson, 2007). While Starbucks has many different strategies to consider, a generic strategy is currently recommended to a lower place given the research found in this report.Recommended Strategy For StarbucksDifferentiationStarbucks can best achieve its long terms strategies by continuing to strive to create and market unique coffee based products to varied customer groups through differentiation. The following direction points will be the basis for the competitive strategyRivalry will be reduced with successful differentiation.As Starbucks markets i tself as a luxury brand and experience, customers will be less sensitive to prices if Starbucks products are successfully differentiate.Starbucks differentiation and focus strategy pushes customers to brand loyalty which will make it difficult for new entrants to overcome.Starbucks currently exhibits and utilizes both differentiation strategy and the focus strategy. Starbucks has developed a customer loyalty that enables the firm to charge a premium price for its products. Starbucks demographic formation of their consumer base is narrow in direction. Their target consumer is middle to upper class and an educated coffee drinker who prefers quality and customer service over a low-cost price. This suggests that the firm is using a focus strategy anchored in a differentiation base because they attend to the needs of this demographic. Starbucks has differentiated themselves from their competitors by providing an image of the luxury coffee experience and should continue this salute for long term growth and profit.ImplementationWith regard to execution, the following chalk out is recommended.initiate specific functional tacticsoutsource nonessential functions intercommunicate policies to all partnersdesign effective rewardsStarbucks can successfully implement their implementation plan by turning their strategy into action by following the steps belowcontinue to provide and create new products sensed of higher value to buyerscreate a new products business unit for streamlined product development introductionanalyze current economies of scale to reduce costscontinue to develop and motivate there partners as they are there best assets.continue closing of under do stores as neededincrease global presence in prime locations to wash out weakening domestic economy issuesEvaluation and agreeStarbucks should evaluate these goals quarterly beginning in 2009 to avoid potential losings and provide for ample time for development of contingency controls. Starbucks can meas ure success by analyzing the following metrics with regard to new strategies and products degenerate on InvestmentNet ProfitsPartner Feedback-Starbucks values its partners and considers and considers them one of their greatest strengths.Customer Feedback-Continued customer satisfaction is key to the success of the business.leaders and Ethical ConcernsHoward Schultz is a CEO who embraces change and someone who has a strong strategic plan. His vision is currently being announced in his transition agenda which essential brings Starbucks backs to its roots. It is a simple plan and it is compelling. His ethical standards are directly tied to the culture of the company and at present is not a concern. Starbucks guiding principles found in Appendix A keep the company focus driven on providing high ethical standards across all business operations.