Starbucks Wide Acceptance By The Public - Essay Example

Starbucks Wide Acceptance By The Public Starbucks Coffee is located in many countries around the world. It is currently the is the world’s no. 1 specialty coffee retailer. Starbucks has over ten thousand shops in over thirty countries around the planet. This specialty coffee shop offers not only coffee drinks and food items but also beans, coffee accessories, teas and CDs. Most of the shops are located in ten countries (mostly in the United States). Starbucks also owns and offers franchises the Seattle’s best coffee through grocery stores and licenses its brand for other food and beverage products1. Per Abstract table below, the net income for the last 3 years are $494,467, for the year 2005, $390,559 for the year 2004 and $268,346 for the year 2003. According to the Corporate Social Responsibility Report of 2005, Starbucks because of it wide acceptance by the public is giving back to communities and the environment. It also treats people with respect and dignity. The company is dedicated to serving the world’s best coffee to everyone everywhere and anytime. The company demonstrates its beliefs in the guiding principles of their mission statement in the way they do business. The company stated that “In fact, corporate social responsibility at Starbucks runs deeply throughout our company. Here are some of the commitments we’ve made to do business in a socially responsible manner.2” The August 15, 2002 issue of Eurofood stated that Starbucks coffee of the United Kingdom has loudly announced that it will introduce the Starbucks Organic Shade Grown Mexico coffee in Starbucks stores in the United Kingdom. This coffee food group is certified to be 100% organic by the Soil Association. The introduction of Starbucks Organic Shade Grown Mexico coffee was the understanding between Starbucks and Conservation International. This partnership will give the farmers economic benefits if they will use environmentally friendly sound agricultural methods to preserve tropical biodiversity. Starbucks of the United Kingdom further stated that "The new organic coffee from Starbucks is great news for lovers of good coffee," said Martin Cottingham, marketing director, Soil Association. "Three quarters of households are now buying organic products so there is a lot of interest in new lines. We are delighted that Starbucks is taking the initiative in launching Organic Shade Grown Mexico and that they have opted to team up with the Soil Association for organic certification consumers really trust." Conservation international is a non profit organization that the current natural heritage of our planet should be preserved in order for our children and our children’s children to enjoy in terms of spiritually, culturally and economically. According to Eurofood, 2001 issue the British Development Agency Oxfam has called on the its members to initiate moves to aid the economically disabled farmers because of the slump in the international prices of coffee. Oxfam is highly recommending that the members of the Association of Coffee Producing Countries (ACPC) should unite to destroy over 15 million bags (each containing 60 kilos) of low-grade coffee. The Oxfam group is also urging their members to withhold coffee beans that are scheduled to be exported over a three-year period and impose a windfall tax on large coffee roasters so that it can partly help finance the stock disposal plan. The Oxfam group also suggests the development of an international fund that will also help share the costs of destroying and also retaining of coffee stocks around the world. This will cover both the entire coffee producing and the coffee customer worlds. Oxfam also predicts that the failure to tackle the crisis in the world's coffee market may will result to the consignment of millions of farmers and their families to extreme poverty. Oxfam also reiterated that its research has emphasized that there is a glaringly huge difference between the incomes of farmers in developing countries and the rising fortunes of retail chains and multinationals. Oxfam policy adviser Celine Charveriat clearly emphasized that "The crisis in coffee markets is producing record profits for some and mass poverty for others". The economic reason, as we have learned in our fundamentals of economics class’ supply and demand curve topic, is that the fall in coffee prices over the past three years has been massive oversupply, plus stagnating consumption and high stocks in importing countries. Prices of the lower quality coffee used mainly in blends and instant coffee have plummeted by around 62% over the past two years on the London market. The Exporting countries have also established a global retention plan in May 2000 that requires the coffee member participants to retain an estimated 20% of exports until a trigger price reached a pre arranged level. However, this plan has not been strictly followed by some of its members and it looks highly to fail. This is because of the coffee rivalry between Asian and Latin American producers and also some monetary problems. In the November 7, 2002 issue of Eurofood journal stated that “ A Reuters Business Insight report by Datamonitor states that the way we eat breakfast is changing. Lifestyle changes has led to changing eating patterns, and the importance of breakfast continues to decline as more people either skip breakfast or chose to eat at work. A variety of factors have led to the decrease in eating breakfast at home, with increased labour mobility and longer working hours ensuring that consumers do not have sufficient time in the morning for a traditional breakfast.” This shows that there is a trend to just sip a cup of coffee for a few minutes then, its work, work and more working to meet the deadlines. This On-the-go breakfast consumption and breakfast at the desk or fondly termed as `deskfast', are both serious economically hot topics in the breakfast market. Breakfast food manufacturers have harnessed their scarce resources to recover lost revenues from the declining breakfast-at-home consumption. The young and idealistically busy office workers are the main targets of the breakfast food manufacturers. The young office workers are pressed for time and looking for a fast and functional breakfast. Often times, This DESKFAST breakfast solution clearly lacks the nutritional value required to evade hunger until lunchtime. This deskfast is tempting the consumer to eat on-the-go or to escape the office for a midmorning COFFEE and snack. Also, another big growth area is the office canteens which are increasing as employers encourage their employees to work longer hours. Employers are eager, in their desire to meet company benchmarks, to encourage employees to arrive at work early. The employers contract caterers who are keen to realize new revenue as canteen concessionaires. The employees are excited to have an enjoyable and cost-effective breakfast prepared for them. The innovative food retailers are also now adjusting to this breakfast on the go craze. They are placing all breakfast products in an easily accessible `breakfast zone' such as cereal, bakery, dairy products and fresh fruit. In fact, the vending machine is counting down to the day, which is very close indeed, to metamorphose beyond the chocolate or canned drink dispenser that has proven so popular for snack foods in the past. We can easily foresee that future vending machines will facilitate the new breakfast options with the use of technology that allows food to be chilled or frozen and then toasted or baked to make enjoyable and other indulgent breakfast options that can compete with the taste of foodservice options. The weekend provides for a more indulgent affair when it comes to breakfast. The breakfast is slow as the same worker now relaxes as he eats his breakfast with the entire family. Romantic couples even flirtingly have their breakfasts inside the bedroom. Currently, the great proliferation of premium and exotic products that has increased the desire of consumers to literally FIX their own indulgent breakfast to balance both the longer working hours and resulting rushed breakfasts. The traditional British fry-ups of eggs, bacon, sausages and baked beans is now suffering a long-term decline because it is time consuming to prepare and there is some rumor that this old fashioned way is deemed unhealthy. In reaction to the frugal diet forced on them during the week, however, consumers are prepared to indulge in a more leisurely breakfast at the weekend with their loved ones. Over the last few years, the traditional full cooked breakfast has now been changed to a weekend indulgence. However, the proliferation of many premium breakfast options, which has recently been viewed as healthier than a fry-up job, shows that many consumers look for a variety of health foods for that indulgent weekend breakfast means that the fry-up is facing a high walled competition more than ever. There is a new trend where early breakfast is totally skipped. This is known as the brunch trend. Brunch is another growth area in the breakfast sector with the US influence with the concept of `brunch'--getting up late means that breakfast would reduce the consumer's appetite for lunch, and the two meals are therefore mixed to make brunch. There are other foreign breakfast styles such as the French and Italian options, particularly croissants, pain au chocolat and espresso that are increasingly popular to the busy working people. Another research group, Datamonitor, also discovered, that although cereal consumption is relatively high in Scandinavia, France and Germany, it is the consumers in the United Kingdom and the United States that have really adopted cereals as the mainstream breakfast option. The Breakfast cereals forms around a quarter of the total breakfast spending in the United Kingdom and the United States as compared to levels below 10% in continental Europe. After the British found their love for cereal as the new breakfast menu, the United Kingdom is now increasing its demand for cereal bars, with sales growth exceeding 16% per annum over the last five years and the largest overall market for cereal bars in Europe. The next consumer group, children, are already established as a key consumer sector for breakfast foods. The importance of this group is reflected in new launches, with 20% of new products launched in 1998 to 2001 being aimed at children. This Eurofood,  Nov 7, 2002  issue states that the total UK market size for key breakfast categories 1996-2001 (US$ m) 1996 1997 1998 1999 2000 2001 CAGR Bread 4 324 4 527 4 726 4 827 4 900 4 984 2.9% Juice 1 820 2 070 2 350 2 440 2 540 2 580 7.2% Cereals 1 713 1 757 1 828 1 886 1 984 2 062 3.8% Milk 3 817 3 908 3 948 3 870 3 920 4 000 0.9% Coffee 1 414 1 494 1 555 1 580 1 606 1 631 2.9% Yoghurt 900 974 1 053 1 083 1 114 1 128 4.6% Tea 1 214 1 239 1 286 1 293 1 300 1 308 1.5% Total 15 203 15 967 16 746 16 979 17 364 17 693 3.1% Source: Datamonitor/Reuters Business Insight. The above data research data shows that coffee forms only 2.9 percent of the children’s breakfast while juice occupies a bigger consumer market pie chart value of 7.2% According to the Eurofood’s Nov 21, 2002 issue, it stated that “The Italian coffee roaster Segafredo Zanetti Espresso Worldwide has acquired a 20% stake in Puccino's, a chain of coffee shops with 80 outlets in the UK and annual sales of 20m [euro]. Based in Bologna, Segafredo plans to acquire a further 50% of Puccino's by 2004. Puccino's comes in three formats: takeaway kiosks at railway stations and shopping precincts, coffee bars and restaurants serving salads, sandwiches and light meals.” Segafredo is expected to exploit Puccino’s experience to develop its own franchising method and there are already approved plans to open up over forty new stores within the next few years. The study of Starbucks coffee also includes the study of its competitors like the new United Kingdom entrant Segaredo Zanetti Espresspo and Starbuck’s long time competitor Puccino Coffee. Segafredo is now entering into uncharted territories as it literally uses the territorial expertise of Puccino to imprint its name in the United Kingdom market. According to the Eurofood, March 14, 2002, issue that “German coffee firm Tchibo Frish-Rost-Kaffe, part of Tchibo Holding, looks set to explode onto the UK coffee bar scene with the expansion of its stores. The German firm opened up twelve stores back in November 2000 to test the market. With very successful results, Tchibo plans to open another 20 to 40 stores in the UK, according to Lebensmittel Zeitung.” As mentioned above, the study of Starbucks coffee includes a study of the Starbucks competitors in the United Kingdom market segment. This United Kingdom segment is only part of the world coffee market pie. This German coffee firm is boldly entering into the United Kingdom market because its major competitor, Starbucks Coffee has been doing well in the United Kingdom coffee market. Economics tells us that if one economic sector is doing well in a locality then a competitor will do also well because it will literally eat up inch by inch the present business in the same locality. Therefore, if we apply logic to the study: United Kingdom residents love coffee, including Starbucks Coffee. Tchibo Frish-Rost-Kaffe makes coffee. Therefore, the United Kingdom residents will love Tchibo Frish-Rost-Kaffe coffee. The successful results of opening twelve test stores in the United Kingdom proves that our logic statement above is true. Eurofood’s August 29, 2002 issue states that “UK coffee bar Coffee Republic is reportedly in merger talks with compatriot sandwich chain Benjys, although neither firm would comment on the speculation. Reports suggest Bobby Hashemi, executive chairman at Coffee Republic, is in negotiations with his counterpart at Benjys, Ian Rickwood, thrashing out a deal which would give Benjys a controlling stake in the coffee chain. Various sources believe Benjys is looking for between 57.5% and 62.5% in Coffee Republic.” This proposed deal is what we call in business parlance as a reverse merger because benjys has become a part of the coffee firm Coffee Republic. The result is that the merger will make the combined force drop from a full listing to the junior alternative investment market. Benjys sandwich chain was founded in 1989 by the Benjamin family, with Rickwood leading a management buy-in in 2000. The 48-strong sandwich chain had plans to become a national food chain because the majority of its current outlets are located in London. That plan to go national has been accomplished with the link up with Coffee Republic. The confirmation by both the Benjys camp and the Coffee Republic camp had arrived only a few weeks after the coffee chain revealed its competitor Caffe Nero had successfully purchased a 4.32% stake in Coffee Republic. Caffe Nero has since increased its original stake to the higher estimated 10% stake. In fact, Segafredo had Sumimoto as its franchisee that operating 20 outlets. This Segafredo and Sumimoto business marriage will result to a over 200 more outlets that will opened within the next five years. The business marriage have plans to conquer uncharted territories as it will developed the untamed coffee forests of China, where the first Segafredo espresso bar will open at the end of the year followed by Scandinavia regions starting with the scenic place and busy population of Finland. REFERENCES: Starbucks to sell organic coffee - Company News - Starbucks Organic Shade Grown Mexico coffee to be sold in the UK, Eurofood, August 15, 2002 Coffee retention plan urged by UK charity Oxfam - United Kingdom, Eurofood, May 24, 2001 Breakfast habits on the change, UK, Eurofood,  Nov 7, 2002   Segafredo takes stake in UK chain, Eurofood, Nov 21, 2002 Tchibo to expand UK chain, Tchibo Frish-Rost-Kaffe to open United Kingdom stores, Eurofood, March 14, 2002 Coffee Republic in talks with Benjys, Eurofood, August 29, 2002 Hoovers.com Starbucks.com APPENDIX Abstract A Income Statement Starbucks Coffee Income Statement (all numbers in thousands.) Starbucks Coffee PERIOD ENDING 2-Oct-05 3-Oct-04 28-Sep-03 Total Revenue 6,369,300   5,294,247   4,075,522   Cost of Revenue 2,605,212   2,191,440   1,685,928   Gross Profit 3,764,088   3,102,807   2,389,594   Operating Expenses Research Development -   -   -   Selling General and Administrative 2,720,049   2,266,109   1,765,470   Non Recurring -76,745 -60,657 -38,396 Others 340,169   289,182   237,807   Operating Income or Loss 780,615   608,173   424,713   Income from Continuing Operations Total Other Income/Expenses Net 15,829   14,140   11,622   Earnings Before Interest And Taxes 796,444   622,313   436,335   Interest Expense -   -   -   Income Before Tax 796,444   622,313   436,335   Income Tax Expense 301,977   231,754   167,989   Minority Interest -   -   -   Net Income From Continuing Ops 494,467   390,559   268,346   Net Income 494,467   390,559   268,346   Read More