Analysis of Starbucks Caf - Assignment Example

? Analysis of Starbucks Cafe February of Starbucks Cafe is the largest coffeehouse chain in the world. The firm was founded in 1971 in Seattle Washington by three partners: Jerry Baldwin, Zev Siegl and Gordon Bowker. The firm operates over 17,651 stores across 60 countries. The CEO and chairman of Starbucks Cafe is Howard Schultz. The mission of the company is to inspire and nurture human spirit – one person, one cup, and one neighborhood at a time (Starbucks, 2012). The company is a publicly traded company whose stocks are sold in the open market under the symbol SBUX. The common stocks of Starbucks Cafe were trading at a price of $55.79 as of January 31, 2013 (Yahoo, 2013). The firm’s revenues have grown by 24.24% during the last two years. The future development of the company will be achieved by its continued expansion into foreign markets. The company has a market presence in 31% of the countries worldwide. The core competency of the company is in the sales of gourmet retail coffee. Starbucks Cafe in 2012 entered into a partnership with Green Mountain. Following the announcement of the deal the common stocks of Green Mountain increased in value by 6% (Andrejczak, 2012). The company has mastered the management of its supply chain. It sources coffee using fair trade coffee practices. The store has 192,866 employees and 39.66% of its workforce works outside the United States (Cnn, 2012). The employees of the company are very satisfied with their jobs. There is a low employee turnover rate at the company. The planning at Starbucks Cafe is performed by the executive management team led by his CEO Howard Schultz. The firm also has a board of directors that oversees the operation. The company faces structural problems such as dealing with the human resource challenges of having a large labor force, negotiation with suppliers and farmers, and fierce competition. The decisions the company makes are mostly programmed, but the firm’s at times makes nonprogrammed decisions to adapt to market changes. The firm faces certain uncertainly in the price of acquiring coffee since coffee is a commodity whose price fluctuates. The firm since its inception has done a good job at planning for the future. During the 1990’s Starbucks was one of the fastest growing franchises in the United States. The company is organized as a publicly traded company whose stocks are sold in the New York Stock Exchange. The decision making of the company is organized in a centralized system. The corporate headquarters of the firm are located in 2401 Utah Avenue, South Seattle WA 98134. The reason that the company uses a centralized system is because the company must maintain consistency across its company owned and franchisee locations. A drawback of centralized systems is that it inhibits creativity. The organizational culture of the company is excellent. The firm believes in the value of diversity. The employees are referred too as baristas. The firm offers tremendous customer service to its clients. Starbucks Cafe has an excellent managerial team. The success of the company is evidenced by the outstanding financial performance of the firm. The managers of the company have done a great job of training its employees. The baristas of the firm are extremely productive workers. There is good teamwork among the workers of the firm. The managerial staff has also done a great job of integrating technology into its facilities. Starbucks Cafe was one of the first food places to offer free Wi-Fi internet to its customers. Howard Schultz is a charismatic leader. Charismatic leaders are able to have a profound effect on its followers. There are different performance indicators that the company must monitor closely. An important performance indicator is market share. Starbucks has a 33% market share in the U.S coffee marketplace. An important metric to measure the profitability of the company is net margin. The net margin of the company in 2011 was 10.65%. A third performance indicator is earnings per share. The earnings per share of Starbucks Cafe in 2011 was $1.66. A performance indicator that is very important for the investors of the company is dividends per share. The company had dividends per share in 2011 of $0.56. The firm has accomplished its financial and operating goals during the most recent fiscal year. A SWOT analysis is composed of four sections: strengths, weaknesses, opportunities, and threats. Starbucks Cafe is the largest coffeehouse in the world. One of the strengths of the company is its corporate image and brand value. A branding strategy enables a company the ability to charge a premium price for its products. The company has done an excellent job of marketing its brand worldwide. A second strength of Starbucks Cafe is its superb financial performance. In fiscal year 2011 Starbucks Cafe generated revenues of $11.7 billion and net income of $1.25 billion (Starbucks, 2011). The market capitalization of Starbucks Cafe is $39.38 billion. A third strength of the company is its low infrastructure cost to set up a store. Starbucks has great leverage and power within the industry due to its market share of 33%. The target market of the company is coffee drinkers between the ages of 25 to 40 (O’Farrell, 2012). During 2011 the net margin of Starbucks Cafe was 10.65%. The net margin of the company is much higher than the industry average of 3.8% (Dnb, 2012). A weakness of Starbucks Cafe is that its product is a luxury item that performs poorly during bad economic times. Another weakness of Starbucks Cafe is its high raw material costs. Starbucks Cafe uses only fair trade coffee at its stores which is more than twice as expensive as regular coffee. During bad economic times the demand for luxury items such as drinking a Starbucks cup of coffee decreases. The firm also has high marketing costs due to its responsibility with its franchisees. The price point of the coffee and other drinks the store sells is also a weakness of the firm. The lack of potential growth for the future in its domestic market is a weakness. The firm does not have more room to grow in the US due to the saturation of the market. Starbucks Cafe is a company that has expanded its operations oversees. The company has further opportunities for expansion into foreign markets. The firm must expand internationally because the U.S market has become saturated. Starbucks has the opportunity to enter 132 untapped markets worldwide. Another opportunity for Starbucks Cafe is the potential to grow its sales in the retail marketplace by selling unprepared pounds of Starbucks coffee at supermarkets and other establishments. The company will enter the Vietnam marketplace in February of 2013. The location of the new store is Ho Chi Minh City (Dailynews, 2013). Another opportunity for the company is to diversify its product offering. In 2012 Starbucks began selling raw vegan juice bars (Michelle, 2012). A threat that Starbucks Cafe must be aware of is substitute products. In terms of competition in the coffee marketplace a major threat to the company is the continued expansion of McCafe. McDonald’s has over 34,000 establishments worldwide and its McCafe operation sells quality coffee at lower prices than Starbucks Cafe. Legal liability is another threat the company faces. To prevent further damage to its image the company in 2009 was forced to recall 530,000 grinders off the market due to a failure of grinders turning on by their own and cutting the hands of several customers (Olivares-Giles, 2009). The growth of substitute products such as tea also represents a threat to Starbucks. I learned a lot from performing this research project on a publicly traded company. The annotated biography helped me organize my research in a logical manner. For me the best source of information was the annual report of the company. The SWOT analysis was an effective tool to dissect the operations of the company. Starbucks Cafe has been able to expand its operation in large part due to the vision of its founders. The company should continue expanding its operations oversees due to the fact that there is limited growth opportunity in the US market. The company is well prepared to survive successfully in the market for years to come. The financial performance of the company indicates that this firm is a good stock to invest money in. The net margin of the company is much higher than the industry average of 3.8% (Dnb, 2012). The company’s current ratio is good because is above 1.0.The working capital of the firm during 2011 was $919 million. Starbucks Cafe has sufficient current assets to cover all its current liabilities. The return on assets (ROA) of Starbucks Cafe was 16.92% which is higher than the industry standard ROA of 4.90%. The total equity of Starbucks Cafe during 2011 was $4,387. In the past I have purchased coffee drinks from Starbucks Cafe. The product that Starbucks Cafe serves is exquisite. The company is the best coffeehouse in the world. Starbucks Cafe is a socially responsible firm that sources all its coffee using fair trade practices. Annotated Biography Andrejczak, M. (2012). Green Mountain shares gain on new Starbucks deal. Market Watch – Wall Street Journal. Retrieved January 15, 2013 from http://articles.marketwatch.com/2012-03-21/industries/31218171_1_keurig-single-cup-starbucks-coffee The source discusses the deal made between Starbucks Cafe and Green Mountain. Starbucks Cafe entered into a partnership with Green Mountain. Following the announcement of the deal the common stocks of Green Mountain increased in value by 6%. Starbucks will make coffee portion packs for Green Mountain’s new single cup Vue coffee brewer. This article written by Matt Andrejczak is a very credible source due to the fact that the website where it was retrieved, Market Watch, is sponsored by the Wall Street Journal. The Wall Street Journal is one of the leading business newspapers in the world. The source provided specific information about a partnership formed with a competitor in the industry. The information contained in this article can be used in the research paper to demonstrate the ability of the company to adapt to market changes and form partnerships with other companies that are mutually beneficial to both firms. This information can be used to demonstrate the ability of Starbucks to invest money in other ventures outside its retail ready to serve coffee operation. Cnn.com (2012). 93. Starbucks Coffee. CNN Money. Retrieved December 10, 2012 from http://money.cnn.com/magazines/fortune/bestcompanies/2010/snapshots/93.html The website article provides a description of the top 100 publicly traded companies in the world. The company targeted in the research, Starbucks Cafe, is ranked 93 in the world based on the CNN rankings. Starbucks employees are referred too as baristas and the firm employees over 150,000 people across its international network of stores. `The source is completely credible as CNN is recognized by the academic community as one of the major sources of global news. CNN Money is an extension of CNN. The list of the top 100 companies referred too in the document is a list that is compiled by CNN Money each year to rank the top companies to work for in the United States. The source is a good reference as it pertains to the topic of evaluating a publicly traded company. Some of the good information provided in the source that can be used in the research paper includes the company’s level of revenue, address of its corporate headquarters, and the URL of the corporate website of the company. Dailynews.com (2013). Starbucks enters entrenched Vietnam coffee market. Retrieved January 15, 2013 from http://www.dailyherald.com/article/20130113/business/701139993/ The source of information informs the general public about Starbucks Cafe latest international expansion initiative. The company will penetrate the Vietnam marketplace in February of 2013. The location of the new Starbucks Cafe establishment is Ho Chi Minh City. The Daily News was the source of information. The article was written by the Associated Press. The news reported in this article is credible since it informs the public about an actual international expansion plan that Starbucks is going to undergo in 2013. The article is useful because it portrays very recent news about the company. This source of information can be used in the research paper about Starbucks to demonstrate the continued initiatives of the company to expand its operations outside the United States. The firm already has 3,300 establishments in the Asian marketplace, but this is the first store that is going to open in Vietnam. Dnb.com (2012). SIC: 5812 – Eating Places. Retrieved December 10, 2012 from http://www.dnb.com The Dun and Bradstreet website represents a financial database that provides key financial ratios of different industries based on SIC classification. The SIC classification pertinent to the industry in which Starbucks Cafe operates is SIC: 5812 – Eating Places. Some of the categories of ratios included in the Dun & Bradstreet database are solvency, efficiency, and profitability. The information contained in the Dun & Bradstreet website is completely credible. Access to the information contained in the website is accessible through library academic databases or by becoming a paying member of the website. The most relevant financial ratios accountants and financial analysts utilize are included in the database. The source is pertinent to the research topic due to the fact that it provides financial information that can be utilized to compare the financial performance of Starbucks Cafe in relation to the industry. Three financial ratios that I may include in the research paper are current ratio, net margin, and return on assets. Michelle, R. (2012). Starbucks opens chain of raw vegan juice bars. Retrieved January 15, 2013 from http://www.naturalnews.com/036065_Starbucks_juice_bars_raw.html The article discusses a new strategy implemented by Starbucks of acquiring a fresh juice company. The health food industry represents a $50 billion market in the United States. The fruit bars will offer vegetable options which can be mixed according to the customers’ preference. Starbucks is targeting customers that have an increasing concern over health foods. The source is a website that has an article composed by a writer, Raw Michelle. She is a natural health blogger and researcher. The website has a professional look and it seems as a good credible source that provides information about health trends in America. The source is useful for a research paper on Starbucks because it offers a different view of the corporate strategies that Starbucks Cafe is implementing. The source can be used to describe a diversification strategy that the company implemented in 2012. The article has good data regarding why it is in the best interest of Starbucks to diversify its operations. Olivares-Giles, N. (2009). Starbucks Recalls 530,000 grinders. LA Times. Retrieved January 15, 2013 from http://articles.latimes.com/2009/jun/17/business/fi-starbucks-recall17 The article describes a risk factor scenario that Starbucks faced in 2009. The company had to recall 530,000 coffee grinders due to the fact that they turned on by themselves. The company recalled the grinders despite the million dollar losses immediately after three reports of people cutting their hands by the grinders when they turned on by themselves. The source of the information is the newspaper LA Times. The LA Times is one of the most prestigious news organizations in the state of California. The information is useful because it portrays one of the risk factors that the company faces. It also shows the corporate responsibility of the firm. The article selected can be used in a research paper about Starbucks to show how the company reacts to adverse situations. The firm did not hesitate to recall hundreds of thousands of coffee grinders to ensure the safety of its customers. O’Farrell, R. (2012). Who is Starbucks Target Audience? Retrieved December 10, 2012 from http://smallbusiness.chron.com/starbucks-target-audience-10553.html The article provides valuable information in regards to the target audience of Starbucks Cafe. Starbucks Cafe holds approximately a 33% share of the coffee market in the United States. The target audience among adults is people between the ages of 25 and 40 years, while among the teenage population the target audience of the firm are persons between the ages of 13 and 17. The information revealed in the article comes from the author, Renee O’Farrell. He works for the credible source, the Houston Chronicle, thus the assumption is that the author is a journalist with writing credentials. The article was well written and it provided specific information about the target market that can be useful in a research paper about a publicly traded company. The source is pertinent to the writing of a research paper on Starbucks Cafe because it helps the writer determine the primary customers of the company. The article divides the target audience in three categories: adults, young adults, and teenagers. An interesting finding from the article is that Starbucks Cafe generates a lot of revenues from complimentary products. Starbucks.com (2011). FY11 Annual Report. Retrieved January 15, 2013 from http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-irhome The source is the annual report of the company. The annual report shows information regarding the financial and operating performance of the company. It includes the four basic financial statements of the company which are the income statement, balance sheet, statement of retained earnings, and statement of cash flow. The annual report of Starbucks Cafe is a credible source of information due to the fact that it is an official report that public companies must submit to the Securities and Exchange Commission (SEC). The information within the annual report is very useful because it contains data regarding the most recent fiscal year of the company. The reference as it pertains to the research topic is extremely valuable. Along with the financial statements the annual report contains other sections that provide a wealth of information regarding Starbucks Cafe. Some of the main sections of the annual report are risk factors, legal proceedings, management discussion and analysis, and control and procedures. Starbucks.com (2012). Our Heritage. Retrieved December 11, 2012 from http://www.starbucks.com/about-us/our-heritage Starbucks Cafe was founded in 1971. Its charismatic chairman, Howard Schultz, took over the company in 1981. The organization today has over 17,000 stores across 55 countries worldwide. From its inception the firm tried to be different and celebrate coffee and its rich tradition one cup at a time. The source of information comes from the corporate website of Starbucks Cafe. When researching public companies the corporate website is one of the most useful and most credible sources of information a writer can find. The heritage of the company and its basic history was very well described by the source. The source as it pertains to the research topic is useful since it provides a historic background of the company. Since the basic source is the corporate website of the company this source can be used to gather other information regarding the company by pressing the different links available within the website. Yahoo.com (2013). Starbucks Corporation (SBUX). Yahoo Finance. Retrieved January 31, 2012 from http://finance.yahoo.com/q?s=sbux&ql=1 The source provides financial information about Starbucks Cafe. Starbucks Cafe is traded in the NYSE under the symbol SBUX. The current price of the common stock as of January 15, 2013 is $54.22. The market capitalization of the company is $40.35 billion. The EPS of the company in the most recent fiscal year was $1.79 The reference or source of information comes from the second largest browser website in the world. Yahoo Finance is an extension of Yahoo. Its purpose is to provide credible and accurate financial information about public companies such as Starbucks Cafe. This website is very useful for the research paper because it provides updated information about Starbucks Cafe. The financial metrics revealed in the website are financial results that can be used as the basis for the financial analysis of the company. The capabilities of the website include the ability to retrieve historical market prices for SBUX. Read More