Starbucks in 2009: The Coffee Goes Cold - Coursework Example

Download file to see previous pages Starbucks sells a premium product which based on the laws of economic these types of product have a declining demand during bad economic times due to lower consumer disposable income. This paper will analyze Starbucks Cafe. Some of the tools that will be used to analyze the company include SWOT analysis, financial analysis, alternative solutions, and recommendations. SWOT Analysis One of the strengths of Starbucks Cafe is its tremendous brand value. The company is the market leader in the industry by a wide margin. Starbucks has 16,660 outlets, while its closest competitor in the United States has less than 500 stores. The firm enjoys a huge market share advantage over the competition. The product variety of the company is another strength of the company. A third strength of the firm is its tremendous corporate social responsibility program. In 2009 Starbucks doubled its purchases of fair trade coffee and it implemented a program in which it donated 5 cents out of every sale of certain beverages towards the AIDS cause. A weakness Starbucks faces is that the coffee market has become saturated in the United States. There are over 22,000 coffeehouses in the United States. A second weakness Starbucks Cafe has is that its product is priced higher than many competitors. The economy in 2008 was facing a recession and the demand for luxury items is lowered during recessions. A third weakness the firm faces is that its profitability declined in 2008. Lower profitability can lead to liquidity problems. An opportunity the firm has is to achieve growth in other international markets by expanding its licensing revenues of packed foods. The company currently sells Starbucks packaged branded foods at 37,000 stores in the United States, but its only sells these products in 4,000 stores internationally. The company could increase its revenues considerably by tripling the amount of stores that carry Starbucks packaged products internationally. A threat that Starbucks faces is the entrance into the gourmet coffee marketplace of McDonald’s. McDonald’s has double the outlets of Starbucks, thus the company can take away market share from Starbucks since their premium coffees are more economical than purchasing Starbucks coffee. Financial analysis In 2008 Starbucks Cafe achieved global sales of $10,383 million. The sales of Starbucks increase by 10.32% in comparison with the previous year. Despite its impressive revenues the company generated a net profit of $64.3 million. The net income of the company was lower by $143.8 million in comparison with 2007. The net margin of the company in 2008 was 0.62%. The industry average net margin in the food store industry is 1.6% (Dun & Bradstreet, 2011). The firm’s net margin was in relative terms 62.5% lower than the industry. One of the reasons the profitability of the company went down in 2008 is because its operating costs increased by $529.2 million compared to 2007. Porter’s Five Force Model The rivalry in the gourmet coffee segment of the food industry is intense. Starbucks is the market leader and many competitors target Starbucks since they all want to steal market share away from them. Dunking Dunuts ran and ad that says, “Friends don't let friends drink at Starbucks.” (Starbucks in 2009: Coffee Goes Cold). In the United States there are 21,400 coffeehouses. The threat of ...Download file to see next pagesRead More