Starbucks Corporation

Company Profile
Publication Date: 29 Sep 2011

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Starbucks Corporation

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Starbucks Corporation
TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5

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Starbucks Corporation
Company Overview

COMPANY OVERVIEW
Starbucks Corporation (Starbucks or "the company) is a premier roaster and retailer of specialty
coffee. The company operates in the US, Asia Pacific, the Europe Middle East Africa (EMEA) region,
and Latin America. Starbucks is headquartered in Seattle, Washington and employs 137,000 people.
The company recorded revenues of $10,707.4 million during the financial year ended September
2010* (FY2010), an increase of 9.5% over FY2009.The operating profit of the company was $1,419.4
million in FY2010 compared to an operating profit of $562 million in FY2009. The net profit was
$945.6 million in FY2010 compared to a net profit of $390.8 million in FY2009.
*Starbuckss financial year ends on the Sunday closest to September 30. The financial year ended
October 3, 2010 was a 53-week period whereas the financial year ended September 27, 2009 was
a 52-week period.

KEY FACTS
Head Office

Starbucks Corporation
2401 Utah Avenue South
Seattle
Washington 98134
USA

Phone

1 206 447 1575

Fax
Web Address

http://www.starbucks.com/

Revenue / turnover 10,707.4

(USD Mn)
Financial Year End

September

Employees

137,000

NASDAQ National
Market Ticker

SBUX

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SWOT Analysis

SWOT ANALYSIS
Starbucks Corporation (Starbucks or the company) is a premier roaster and retailer of specialty
coffee. It operates in more than 50 countries through its company-owned stores as well as licensed
retail stores. Starbucks's wide geographical reach increases its bargaining leverage and also enhances
its brand equity.The companys continued expansion in existing markets as well as new and emerging
countries is indicative of its plans to establish a global retail footprint and reduce its dependency on
few markets. However, the companys profitability could be adversely affected by rising coffee prices.
Strengths

Weaknesses

Wide geographic presence strengthened

by continued expansion
Strengthening presence in other distribution
channels
Research and development capabilities
leveraged to strengthen product portfolio

Product recalls adversely affect brand

image

Opportunities

Threats

Growing presence in key Asian markets

Investments to improve customer interface
Expanding presence in the growing
single-serve coffee market in the US

Rising commodity prices can adversely

affect Starbucks's profit margins
Rising labor cost in the US
Slowdown in the US economy

Strengths

Wide geographic presence strengthened by continued expansion

Starbucks has a wide geographic presence with operations extending to more than 50 countries.
Its international markets include Argentina, Australia, Austria, Brazil, Bulgaria, Canada, China, Czech
Republic, France, Germany, Greece, Hong Kong, Indonesia, Ireland, Japan, Malaysia, Mexico,
Middle East, New Zealand, Peru, Poland, Portugal, Romania, Russia, Singapore, South Korea,
Spain, Switzerland, Taiwan, Thailand, Turkey and the UK. The company operates in these markets
through its own stores as well as licensed retail stores. At the end of FY2010, Starbucks had 6,707
company-operated retail stores in the US and 2,126 in international markets (Canada 799, the UK
601, China 220, Germany 142, Thailand 133 and other countries 231). Revenues from these
company-operated retail stores accounted for 84% of total net revenues in FY2010.
The company partners with established local players for access to retail space to operate licensed
retail stores. Starbucks receives royalties and license fees under these arrangements. At the end

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of FY2010, the company had 4,424 licensed stores in the US market, and 3,601 licensed stores in
the international markets (Asia Pacific 2,141, Europe/Middle East/Africa 840, Canada 274, Mexico
283 and Rest of Americas 63). The royalty and license fee revenues from the US and international
licensed retail stores accounted for 50% of revenues from specialty operations (Specialty operations
contributed 16% to the total revenues of the company) in FY2010.
Starbucks has been pursuing opportunities to expand its company-owned retail stores. In August
2010, it assumed 100% ownership and operating control of Starbucks Brazil through the acquisition
of Cafes Sereia do Brasil Participacoes. Consequently, the business in Brazil was converted into a
company-operated business enabling Starbucks to focus on the strengthening its presence in Brazil,
the largest consumer market in South America.
The company is also working towards expanding its market presence by partnering with local
companies in existing markets as well as new and emerging countries. In August 2010, Starbucks
entered into a strategic area development agreement with Corporacion de Franquicias Americanas,
one of Central Americas largest multi-brand franchise operators, to open licensed Starbucks stores
throughout Central America. The first store was open in San Salvador, El Salvador in November
2010. Another store was opened in Guatemala in March 2011. Starbucks is also aiming at
strengthening its foothold in the Asian markets. The company has recently announced plans to enter
the India market in alliance with Tata Coffee. Both companies will jointly explore the development
of Starbucks retail stores in associated retail outlets and hotels. Starbucks is also aggressively
penetrating the Chinese market. The company expects to operate over 1,500 stores by 2015.
Starbucks's wide geographical reach increases its bargaining leverage and also enhances the
companys brand equity. The companys continuous efforts towards expanding its international
presence are indicative of its plans to establish a global retail footprint and reduce its dependency
on few markets.
Strengthening presence in other distribution channels
Starbucks has been undertaking initiatives towards developing its brands through a number of
channels besides the company-operated retail store environment. Starbucks is expanding its
distribution network to include as many channels to reach customers where they work, travel, shop
and dine. The company enters into tie-ups with third parties in various forms, including licensing
arrangements, foodservice accounts and others. Starbucks licenses the rights to produce and market
Starbucks and Seattles Best Coffee branded products through several partnerships both domestically
and internationally. For instance, it is a 50% equity investor in the North American Coffee Partnership,
a joint venture with Pepsi-Cola Company, which is engaged in manufacturing and marketing
ready-to-drink beverages, including bottled Frappuccino beverages, Starbucks DoubleShot, and
Seattles Best Coffee espresso beverages in the US and Canada markets. Starbucks also has
licensing agreement with a partnership formed by Unilever and Pepsi-Cola Company for the
manufacturing, marketing and distribution of Starbucks super-premium Tazo Tea beverages in the
US. Additionally, Starbucks sells packaged coffee and tea internationally directly to warehouse club
stores such as Costco Wholesale. The company also sells whole bean and ground coffees, including
the Starbucks and Seattles Best Coffee brands, as well as a selection of premium Tazo teas,

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Starbucks VIA Ready Brew and other related products, to institutional foodservice companies that
service business and industry, education, healthcare, office coffee distributors, hotels, restaurants,
airlines and other retailers. It also sells Seattles Best Coffee through arrangements with national
accounts.
Starbucks has been expanding its distribution network through strategic agreements with various
business partners. The company entered into an agreement with Courtesy Products (a leading
provider of in-room coffee service in hotels in the US) in 2011, to offer Starbucks ground coffees in
approximately 500,000 luxury and premium hotel rooms across the US. In the same year, Starbucks
entered into a strategic partnership with Green Mountain Coffee Roasters for manufacturing,
marketing, distributing and sale of Starbucks and Tazo Tea branded K-Cup portion pack for use in
GMCRs Keurig Single-Cup brewing system. Starbucks and GMCR plan to make Starbucks K-Cup
portion packs available through food, drug, mass, club, specialty and department store retailers
throughout the US and Canada beginning in the fall of 2011.
Seattle's Best Coffee, a division of Starbucks, has been expanding its distribution channels. The
division currently markets its products through diversified distribution channels, including cafes and
kiosks, college campuses, restaurants, hotels, airlines, cruise ships, bookstores, grocery stores and
movie theatres. It continues to explore new distribution avenues. In 2010, Seattle's Best Coffee
signed an agreement with Burger King to offer Seattle's Best Coffee at nearly 7,250 Burger Kings
restaurants across the US market. In the same year, Seattle's Best Coffee entered into an agreement
with AMC Theatres to offer its products at 300 AMC Theatres throughout the US. Furthermore,
Seattle's Best Coffee entered into an agreement with Delta Air Lines in February 2011, to offer
Seattle's Best Coffee to customers onboard all Delta Air Lines domestic and international flights as
well as Delta connecting flights beginning March 1, 2011. Through these distribution arrangements,
Starbucks has increased its distribution points to 40,000 in 2011 from just 3,000 in 2009.
These strategic agreements allow Starbucks to break through its traditional route and market its
products through new channels of distribution. They also increase the addressable market and add
new avenues for revenue generation.
Research and development capabilities leveraged to strengthen product portfolio
Starbuckss strong research and development (R&D) capabilities enable it to innovate products at
regular intervals and offer an extensive range of coffee products to its customers. The company has
a strong R&D team which is responsible for the technical development of food and beverage products
and new equipment. Starbucks invests substantial amount of resources on technical research and
development activities, including customary product testing and product and process improvements.
The companys R&D expenditure totaled $9 million, $7 million and $7 million during FY2010, FY2009,
and FY2008, respectively.
Starbuckss strong R&D capabilities enable it to focus on relevant product innovation, expansion
and leveraging of its existing products and sales channels. The company has launched several
products in recent times. Starbucks launched Starbucks VIA Ready Brew, a 100% natural roasted
coffee made without preservatives, in February 2009. Starbucks VIA Ready Brew was developed

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based on a proprietary, patent-pending technology to preserve the coffees taste, quality and
freshness. The product achieved phenomenal success and was launched in international markets,
including Canada, the UK, Japan and the Philippines. The company introduced new variants under
the Starbucks VIA Ready Brew line of products, including Starbucks VIA Decaf, Starbucks VIA Ready
Brew Decaffeinated Italian Roast, Starbucks VIA Coffee Essence, Starbucks VIA Iced Coffee,
Starbucks VIA Coffee Essence Iced Coffee and Starbucks VIA Flavored Coffees. As of August 2010,
Starbucks VIA Ready Brew was distributed through more than 37,000 points of distribution in the
US including Starbucks stores; food, drug and mass merchandiser stores; foodservice accounts;
and through e-commerce. Starbucks VIA Ready Brew was named the Most Innovative New Product
of the Year by Allegra Strategies in the UK, and the Best New Consumer Product by Progressive
Grocer magazine in the US. Within ten months of its launch, Starbucks VIA Ready Brew touched
the $100 million mark in global sales. Starbucks VIA Ready Brew coffee contributed approximately
$22 million to CPGs net revenue in FY2010.
The company R&D capabilities have helped it build an extensive product portfolio offering several
varieties to meet the tastes of different customers. Starbuckss stores offer a wide choice of regular
and decaffeinated coffee beverages, a broad selection of Italian-style espresso beverages, cold
blended beverages, iced shaken refreshment beverages, a selection of premium teas, and distinctively
packaged roasted whole bean coffees. Seattles Best Coffee offers more than 30 whole bean and
ground coffees (including flavored, organic and Fair Trade Certified coffees), espresso beverages,
signature hand-crafted JavaKula blended beverages, OvenSong bakery food and sandwiches, and
select merchandise. In 2010, Seattles Best Coffee entered into the $1.4 billion ready-to-drink US
market with the launch of its new range of iced canned lattes.
Thus, by leveraging its R&D capabilities, Starbucks has been able to regularly revitalize its product
portfolio and increase its market share in the premium single-cup coffee and ready-to-drink beverages
markets. The introduction of new products at regular intervals helps Starbucks to maintain its
competitiveness in the industry.

Weaknesses

Product recalls adversely affect brand image

Starbucks has been registering increasing instances of product recalls lately. In January 2010, the
company recalled 11,000 and 1,200 units of glass water bottles supplied in the US and Canada,
respectively. The recall was initiated after it was found that the bottle could shatter while removing
or inserting its stopper, posing a laceration hazard to consumers. Previously, in FY2009, the US
Consumer Product Safety Commission ordered recall of 530,000 units of Starbucks Barista Blade
Grinders and Seattle's Best Coffee Blade Grinders. The recall was prompted as the companys
grinders could fail to turn off or could turn on unexpectedly, posing a laceration hazard to consumers.
Previously, Starbucks has also recalled few of its products containing peanut butter from its stores
following an outbreak of salmonella in the US. Product recalls affect the value of the Starbucks brand
and could result in a decline in demand for its products.

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Opportunities

Growing presence in key Asian markets

Starbucks has been aggressively expanding its presence in Asia, particularly in China and India.
The fast pace economic development in China (gross domestic product growth of 10.3% in fiscal
year 2010 and 9.2% in fiscal year 2009) coupled with the rise of the middle income group and their
increasing disposable income have contributed to the increase in demand for various consumer
goods in the country. More than 160 cities in China have population greater than one million.
Furthermore, the middle class population in China is expected to double by 2025. These factors are
expected to lend support to the growing demand for consumer products offered by Starbucks. In
order to tap this growing market, Starbucks has already embarked on aggressive expansion plans
in the country. It plans to open more than 1,000 new stores in China by 2015, increasing its store
count to 1,500. China is expected to represent 32% of the companys total international unit openings
during FY2011 to FY2015. Starbucks has been registering strong comparable store sales in China.
In the first quarter of FY2011, the company has registered comparable store sales of more than 20%
in China; and the China business also generated highest unit-level margins (more than 22%) for
Starbucks in the world.
The company recently announced plans to enter the Indian market. India primarily consists of tea
drinkers. However, the changing demographic and the countrys rising middle class population are
contributing significantly to the rise in coffee consumption. According to the Tea Board and Coffee
Board of India, Indians consumed around 700,000 tonnes of tea in 2010 compared to 75,000 tonnes
of coffee. This is indicative of the market potential for coffee in the country. To capture this growth
trend, Starbucks is entering the Indian market. In January 2011, Starbucks and Tata Coffee signed
a non-binding memorandum of understanding on collaborating for sourcing and roasting of high-quality
green coffee beans in Tata Coffee's facility at Coorg, India. Tata Coffee, one of the leading coffee
producers in India, owns the Eight OClock Coffee Co. in the US. Besides sourcing coffee beans
from south India and roasting them locally, Tata Coffee and Starbucks will jointly explore the
development of Starbucks retail stores in associated retail outlets and hotels. Starbucks also plans
to form alliances with other local players in the future to open Starbucks stores in India.
Therefore, by leveraging its strong brand name and business alliances with local players, Starbucks
can expand the companys presence in fast growing Asian markets and lend stability to its topline
growth.
Investments to improve customer interface
Starbucks has been investing substantial amount of its resources towards enhancing its customer
experience. For instance, in January 2011, Starbucks launched its mobile payment application at
all of its 6,800 company owned stores and 1000 stores operated by Target in the US market. This
application allows customers to pay for their in-store purchases through select smartphones. The
Starbucks Card Mobile App displays a barcode that can be used just like a Starbucks Card to make
a purchase. To pay, customers need to hold the mobile device in front of a scanner on the countertop

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and scan the Starbucks Card Mobile Apps on-screen barcode to make a purchase. The application
also allows customers to track rewards and reload balance using PayPal. The program was tested
at select stores in 2009. After extensive testing, it was found to be an efficient and quick way to
process payments at the companys stores. More than 3 million customers have used Starbucks
mobile payment application since its launch. According to Starbucks, there is a demand for such a
type of payment service. Over one third of its customers use a smartphone and one in five use a
Starbucks card at checkout.
Further in October 2010, Starbucks in partnership with Yahoo launched Starbucks Digital Network
(SDN) at its stores in the US. Through SDN, the company offers a package of free web content at
its stores. Initially, the web content offered included six channels: news and sports, entertainment,
wellness, business and careers, My Neighborhood, and Starbucks. Other content partners included
are Bookish Reading Club, Foursquare, Good, LinkedIn, New Word City, and The Weather Channel.
Customers at the companys stores can access SDN on their smartphones, laptops and tablets.
SDN received an overwhelming response with nearly 8 million visitors in the first two months of its
launch.
Thus, by investing in such applications, Starbucks can boost loyalty among customers who seek
speed, ease and convenience.
Expanding presence in the growing single-serve coffee market in the US
Starbucks has been expanding its CPG business in the fast growing single-serve coffee market in
the US. According to industry experts, the growth of the coffee market in the US in 2010 was primarily
driven by sales of single-cup coffee which totaled nearly $2 billion. Though the single-serve coffee
comes at a higher cost, its popularity is on the rise. According to experts, it may appeal to people
between the age group of 18 to 24 years setting up their first homes and older consumers with limited
living space because of the convenience and variety it offers.
Starbucks entered the single-cup segment in the US with the launch of VIA Ready Brew in 2009.
The product was subsequently launched in international markets, including Canada, the UK, Japan
and the Philippines. The company also introduced new variants under the Starbucks VIA Ready
Brew product line. As of August 2010, Starbucks VIA Ready Brew was distributed through more
than 37,000 points of distribution in the US including Starbucks stores; food, drug and mass
merchandiser stores; foodservice accounts; and through e-commerce.
The company has been pursuing opportunities to penetrate into the single-serves coffee market in
the US. In February 2011, the company entered into an agreement with Courtesy Products to offer
Starbucks ground coffees for use in the latters patented C1 in-room and on-demand brewed coffee
systems. Courtesy Products is one of the leading providers of in-room coffee service to hotels in the
US. Under the agreement, Starbucks ground coffees would be made available in approximately
500,000 luxury and premium hotel rooms across the US that are being served by Courtesy Products.
In March 2011, Starbucks entered into a strategic alliance with Green Mountain Coffee Roasters for
manufacturing, marketing, distributing and sale of Starbucks and Tazo Tea branded K-Cup portion

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pack for use in GMCRs Keurig Single-Cup brewing system. Starbucks is the exclusive, licensed
super-premium coffee brand to be produced by GMCR for its Keurig single-cup brewing system.
Starbuckss K-Cup portion packs would be made available at food, drug, mass, club, specialty and
department store retailers in the US and Canada. The companies plan to expand Starbucks K-Cup
portion pack and Keurig Single-Cup Brewing system distribution to Starbucks stores and to make
Starbucks K-Cup portion packs available through GMCR's consumer-direct websites:
www.greenmountaincoffee.com and www.keurig.com, and Starbucks consumer-direct website:
www.starbucks.com, beginning in 2012. GMCR is one of the leading providers of specialty coffee
and single-serve brewing systems in the country. The companys association with GMCR would
further increase its addressable market.
Therefore, through strategic alliances with GMCR and Courtesy Products, Starbucks can tap the
growing demand for single-serve coffee in the US and broaden its customer base.

Threats

Rising coffee prices can adversely affect Starbuckss profit margins

Coffee prices have climbed steeply in the past few years. The shortage in the supply of coffee in
the wake of growing global demand caused the price hikes. The demand for coffee has especially
increased in the developing nations. Additionally, speculation with respect to poor early coffee crops
in South America and Central America and an expected increase in shipping costs as a result of the
Gulf oil disaster, led to high coffee prices in 2010. The shortage in supply of the Arabica coffee plant
varietal, which is mostly used by specialty coffee retailers such as Starbucks, Caribou Coffee and
Peets Coffee also led to the rise in prices. In 2010, the price of Colombian Mild Arabicas in the New
York market was $2.23 per pound (lb) compared to $1.45 per lb in 2008, representing an increase
of 53.8%. During the same period, the price of Other Mild Arabicas and Brazilian Natural Arabicas
increased by 40.5% and 19%, respectively, in the New York market.
With demand outstripping supply, the coffee prices are expected to remain high during 2011. The
cost of coffee accounts for 17% of Starbuckss overall cost of goods sold and 7% of total revenue.
Although Starbucks is one of the leading players in the coffee industry with significant bargaining
power, continued rise in the coffee prices could impact the companys profitability.
Rising labor cost in the US
Over the past few years, labor costs have risen significantly in the US. Tight labor markets, increased
overtime, government mandated increases in minimum wages and a higher proportion of full-time
employees are resulting in an increase in labor costs for employers. This could adversely affect
Starbuckss cost structure. The federal minimum wage rate in the US was increased to $6.55 an
hour in July 2008 and to $7.25 an hour later in July 2009. More than 35 million working people in
the US are paid only the minimum wage, and therefore, the minimum wage rate has a strong impact.
Additionally, many states and municipalities in the country have minimum wage rate higher than the

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federal minimum wage rate due to higher cost of living. Starbucks presently employs 137,000 people.
Thus, increasing labor costs could increase the companys overall costs and adversely affect its
margins.
Slowdown in the US economy
The US economy has been growing at a slow pace after the financial crisis it suffered in 2008.
Consumption expenditure which forms approximately 70% of the countrys Gross domestic Product
(GDP), grew by only 1.7% in 2010 over 2009. Further, in February 2011, the personal consumption
expenditure grew by 0.7% over the previous month. The growth in the personal consumption rate
remained sluggish as customers continued to save more.The average personal savings rate increased
to 5.8% in 2010 compared to 4.3% in 2009. Additionally, personal saving as a percentage of
disposable personal income was 5.8% in February 2011, compared to 6.1% in the previous month.
The unemployment rate which remained at 9.4% towards the end of 2010 is also one of the reasons
for customers keeping their spending at low levels. Though the unemployment rate reduced to 9%
in January 2011 and to 8.9% in February 2011, it still is significantly high and is expected to remain
steady at around 8% in 2011. High unemployment rate adversely affects consumer spending as the
consumers feel insecure about the future income prospects. Thus, slow economic growth in the US
can pressurize Starbuckss top line growth and profit margins.

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