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Starbucks Coffee Corporation

Strategic Management Case Study Analysis

Lisa Ricard

4/28/17
TABLE OF CONTENTS

EXECUTIVE SUMMARY 5

EXISTING MISSION 5

OBJECTIVES AND STRATEGY 6

A NEW MISSION STATEMENT 8

ANALYSIS OF FIRM STRUCTURE 9

SWOT ANALYSIS 10

STRENGTH 11

WEAKNESS 11

OPPORTUNITIES 12

THREATS 12

FIVE FORCES ANALYSIS 13

BARGAINING POWER OF SUPPLIERS 14

BARRAGING POWER OF BUYER 14

THREAT OF NEW ENTRANT 15

THREAT OF SUBSTITUTION 15

INDUSTRY RIVALRY 16

CONFRONTATION MATRIX 16

IMPACT/PROBABILITY MATRIX 17

POSITIONING MAP 18

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EFE MATRIX 19

IFE MATRIX 20

IE MATRIX 21

SFAS MATRIX 22

COMPETITIVE PROFILE MATRIX 23

ASSESSMENT OF FIRMS FUNCTIONAL AREAS 23

MARKETING 23

OPERATION 25

MANAGEMENT 25

BCG MATRIX 27

GE/MCKINSEY MATRIX 28

INDUSTRY LIFE CYCLE (ILC) ANALYSIS 30

SPACE MATRIX 31

GRAND STRATEGIES MATRIX 33

QSPM MATRIX 34

ALTERNATIVE SPECIFIC STRATEGIES & LONG-TERM OBJECTIVES 35

CURRENT FIRM RATIOS 36

LIQUIDITY RATIOS 36

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LEVERAGE RATIOS 36

ACTIVITY RATIOS 36

PROFITABILITY RATIOS 37

GROWTH RATIOS 37

PRO-FORMAL FINANCIAL STATEMENTS 38

INCOME STATEMENT 38

BALANCE SHEET 39

CASH FLOW 41

WORK CITED 42

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Executive Summary

Starbucks Coffee can be considered one of the largest coffee companies in the coffee

industry. By occupying almost half of the market share, Starbucks Coffee has made a name for

themselves. Along with the Starbuck Coffee Brand, Starbucks Coffee owns, Seattles Best

Coffee, Teavana, Tazo, Evolution Fresh, La Boulange, Ethos Water and Torrefazione Italia

Coffee (Starbucks Company Profile, 2017). This report analyzes the strategic methods Starbucks

Coffee currently is involved in. Then these strategies are analyzed through various strategic

matrixes designed to identify new strategic strategies for the company to peruse. The matrixes

include a SWOT analysis, Five Forces analysis, Confrontation Matrix, Impact/Probability

Matrix, Positioning Map, EFE and IFE Matrix, IE Matrix, GE/McKinsey Matrix, Industry Life

Cycle, SPACE Matrix, Grand Strategies Matrix, and the QSPM Matrix. Through the combined

matrixes it can be concluded Starbucks Coffee holds an excellent strategic position, but there can

be room to improve upon. Through various investment such as market penetration and product

diversification Starbucks Coffee can still claim new profits in an industry that is reaching its

maturity.

Existing Mission

Starbucks Coffee was started in 1971 as a roaster and retailer of whole beans, ground

coffee, teas and spices in a small store in Seattles Pike Place Market (Starbucks Company

Profile, 2017). They were named after the first mate in Herman Melvilles Moby Dick and their

logo is inspired by the sea siren from Greek mythology. Now Starbucks Coffee has a customer

base of over a million who come every day to purchase quality coffee. As of January 1, 2017,

Starbucks Coffee has opened over 25,734 doors inviting their guest to enjoy a delicious beverage

or baked good. Starbucks Coffee buys their coffee beans from coffee farms in Latin American,

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Africa and Asia where their special buyers will select high quality beans. Then the master

roasters bring out the balance and rich flavor of the beans through the signature Starbucks Roast.

In 1992, Starbucks went public and was listed on the NASDAQ under the ticker SBUX

(Starbucks Company Profile, 2017). They offered their common stocks at $17 per share. By the

close of the first trading day, the stocks value rose to $21.50 per share. Starbucks Coffee

believes in the importance of a company that can balance between profitability and a social

conscience. The company achieves this through their practices of ethical sourcing, community

involvement and environmental stewardship. Starbucks Coffee practices in responsible

purchasing, supporting farmer loans and forest conservation programs. This ensures a better

future for the farmers and a more stable climate for the plants. It also creates a long-term supply

of the high-quality bean that has been used for over 40 years.

Currently Starbucks has a range of products that can be used in stores, at home, or on the

go. Starbucks Coffee famously sells more than 30 blends of coffee and even has single-origin

premium coffees (Starbucks Company Profile, 2017). They sell handcrafted beverages, which

include espresso beverages, Frappuccinos, but also smoothies, teas and refreshers. Additionally,

they sell merchandise such as coffee and tea brewing equipment, Verismo Systems by Starbucks,

mugs and more. Guest can also enjoy fresh food such as baked pastries, sandwiches, salads,

bistro boxes and more.

Objectives and Strategy

When Starbucks Coffee started off fiscal 2016, it was on a strong note (Forebes, 2016).

All stores experienced sales growth and future plans for the Asian market were developed. For

the rest of 2016 and on to 2017 Starbucks Coffee will objectively focus on growing the number

of stores, elevating the coffee experience, creating new customer occasions, driving at home

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coffee share & occasions, building up the Teavanna brand, extending the digital engagement, and

establishing new partnerships.

Starbucks Coffee plans on changing their in store mix along with expanding their brand

(Frobes, 2016). Traditional stores focus on the in store experience, but recently Starbucks Coffee

has begun opening more drive-thrus in the outer edges of urban and suburban areas.

Additionally, Starbucks Coffee has developed a few express stores. The aim of this strategy is to

increase the companys store penetration by 5%. The coffee market is expected to see a mini

decline due to the industry being in its maturity phase. Because of this Starbucks Coffee wants to

ensure and position themselves as the most preferred coffee shop. Starbucks Coffee intends to

expand their stores portfolio by offering a highly customized and elevated experience. The

objective of this strategy is to develop independent stores that will offer a different coffee

making style. This includes opening four new types of stores which differs in the type of coffee

produced, the layout of the store, and even the food served. Starbucks Coffee hopes to address

the issue of competition and ubiquity by delivering their customers the highest quality coffee.

For Starbucks Coffee, their lunch hours have been their most profitable part of their day

for years (Forbes, 2016). This is due to the inclusion of improved food offerings, more fresh food

items with the bistro boxes and sandwiches, and their strength in the tea platform. Starbucks

Coffee intends to offer new and innovate food and beverage options to drive customers in. With

the objective of driving the demand for at-home coffee, Starbucks Coffee must grow their

consumer product goods department. By partnering with companies like Pepsi in Latin America,

Tingyi in China, and Anheuser-Bush, Starbucks plans to expand their ready to drink segment.

This segment is forecasted to grow approximately 10% in the next five years. This strategy

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should allow Starbucks Coffee to claim an additional market share of $1 billion in the premium

RTD category.

Tevana has become one of Starbucks Coffees biggest drivers of sales (Forbes, 2016).

Tevana has contributed about one percent point in comparable sales growth for seven

consecutive quarters. This success has lead Starbucks Coffee to bring the Tevana brand into

China and Europe. Since China is one of the largest tea consuming countries they hope this

expansion will give the brand a boost. In the US, mobile payments comprised of one-fourths of

all of Starbucks transactions. The companys most recent objective is to drive digital engagement

through their Mobile Go and Pay equivalents 20% of all mobile transactions. Their objective to

create a truly seamless, digital experience seems be successful. Lastly, Starbucks Coffee wishes

to establish new partnerships. Their food sales now make up 20% of their revenue. To fully gain

off the popularity of these complementary goods, Starbucks Coffee wishes to work towards

establishing partnerships by making food one of their major growth drivers. They are currently

testing stores in the western U.S to see if weekend brunch menus would be profitable. Starbucks

Coffee has partnered with Italian bakery, Princi and Macys to start testing these menu items.

Starbucks Coffee believes within the next five years this strategy could help generate 25% of

their revenue through food sales.

A New Mission Statement

Starbucks Coffee created a mission statement that reflects their view on leadership within

the coffeehouse industry (Gregory, 2017). Currently Starbucks Coffees website host their most

current mission statement which is To inspire and nurture the human spirit- one person, one

cup and one neighborhood at a time. Starbuck coffee inspires and nurtures the human spirit

through their employees. The company has maintained a small company culture where

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relationship and warmth are believed and built upon. The customers also experience this

inspiration and nurturing through their small company culture. Starbucks baristas and customers

use their first name to help develop a warm relationship. Additionally, the stores are designed to

feel warm and cozy hoping to inspire and nurture meaningful and warm relationships.

Their mission statement also indicates a personal approach through their one person, one

cup, and one neighbor at a time section (Gregory, 2017). Starbucks Coffee hopes to have a

meaning impact on every employee that works for them along with every customer that shops

with them. This mission will allow them to continually and gradually grow their business

through one place or neighborhood at time.

Analysis of Firm Structure

Starbucks has a matrix organizational structure which combines different features of

basic organizational structures (Meyer, 2017). The organizational structures are broken down

into functional structure, geographic divisions, product-based divisions, and teams. The

functional structure is grouped based on their business functions. The HR department, finance

department, and marketing department are located at their corporate headquarters. They will

issue policies and activates that are applicable and implemented through all their stores. This

structure features a top-down monitoring and control.

At the current moment the company has three regional divisions for their global market,

China and Asia-Pacific, Americas, and Europe, Middle East, Russia and Africa (Meyer, 2017).

Within the United States the geographic divisions are broken up further to include Western,

Northwest, Southeast, and Northeast. For the geographical structure each division has a senior

vice present. Each store manager has to report then to two supervisors, the geographic head and

the functional head. This was developed in hopes of providing geographic support for geographic

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needs. Product-based division splits up the structure into three products, coffee and related

products, baked goods, and merchandise. This allows the team to focus on a certain product line.

Lastly, the teams structure is designed more for each individual store. The company has the

teams organized to deliver their goods and services to the customers. This allows them to provide

an effective and efficient service.

SWOT Analysis

The SWOT analysis is one of the most basic yet important tools used to analyze a firms

and industry (Kipley & Jewe, 2014). The acronym SWOT stands for strength, weakness,

opportunities, and threats. The strength and weaknesses focuses on an internal assessment of the

functional areas of the firm including management and culture. Opportunities and threats focuses

on the external environment. With opportunities and threats this look at the macro or competitive

environment and can include factors such as demographics, sociocultural, political/legal,

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technological, economic, and global. The strength and weaknesses are assessed based on

competition versus opportunities and threats where these factors are completely out of the firms

control.

Strength

Starbucks Coffee Company is a well-established and well branded name. There top three

strength included strong brand image, operating efficiency and strong growth leading to superior

financial performance, and strong customer loyalty. These factors are considered their strongest

strengths because it allows them the ability to drive a higher margin on their profit. Their strong

brand image brings their customers to their place while their operating efficiency allows them to

gain a profit on their product margin. Customers are coming to Starbucks Coffee for a

combination of these strength and will continue to come because of these.

Weakness

With any company, Starbucks has a few issues with their production that could be driving

guest away or could be causing potential guest to shop alternatives. There top three weaknesses

include being highly dependent upon one product, dependent upon the American segment, and

their higher price points. Being highly dependent upon coffee beans could be detrimental in

many scenarios. If an embargo is placed on coffee beans, the cost of coffee beans rises or an

environmental disaster occurs and coffee beans production is decreased, Starbucks main stream

of revenue is cut drastically. Being dependent on the American segment is a weakness since

Americans go through phases and trends. Additionally, by not being heavily invested in other

countries Starbucks Coffee is missing money from potential sales. Lastly, higher price points

might drive away customers who just want a cheap coffee and dont care about the quality.

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Ultimately Starbucks Coffee hopes to overcome these weaknesses through their combined

strengths and opportunities.

Opportunities

There are many potential strategies Starbucks Coffee can explore to bring more revenue

to their company. The top three opportunities identified is expansion in Asia, the Middle East,

and Africa, diversification of product mix, and vertical integration. As stated in their weaknesses,

Starbucks is heavily dependent upon America. Since Starbucks Coffee already is in operation in

these places the risk with any foreign market is sustainably lowered and they would be rewarded

with new sales. By diversifying their product mix, Starbucks Coffee would not need to be

heavily dependent upon the coffee bean and could survive any unforeseen circumstances. Lastly,

with vertical integration Starbucks Coffee could ensure quality products and save costs when

purchasing their beans since they would be growing it themselves. These are some potential

opportunities to solve some issues they are currently facing in their weakness.

Threats

The threats Starbucks Coffee is facing are the most important to identify since these are

factors they have no ability to control. The top three threats identified are competition from low-

cost coffee sellers, the independent coffee house movement, and rising cost of the coffee bean.

Low-cost sellers are a threat since there is no switching cost for buyers in this industry. Buyers

who simply want a cheap coffee at a cheap price will go to the low-cost sellers rather than

spending more money since the opportunity cost is beneficial for them. The independent coffee

house movement is a trend with millennial who prefer to go to quality coffee houses instead of

fast coffee stores. Starbucks Coffee in a sense is too mainstream and popular which makes

these independent coffee houses more appealing. Lastly, the biggest issue is the current rising

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cost of the coffee bean. As stated in weaknesses and opportunity, the rising cost of coffee beans

is bad for Starbucks Coffee since their so heavily dependent upon it. These rising cost will either

force Starbucks Coffee to raise their prices or will cut into their margin. Threats are the most

distressing factor since a company could be doing everything right, yet these factors could still

cause them to go out of business.

Five Forces Analysis

In 1980, Dr. Michael E. Porter developed a tool for companies to analyze their

organizations industry structure through strategic decision-making (Kipley & Jewe, 2014). This

model was named the Five Competitive Forces Model and was published in his book,

Competitive Strategy: Techniques for Analyzing Industries and Competitors. With this model,

Porter has industries identifying their industry structure and the way their company can change to

best meet the opportunities and threats in their external environment. With this information a

company can determine the intensity of competition within their industry and then can determine

the profitability and attractiveness of their industry.

The five key competitive forces Porter identifies is bargaining power of suppliers,

bargaining powers of buyers, threat of new entrants, threat of substitutes, and industry rivalry

(Kipley & Jewe, 2014). Starbucks Coffee Company belongs in the coffee industry which has a

couple of power player already in play, not including the new small coffee house movement

America is facing (Greenspan, 2017). To ensure Starbucks Coffee stays on top, they must be

successful on their effectiveness in addressing the negative impacts of the five forces of its

industrys environment. When completing a Five Force analysis checklist, it can be determined

that Starbucks Coffees have varying intensities or strengths based on their position as follows:

Bargaining Power of Suppliers is a weak force

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Bargaining Power of Buyers is a strong force

Threat of New Entrants is a moderate force

Threat of Substitution is a strong force

Industry Rivalry is a strong force

Bargaining Power of Suppliers

With bargaining power of suppliers, this looks at the position the seller has over the

buyer. In other words, does the companys supplier have a control over the price of the supply

(Kipley & Jewe, 2014)? Due to the size of product Starbucks Coffee Company purchases, the

suppliers power is lessened since they are too valuable of a customer to lose (Greenspan, 2017).

With Starbucks Coffee, their external factors of consideration include a high variety of suppliers,

a large overall supply, and a moderate size of individual suppliers. Additionally, Starbucks

Coffee has a policy for diversifying its supply chain which helps reduce the influence of

suppliers on the business. Because of this Starbucks Coffee does not need to focus their attention

on their suppliers.

Barraging Power of Buyer

Similar to bargaining power of suppliers, the bargaining power of buyers looks at how

much the customers can impose pressure on the companys margins and volumes (Kipley &

Jewe, 2014). With Starbucks Coffee in particular, their external contributing factors include low

switching cost, substitute availability, and small size of individual buyers (Greenspan, 2017).

The bargaining power of buyers is one of the most significant forces affecting Starbucks

Coffees business. With the increase independent coffeehouse movement and cheaper coffee

house alternatives, customers can avoid going to Starbucks. Substitutes such as at home instant

beverages and drinks from restaurants such as McDonalds proves to be important factor for

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Starbucks Coffee. Because of this, bargaining power of customers should be one of the top-

priorities for their corporation.

Threat of New Entrant

With the coffee industry, the risk from a new entrant is moderate. The force, threat of

new entrants, looks at the competition within industry by how easy it is for other competitors and

companies to enter the industry (Kipley & Jewe, 2014). When another companies enters an

industry this can raise the level of competition and market environment thus reducing its

attractiveness. When looking at Starbucks Coffees external factors, the ones that determine this

risk is the moderate cost of doing business, moderate supply chain cost, and high cost of brand

development (Greenspan, 2017). For Starbucks Coffee, the new entrants have a significant, but

not strong effect on business. With new entrants they can compete against Starbucks Coffee with

their moderate cost of business and supply chain development. However, these new entrants will

find it difficult to compete with establish brands because of the costly nature of developing a

strong brand. Because of this the threat of new entrants is moderate this should be a secondary

priority for Starbucks Coffee.

Threat of Substitution

When there are alternative products with lower prices being offered, a threat of

substitution exists (Kipley & Jewe, 2014). The external factors that are currently affecting

Starbucks Coffee is the availability of substitutes, low switching cost, and low cost substitutes

(Greenspan, 2017). With these substitutions, it could attract a portion of Starbucks Coffee market

share and reduce their potential sales volume. With Starbucks Coffee substitution, the substitute

good could be another company, but it could teas and sodas which could be sold outside of the

coffee industry. There is no switching cost for these goods and these substitutes can cost less

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than Starbucks products. All these issues combined has made the threat of substitutes a top-

priority concern.

Industry Rivalry

With industry rivalry, this force focuses on the intensity of competition between existing

companies within the industry (Kipley & Jewe, 2014). With a high competitive pressure, this

results in pressure on companies prices, margins, and profitability for everyone in the industry.

The external factors that contribute to Starbucks Coffees are large number of firms, low

switching cost, and variety of firms. Starbucks Coffee faces a large number of competitors who

have different sizes, specialties and strategies. With a strong competition and low cost of

switching, industry rivalry should be a top-priority challenge.

Confrontation Matrix

Confrontation Matrix Opportunities Threats

O1 O2 O5 O8 T1 T3 T4 T6

S1 2 3 1 1 3 1

Strength S4 1 3 2

S6 1 3 2 3 2

S7 1 1 2 2 3

W1 3 1 1 3

Weakness W2 3 1

W4 1 3 3 2

W6 2 1 1 1 2 3

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The Confrontation Matrix is a tool that a company can use to held further analyze each

different combination of the SWOT analysis (Kipley & Jewe, 2014). By using a ranking of 0 to

3, all the squares identified with a 3 are the combinations identified as strategically important or

interesting. Looking at Starbucks Coffees matrix, position O2-S1 was marked as being

strategically important. This means that with the opportunity of product diversification and the

strength strong brand image, Starbucks Coffee should be looking into this strategically. With a

strong brand image many customers will be willing to try new products just because they believe

in the value the brand has.

Impact/Probability Matrix

The Impact/Probability Matrix uses the opportunities and threats from the SWOT

analysis to chart potential risk the company can face (Kipley & Jewe, 2014). On the X axis, the

opportunity or threat is placed based on its probability risk, which is risk that an event may

occur. In other words, this is the probability of this event actually occurring. The Y axis is where

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the impact risk for the opportunity or threat is placed. This is based on the size of the impact in

terms of cost and impact on the company or other critical factors. For Starbucks Coffee, the

rising price of coffee beans has a high impact/probability due to the nature of how Starbucks

Coffee uses their bean. Since this threat is currently occurring, this event is placed high on the

probability side. Additionally, the impact of this event is big to the company so it too is placed

high on the impact side.

Positioning Map

The Positioning Matrix is a graphical representation of where a company is and where its

main competitors are within a marketplace (Kipley & Jewe, 2014). This is done by comparing a

company based on their price and quality. When developing this matrix, a medium or grande

sized regular cup of coffee was used to compare the stores. Peets coffee has the highest price

point but due to the nature and quality of their product they earned the highest spot. Starbucks

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Coffee does have a high quality product, but their prices are more affordable. McDoanlds

McCafe on the other hand had the lowest price point but there is no quality to their coffee.

EFE Matrix

The External Factors Evaluation (EFE) is another strategic tool which uses the

opportunities and threats from the SWOT to evaluate the external environment of the firm

(Kipley & Jewe, 2014). In the ratings column, these numbers represent the response of the

company towards the particular threat. This is based on a 1 to 4 scale with 2.5 being average.

The weighted column is how the company believes how well of a job they are at responding to

the existing opportunity and threats in its industry. The higher the companies EFE score is, the

better their current strategies are at capitalizing on their opportunities and avoiding external

threats. With Starbucks Coffees EFE score of 2.45 they are doing an average job of this.

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IFE Matrix

The Internal Factors Evaluation (IFE) matrix is similar to the EFE matrix, but focuses on

the internal factors instead of external. (Kipley & Jewe, 2014). This matrix is used to identify

and evaluate the major strength and weaknesses by assessing their relationship in the functional

areas of a business. By adding this along with the EFE Matrix, a company can evaluate how a

company is performing in relation to its competition. The IFE Matrix is set up identical to the

EFE Matrix but instead of using opportunity and threats, the strength and weakness are used

since this is what is being evaluated. For the total weighted scores, if a company falls below 2.5

than this show the company is weak internally. Companies who scores significantly above 2.5

indicate a strong internal position. Starbuck Coffees earned a 2.61 which is just above the

internally weak threshold. Starbucks Coffee is doing an average job internally.

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IE Matrix

The Internal/External Matrix (IE) takes the EFE and IFE Matrix and combines them to

conceptualize the results of the two (Kipley & Jewe, 2014). The IE Matrix plots the results from

the EFE and IFE and where the company falls suggests a potential strategic strategy the company

should follow. Taking the weighted totals from both the EFE and IFE, a score of 1.0 to 1.99

represent weak positions, 2.0 to 2.99 represents an average position, and a score of 3.0 to 4.0 is

strong. Starbucks Coffee combined score places them in box 5. This means they are doing an

average job on both matrixes which we identified earlier.

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SFAS Matrix

The Strategic Factor Analysis Summary (SFAS) is a combination of the most important

factors identified from External Factors Evaluation and the Internal Factors Evaluation (Kipley

& Jewe, 2014). This SFAS Matrix gives an overall strategic position of the company from the

combined strengths, weaknesses, opportunities, and threats. This matrix allows the company to

condense these factors and reflect on the priority of each. After they can identify their biggest

priorities, but also it allows the company to reflect on the duration time for their project. For

Starbucks Coffee most of their strategic factors take an intermediate amount of time to

accomplish. This means they can accomplish these factors within 3 years which is fast in terms

of how long projects normally take.

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Competitive Profile Matrix

The Competitive Profile Matrix is used to help design an offensive or defense strategy

plan for the company (Kipley & Jewe, 2014). This is done by identifying the major strength and

weaknesses in relation to its main industry competitors. This analysis provides the company with

important internal strategic information. With Starbucks Coffee, Peets Coffee and Dunkin

Doughnuts has been identified as their two biggest competitors. Each company has a critical

success factor that they excel in. Peets Coffees coffee beans are free trade coffee which does a

more quality to them than Starbucks Coffee and Dunkin Doughnuts. Starbucks Coffee has the

strongest customer loyalty, especially with their rewards program, allowing them to high the

highest rating in this section. When looking at the three companies weighted scores, Starbucks

Coffee has the highest with Dunkin Doughnuts close behind them and Peets Coffee the last.

Assessment of Firms Functional Areas

Marketing

Marketing is an essential process in how successful a company can be. Marketing can be

described as the process of defining, anticipating, creating, and fulfilling the customers wants

and needs for products and services (Kipley & Jewe, 2014). By developing good marketing

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campaigns, a company can hope to drive sale, inform consumers about the business, and most

importantly develop brand loyalty. There are six basic functions of marketing which help

companies develop strengths within their marketing team. These functions include customer

analysis, selling products/services, product and service planning, pricing, distribution, and

marketing research.

Starbucks Coffees marketing strategy has been successful for them allowing them to

develop a strong brand image and loyal customers. This is due in part to their ability to switch up

their marketing strategies over the years. Their marketing technique is individualized to fit the

promotion of the Starbucks brand while applying the unique concept it was built on (Starbucks

Marketing Strategy, n.d). Three of their top campaigns include the Perfect Cup of Coffee, Third

Place, and Brand Marketing.

The Perfect Cup of Coffee campaign focuses on the quality of the product in relation to

their price (Starbucks Marketing Strategy, n.d). Starbucks Coffee has a history of placing

emphasis on their quality product. Their coffee may be priced slightly higher than others, but

will leave consumers satisfied with their coffees rich, delicious taste and aroma. The Third Place

strategy was Starbucks Coffee idea of making Starbucks the third place to go in between work

and their house. By creating a unique and relaxing experience and atmosphere, Starbucks Coffee

realized this is one of their strongest concepts attached to their company in which their customers

have found a lot of value in. Lastly, their Brand Marketing is based mostly on word-of-mouth

advertising. This type of advertising is beneficial for the company since it is completely free

advertising. Starbucks Coffee does this by allowing their high quality product and services speak

for themselves.

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Operation

Operations of a company plain and simple is how an organization or company operates

their business. Also known as production, this function is responsible for the operations and

productions through a series of production processes. The main five functions for most

companies include process, capacity, inventory, workforce, and quality. For Starbucks Coffee,

since they have such a large company for their operation management they have six different

basic strategies depending on what part of their business is being analyzed (De'Gain, 2013).

These strategies include global strategy, competitive strategy, quality strategy, process strategy,

layout strategy, and inventory strategy. All of these strategies were developed to help Starbucks

Coffee reach their objectives, vision, and mission.

The global strategy is Starbucks Coffee idea of expanding into the global market. In 2001

Starbucks Coffee began entering into joint ventures with the local businessmen (De'Gain, 2013).

Additionally, they developed a strong expansion campaign. There competitive strategy includes

factors such as focusing on differentiation by serving niche buyers, having unique capabilities to

serve needs of target buyer segments, and to become a large enough to be profitable and offer

growth potential. Their quality strategy is very straight forward; they want their products to be of

top quality. They use mystery shoppers to ensure this is happening store level but management

wise the Starbuck Coffee buyers spend about 18 weeks each year visiting coffee grower and

suppliers to ensure their suppliers are of the best quality. These are some examples of how

management ensures their company is at full operational efficiency.

Management

There are four basic functions of management: planning, organizing, directing, and

controlling (Kipley & Jewe, 2014). Planning involves the ongoing, comprehensive process that

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requires management to evaluate where the company is and where they should be in the future.

Organizing includes an analysis of the different divisions or departments to develop an optimal

staff, distribution of information, delegation of authority and responsibility, and maintain

relationships. Directing oversees the behavior of the staff through motivation, communication,

department dynamics, and departmental leadership to help achieve company goals as well as the

individual employees own personal or career goals. Controlling, the last function, is an ongoing

process that involves establishing performance standards based on the companys objectives and

evaluating and comparing actual job performance to establish objectives.

Starbucks has a matrix organizational structure which combines different features of

basic organizational structures (Meyer, 2017). There organizational structure is broken down into

functional structure, geographic divisions, product-based divisions, and teams. When CEO

Howard Schultz was working for Starbucks he found he had the impulse to micromanage

(Lebowitz, 2016). For his management team he recruits top performers and encourages them to

step up and push back against him when they dont agree with his ideas. He believed the most

important task as a leader was to teach people how to think and ask the right questions.

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BCG Matrix

The BCG Growth Share Matrix was developed in the 1970s by Bruce Henderson

(Kipley & Jewe, 2014). This model classifies products of a company into four different

categories and quadrants based on a combination of the companys market growth and market

share relative to their largest competitor. A product or business must have relative strengths to

ensure they will be in a dominant position to be placed in quadrant 3 or 1. The main purpose of

the BCG Matrix is to identify id a company has a balanced portfolio of products including high-

growth products as well as low-growth products. This matrix helps managers decide which

products are selling and can assign priorities.

Quadrant 3 is the star or high growth, high market share section (Kipley & Jewe, 2014).

Companies who fall within this section have a high market share in a growing market but they

still require considerable resource support. Quadrant 2 is the question mark or high growth, low

market share section. Companies here are typically or have new products are found here because

buyers have not discovered them yet. They have a high demand but a low return due to low

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market share. Quadrant 1 is the cash cows or low growth, high market share section. These are

companies who that have high market share in a mature market and have competitive advantage

allowing for substantial cash flow. Lastly, quadrant 4 is the dog or low growth, low market share

section. This should be avoided at all cost and companies who find themselves here should divest

since turnarounds are expensive and unsuccessful.

Mapping our Starbucks Coffee their relative market share and market share rate was

found from advfn.com. With this information, Starbucks Coffee has been placed in the star

section. This a good position for them to be in because it secures them in the best position allows

them strategies to maintain their positioning. The companys attractiveness is great and their

future competitive position is just as good.

GE/McKinsey Matrix

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The GE/McKinsey Matrix is similar to the BCG growth share matrix since they both map

the company on a grid to show their performance relevant to the industry (Kipley & Jewe, 2014).

This matrix was developed in the 1970s also by was designed by a consulting group called

McKinsey designed to screen the multiple SBUs for General Electric. The GE/McKinsey Matrix

uses nine cells instead of the BCGs four to further explore the relationships of the company. The

GE/McKinsey Matrix looks at the industry attractiveness and business unit strength to determine

its positioning. Starbucks Coffee according to the GE/McKinsey Matrix has a medium level of

industry attractiveness, but their BUS is very high. This places them in a position for investors to

want to invest in their company.

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Industry Life Cycle (ILC) Analysis

Every company and industry goes through a five phase process known as the industry life

cycle (Kipley & Jewe, 2014). Keeping an eye on various industries it has been shown that

companies go through periods of growth then interrupted by periodic recessions and recoveries

which shape the products and companies in the industry. Some industries will experience

continued growth while others will see their growth slowed down and even decline. This growth

curve typically describes the evolution of need demand and can be subdivided into four phases:

emergence, accelerated growth, decelerating growth, maturity, and decline.

The emergence period is a turbulent time when an industry is born and many aspiring

competitors are seeking to capture leadership (Kipley & Jewe, 2014). Accelerated growth is

when the surviving competitors are most profitable and the demand typically outpaces the supply

growth. Decelerated growth is the early sign of saturation and the supply begins to exceed

demand. A mature industry is where the saturation is reached and there is a substantial

overcapacity. Lastly, with a declining industry the demand is either lowered and nonexistent.

This can be due to economic factors, demographic factors, rate of production obsolescence, or

product consumption.

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Starbuck Coffees industry is the coffee and casual drinks industry. This industry is in the

earliest stages of maturity. Around every corner a coffee house, or a restaurant that sells coffee is

found. A consumer does not need to drive more than 5 minutes to get coffee in an urban

populated town. Since coffee is an inelastic item there will always be a high demand for coffee.

Because of this the coffee industry will most likely never see a decline in demand.

SPACE Matrix

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The Strategic Position and Action Evaluation (SPACE) Matrix is used to determine what

type of strategies a company should invest in (Kipley & Jewe, 2014). The Space Matrix has four

quadrants and indicates whether a firm should follow an aggressive, conservative, defensive or

competitive strategy. The SPACE Matrix looks at the financial strength and competitive

advantages compared to the environmental stability and industry stability. Combined these

factors are considered the four most important determinants of an organizations overall strategic

position.

Going clockwise starting in the top left quadrant the sections represent conservative,

aggressive, competitive, and defensive (Kipley & Jewe, 2014). After completing a SPACE

analysis on Starbucks Coffee, their totals plotted them within the aggressive quadrant on the

matrix. To follow an aggressive strategy, Starbucks Coffee can consider backward, forward or

horizontal integration, market penetration, market development, product development, and

diversification. When completing the SWOT analysis, EFE, and IFE earlier, these were all

identified as opportunities for the company.

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Grand Strategies Matrix

The Grand Strategy Matrix is used with the SWOT Matrix, Space Matrix, BCG Matrix,

and IE Matrix to create different and alternative strategies for a company (Kipley & Jewe, 2014).

A company is placed within one of the four strategy quadrants with each quadrant containing

different sets of strategies. The Grand Strategy Matrix places companies between competitive

position and market growth. In the top right quadrant companies placed here have a very strong

strategic position. Companies placed in the top right quadrant need to look at their present

approach since they are unable to compete in a growing industry. Companies in the lower left

quadrant compete in a slow-growth industries and have a relatively weak competitive position.

Lastly, companies placed in the lower right quadrant have a strong competitive position but the

industry itself is slow growing.

Starbucks Coffee is found with Quadrant I which is in the upper right hand corner

(Kipley & Jewe, 2014). Starbucks Coffee should concentrate on developing their existing

markets through market penetration and market development. Additionally, they can develop

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their current products through product development. Companies that typically fall within

Quadrant I have an excessive amount of resources so perusing backward, forward, or horizontal

integration might be the most effect method.

QSPM Matrix

The Quantitative Strategic Planning Matrix (QSPM) is a high level strategic management

approach that objectively evaluates possible strategies based on previously identified external

and internal critical success factors (Kipley & Jewe, 2014). This provides a company with an

analytical method for comparing alternative actions using the inputs from the EFE Matrix, IFE
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Matrix, and the CPM, and matching the results with the results from the SWOT, SPACE, BCG

Matrix, IE Matrix, and Grand Strategies Matrix to decide objectively among alternative

strategies. The QSPM identifies the relative attractiveness of various strategies based upon the

impact of which external and internal critical success factors are improved upon.

For Starbucks Coffee, product development and market penetration were identified as the

most important strategic alternatives for the company to look into. When looking at the

cumulative scores of product development versus market penetration, market penetration is

clearly more important strategically. A lot of the SWOT analysis identified issues that could be

solved through the strategic move of market penetration.

Alternative Specific Strategies & Long-Term Objectives

Analysis from all the matrixes together has determined that Starbucks Coffee is currently

strategically doing well. This doesnt mean here isnt room for them to improve to enhance the

companys brand and wealth. One of the main issues most matrixes identified is a need to invest

in product development and market penetration. Starbucks has a variety of products within store

operation include merchandise and baked goods. They have venture into the at home market by

selling products such as their coffee and teas for at home enjoyment and the ready to drink line.

By investing in selling other products such as their tumblers or accessories at local groceries they

could see a potential increase in sales. Additionally, if Starbucks Coffee is feeling completely

confident, they could potentially enter a new industry to diversify their company portfolio.

Additionally, the matrixes identified market penetration as the biggest strategic strategy

to peruse. This is due to the fact that Starbucks Coffee has already expanded their brand into

parts of China, Asia-Pacific, Europe, Middle East, Russia and Africa. By expanding their

network of stores in these areas will be important because it will open up new revenue streams

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for the company. Additionally, it will increase Starbucks Coffees brand name. Globalization is

at its peak and Starbucks Coffee should utilize this in order to successfully grow their brand

overseas.

Current Firm Ratios

Financial Ratio Analysis is often used in strategic planning to calculate how a firm is

preforming based on the balance sheet, income statement, and market valuation (Kipley & Jewe,

2014). These ratios provide the company significant information about the performance of the

firm. By analyzing the financial position of the company, these ratios can help identify

companies that will survive or companies who will eventually fail. There are five different types

of ratios that can help a company determine this; liquidity leverage, activity, profitability, and

growth. All ratios were collected from ADVFN.com on Thursday April 27 th, 2017.

Liquidity Ratios

This measures a companys ability to meet short term obligations.

Current Ratio: 1.0

Quick Ratio: 0.7

Net Working Capital: 1.49

Leverage Ratios

This measures the extent to which a company has been financed by debt.

Debt to Equity Ratio: 0.61

Activity Ratios

This measures how effectively a company is using its resources

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Profitability Ratios

This measures the overall effectiveness as shown by the retunes generated on sales and

investment.

Gross Profit Margin: 60.1%

Return on Investment: 19.7%

Return on Assets: 21.0%

Return on Equity: 48.2%

Return on Invested Capital: 31.0%

EBITA: $4,279,900

Growth Ratios

This measures the companys ability to grow in the industry.

Earnings Per Share: $1.91 Mil

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Pro-Formal Financial Statements

Income Statement

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Balance Sheet

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Cash Flow

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Work Cited

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fromhttp://www.valueline.com/Stocks/Highlights/SWOT_Analysis__Starbucks_Corp_.

px#.WQNqhHeZPeS

De'Gain, L. (2013, June 28). The Operation Management Strategies of Starbucks. Retrieved

April 28, 2017, from https://www.slideshare.net/LulettaGain/final-starbucks-24693769

Greenspan, R. (2017, January 31). Starbucks Coffee's Five Forces Analysis (Porter's Model).

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porters-model

Gregory, L. (2017, January 31). Starbucks Coffee's Vision Statement & Mission Statement.

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mission-statement

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http://www.businessinsider.com/management-strategies-of-starbucks-ceo-howard

schultz-2016-3

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growth-strategy/2/#8f8a9bc57816

Lombardo, J. (2017, January 31). Starbucks Coffee SWOT Analysis. Retrieved April 28, 2017,

from http://panmore.com/starbucks-coffee-swot-analysis

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Meyer, P. (2017, January 31). Starbucks Coffee Company's Organizational Structure. Retrieved

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structure

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