Starbucks Case Study - Essay Example

Starbucks Case

The industry driving forces include the innovation by the individual companies as well as technologies that the companies employ in their daily activities. Innovation is important in terms of introducing new products in the retail shops. The better the innovation of the companies, the greater is the profitability of the companies involved.

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In terms of technology, the companies have to responding to the changing technology so that the efficiency in the service delivery is achieved. The technologies are used in improving the service environment, so that customers can spend more of their time in the coffee shops. Technology is thus an important factor that improves the service delivery and profitability of the coffee shop companies.  

The competitor’s position in the industry is felt greatly because there has been efforts by companies from various parts of the world to expand their operations to the west. Starbucks holds a 10% market share in the industry, which is below the McDonald Corporation market share of 14%.  Yum brands Inc. on the other hand has a 6.6% market share. Dunkin’ Donuts is also another company that is greatly advancing in terms of operations to various western countries and Starbucks has to put greater efforts to ensure that it remains ahead of these competitors. Generally, the position of competitors in the industry is greatly felt by Starbucks, though the company has a great potential to continue with operations and even perform better.  

The following is the compounded annual growth rate;

 

$ in billions

Future value

100

Current value

57

Years

5

 

0.118987

 

 

 

11.8987

Starbucks case analysis

The analysis show that the CAGR is 11.89%, which is a good trend for the next five years. This is based on the projected increase in sales for the next years as the company implements strategies that will help it access new market. 

In this section, selected ratios are evaluated to evaluate the performance of the company. One ratio is selected under each category of ratios and the trend over the last five years is evaluated. The following table gives a summary of the performance of the company. 

Ratio

Value (Starbucks

Value(MacDonald

Current

1.19

3.27

Net profit margin

14.41%

17.82%

Asset turnover ratio

1.54

0.7

Debt equity ratio

1.14

1.17

 

 

 

 

 

 

 

 

 

Revenue

16.48%

2.19%

Expenses

18.06%

5.473768203%

Net income

33.33%

-1.75%

From the above analysis, it can be seen that MacDonald, a Starbuck competitor is doing better in the industry. It has a net profit margin (17.82%) which is greater than that of Starbucks (14.41%). However, Starbucks has a greater turnover ratio meaning that it is more efficient than the competitor in utilizing assets. However, Starbucks has experienced a growth in revenues, and net income that is greater than that of MacDonald. It is an indication that the company will continue to do better in the industry. However, Starbucks will have to manage its costs so that it is sustainable, considering that the expenses are also expected to rise by 33.33%. 

Starbucks opportunities and SWOT analysis

Major strengths of the company is that it is able to reinvest the profits and continue growing. It is known for the quality coffee that it offers to the customers, and the fact that it treats the customers very well. The market share it controls so far offers it an advantage over other competitors. 

The company weaknesses is that it does not unique products that are very different from those of other competitors in the market, and this gives it a disadvantage. The high price of its products is another factor that contributes to its weakness since modern generation are keen to save the money they have.

The opportunity the company have is that it can enter new markets such as China where there is a great market potential. The company can also develop new products and sell them in retail outlets such as supermarkets to ensure that revenues are improved.  

Threats are that there is an increasing awareness of healthy lifestyles and people are keen to reduce intake of sugars present in coffee, and this can adversely affect the company revenues. Additionally, there are many competitors in the world, and the company has to come up with strategies to deal with the competition.

Based on the analysis, it can be seen that Starbucks has all it takes to compete and be ahead of the competitors in the market. The experienced management and the culture that the company has is all that the company needs. It also has resources to expand operations as well as invest in quality service environment which can ensure that the customers are satisfied. The company also has all it takes to respond to the changing environment to ensure that it survives and meets the changing tastes and preferences of the customers. Starbucks is thus stronger as compared to the rest of the competitors in the industry. It is thus likely to continue performing well even in the near future.

The major strategic problem that Starbucks faces going forward is the increasing pressure to include new items in its menu. This means that the customers will have a greater choice in the restaurants. The company has thus included some additional beverages such as energy drinks and water. Another strategic challenge is that people now are selective on what they eat because of health problems. This means that the company has to ensure that this group of people also have a choice. 

Starbucks case study answers

The problem with the implementation of strategies to deal with the strategic problem is that in future, the company may never be referred to as a coffee shop since it will be offering a variety of products. There will also be difficulties in assuring the quality of products that the customers buy since the company cannot specialize in all the products that are to be availed to the customers. Additionally, having so many choices for the customers make it difficult to make a choice. There is a need to ensure that the choices are minimized. This means being very careful when it comes to the selection of the products to be included in the menu.  

The ethical problems that the company faces relate to sourcing of coffee beans from various countries. The management faces the challenge of ensuring that the coffee is not produced by children or through poorly paid laborers. There is an increasing awareness on human rights, and the company has to ensure that its reputation is not damaged by the practices in the farms that it sources coffee from. There are also increasing animal rights, and this is why chicken in cages has been a great debate. The company should avoid eggs and meat of the chicken that is raised and collected from cages.

Starbucks should continue to implement intensive growth strategy, by evaluating various emerging markets and entering in such markets. There is a great potential to offer services to the growing middle-income population in the developed and developing countries across the world. This is why there is a need to continue with the current strategy. However, diversification should be encouraged to ensure that the company also offers a few selected products that meet the customer needs. There is a need to include healthy products in the company menu to capture the growing population of health-conscious customers.

The business of franchising is the best model ever because it will be possible to control quality and other issues that relate to the business of the company. However, there is a need to relax regulations on design issues such that the franchises in various countries are allowed to redesign the retail shops in a way that promotes the local culture hence brings the feeling of local ownership. Customers are more attracted to the companies that promote the local values, and this is why there is a need to give more freedom to the franchise owners to make some adjustments in the structure of the retail shops.  

Starbuck case study analysis

Organizational changes necessary includes ensuring that there are permanent employees at the company. The part-time employers are likely to get jobs elsewhere and leave the retail shops. As such, there would be a need to hire and train more people which cost the company a lot. The company should use modern technologies in preparing coffee and processing orders to ensure that a stable number of employees can be maintained. Customer service is very important, and it requires well trained and loyal employees.  

The policy and procedures that need to be changed include the way customers make and pay for orders. There is a need to include better technologies which can allow customers to make orders online and have them prepared before they arrive at the restaurants. This can reduce wait time at the coffee shops which can improve the satisfaction of the customers. The customers should also be allowed to pay using mobile apps, and this gives them the convenience of having not to carry cash everywhere they go. Adapting these procedure changes will be an attempt to respond to the ever-changing technological environment.  

There is also need to work with the coffee farmers by sending them experts who evaluate how coffee is maintained to ensure quality. At the same time, such supervisors can ensure that there is no use of child or forced labor in the farms which can hurt the reputation of the company. 

In summary, Starbucks has great potential to continue operating in the market and doing very well. From the time of financial crisis, the company has been able to adapt to the changing nature of the market, and this is why it has been able to increase its revenues and profitability. However, it faces great challenges from the highly competitive environment. The global market presents a challenge considering that there are various competitors, regulations, and tastes of the various population that is served. However, the company has an experienced management that is aware of the market situations hence can always change to the changing nature of the environment. The company strategy is okay and has helped the company achieve its goals. There is a need to continue with the strategy and target new markets to ensure that it can increase its global market share. The quality of company products should never be compromised, considering that this is one of the important values that the company is known for. The brand image has to be maintained, and this requires that the company continues to hold values that it has held since it was started.