Starbucks Corporation Business Strategies - Example

STARBUCKS Executive Summary Starbucks Corporation was founded in 1971 and has its headquarters in Seattle, WA. The company is a renowned marketer and retailer in coffee beverages and has over 10,000 coffee shops worldwide and 182,000 employees. Part of their product mix includes roasted and personal brewed coffees and tea products for consumers. The company has most of its businesses set up in US which denies it the opportunity to tap into new international markets that offer it an opportunity for growth. This business plan focuses on creating a potential market scenario for Starbucks in a foreign market. Table of Contents 1.1 Mission Statement 4 1.2 Goal 4 2.0 Market Feasibility 4 2.1 Market Analysis 5 2.1.2 Weaknesses 6 2.1.3 Opportunities 6 2.1.4 Threats 6 3.0 Technical Feasibility 6 3.1 Production and Operational Process 6 3.2 Items and Resources Needed 7 3.3 IT Systems Needed 8 3.4 Sale and Distribution 8 3.5 Promotional Activities 9 3.6 Laws and Regulations 9 3.7 Human Feasibility 9 4.0 Financial Feasibility 11 4.1 Start-up Capital 11 4.2 Estimated Cash flow 12 4.3. Financial Analysis 12 5.0 References 13 1.0 Introduction 1.1 Mission Statement Starbucks mission statement emphasizes on the spirit of leadership in the coffeehouse industry. According to Starbucks website, the company’s mission statement is, ‘To inspire and nature the human spirit one cup and one neighbourhood at a time.’ This mission reflects on what Starbucks represents as a brand and product. The company continues to adhere to its mission statement to impact organizational performance and strategic direction through its employees and customers. 1.2 Goal The main aim of Starbucks is to be a leading coffee house in the coffee industry by offering exceptional services and products to its customers. 2.0 Market Feasibility Starbucks consumer base consist of young adults and any person that enjoys coffee. Starbucks primarily targets people between the ages of 25-40 years old who make up the largest demographic with 49% of the company’s market share. This is followed by young professionals between the ages of 18-24 years who are the second largest, making up 40% of Starbuck’s market share. The company mainly focuses on consumer behaviours as a strategy to increase its market share. Starbuck’s marketing strategy include positioning their outlets conveniently for consumers in places such as the ground floor of commercial buildings, outside busy alleyways, or in urban areas that attract a large number of human traffic. The company has successfully managed to operate licensed retails stores which enable it to distribute tea and coffee products to other food outlets. These distribution channels target restaurants, hotels, universities and offices in a region. The popularity of coffee has increased over the years, making it one of the leading beverages consumed in every household. This is notable due to the increasing number of coffee stands, shops and cafes in towns worldwide. According to IBISWorld (2016) the growing demand of coffee is likely to increase by 6.9% during the years 2016/2017. This is in addition to report findings which reveal that the rate of growth in the coffee industry will be at 2.6% annually within a period of five years (IBISWorld, 2016). The increase in numbers of national and local coffee shops around the world is a strong indication of the speed at which the coffee shop industry is expanding. Starbucks is capitalizing on this trend by expanding into international markets. The company’s main objective is to be a leading brand in the industry and dominate the market segment in each of its target demographic. As a result it continues to achieve through an aggressive expansion strategy of the company’s retail stores. In order to beat its competitors, Starbucks invests in quality and affordability in production and pricing of its beverages 2.1 Market Analysis SWOT Analysis 2.1.1 Strengths Starbucks possess a strong command in market position and brand recognition which empowers it to maintain an international brand presence. For instance, in the United States alone, the company covers 36.7% of the market share in the industry with over 70 retail outlets operating internationally. Its outstanding logo and merchandize products offer the company a strong market position and global recognition. These factors allow Starbucks to gain a significant amount of competitive advantage as compared to its rivalries. 2.1.2 Weaknesses Starbucks’ rapid expansion rate and overcrowding in the market could have long term repercussions to the company. This is because the company may self sabotage by deducing its growth targets. Additionally, Starbucks’ saturation in the US market makes it overdependence to the US economy. The company generates most of its profits from the United States where it operates approximately 8070 stores, thus subjecting it to any negative changes in the US economic growth (Starbucks, 2013). . 2.1.3 Opportunities With its strong brand name, Starbucks has the opportunity to explore new markets. It can expand into emerging international markets through joint ventures which offer it the opportunity to control its size, maximize on profits and avoid being over reliant of the US market (18, 19). Currently Starbucks distributes its products to other retail outlets, offices and shops; this strategy opens future opportunities for the company to monetize its brand. 2.1.4 Threats The rapid growth of the coffee shop industry increases competition for Starbucks as it opens an opportunity for new entries into the industry. The company has increased competition from already existing competitors such as; Dunkin Brands, McDonalds, Costa Coffee, Pete’s Coffee, mom and pop specialty coffee stores (Starbucks, 2013). Price volatility in the international markets poses a significant threat since Starbucks cannot be able to control the fluctuating prices of high quality beans in the industry. 3.0 Technical Feasibility 3.1 Production and Operational Process The main production and operation activities involved at Starbucks include processing of beverages, sales and promotion, inventory and service. The company has baristas in each of its outlets who specialise in the preparation process in the kitchen. The sales and promotion of Starbucks products and services take place within and outside their coffee shops. The company relies heavily on its brand to promote and advertise its products. Each of Starbucks outlets has a storage facility room where stock purchased is stored and inventory recorded and monitored using stock software. Cooling refrigerator is also included in all outlets where perishable goods are stored for a maximum of four days and ice cubes are retrieved to be used in consumer beverages. 3.2 Items and Resources Needed In order to have a successful coffee shop enterprise, various essential items mandatory to operate a cafe must be purchased. Since Starbucks already has already existing businesses, the company will not have any financial issues while expanding into foreign markets. The total cost required to set up a Starbucks medium sized coffee shop is approximately $200,000 including branding and purchasing of furniture and kitchenware. The items acquired will undergo routine maintenance as required. The table below is a list of these items that will be acquired. Item Description Quantity Method of Acquisition Chairs and tables 60 chairs 12 tables cash Fridges 2 Cash Coffee maker 4 Cash Cupboards and drains 4 Cupboards 6 drains Cash Dishware and cutlery 100 sets Cash Brand Signs 4 Cash TV screens and audio system 4 TV screens 1 Audio System Cash Software 2 Cash 3.3 IT Systems Needed Technology plays a significant role in running an establishment. Having an effective and reliable ICT system for the management and successful functioning of operations at Starbucks is imperative. In the US, the company has partnered with Square to introduce a mobile app that allows consumers to place their orders beforehand. Starbucks has already introduced IT systems that make it easy to process customer orders as well as retain consumer loyalty through quality services and products. The EFTPOS system is a vital IT tool that is connected to the accounting software thus allowing for the electronic transfer of funds. This system is crucial as it ensures smooth operation of business by processing payments made through debit and credit cards to financial institutions and accounting softwares. The accounting software also assists in monitoring employee records, stock control and processing payroll. 3.4 Sale and Distribution Beverages from Starbucks are sold and distributed to all potential customers who either want to enjoy the drink in the shop or take away. After sale services are offered to those who place orders online and wish to have their drinks delivered to a convenient location. Beverages are packed in unique and clean Starbucks coffee mugs with the company’s logo and customer’s name. Starbucks’ coffee shop environment has a relaxing atmosphere that allows customer to feel comfortable while enjoying their time there. Additionally, the company’s shops are fully vanished and fitted with high quality decor and ambience that is relative to Starbucks’ culture. Employees at Starbucks receive training on how to conduct themselves while working and are issued with work attires. 3.5 Promotional Activities Starbucks takes part in various promotional activities that attract consumers to participate. For instance, the company has implemented the use of Starbucks reward programs which offers an advantage to Starbucks value card holders. The Starbucks Card allows consumer to win gifts and vouchers depending on the frequency of their purchase. The company has successfully managed to use this reward program to promote its products, maintain consumer loyalty and increase sales. Starbucks famous logo is plastered to its merchandize, flyers and posters thus advertising its products by creating brand awareness. 3.6 Laws and Regulations When venturing in new markets, Starbucks must identify with the rules and regulations of its host country and adhere to them. Thus the company must follow the legal channels of company registration and licensing of the premises it will be operating from depending on the legal requirements of the country of operation. 3.7 Human Feasibility The new business set up by Starbucks will involve various individuals who will spearhead the running of the coffee shop. The human resource management will include the regional manager, outlet manager who will head the shop and a supervisor. The manager and supervisor are required to have background knowledge on hospitality management. Organizational Structure The outlet manager will head all the administrative and customer service duties. This is due to the fact that the manager is expected to have a wide experience in hospitality management as compared to all other employees in the premises. The management will mainly include; handling consumer complaints, stock control and financial management. The supervisor is expected to ensure that all business activities are running smoothly with each employee conducting their duties and themselves in a respectable manner. The business will require a total of 10 employees. Each employee will be allocated their duties as per their skills and experiences. There are mandatory skills and knowledge required in handling drinks, stock control, customer service and sales. In addition to possessing these skills, each employee will undergo basic Starbucks training to ensure that they fit well in the organizational structure of the company. The outlet will have two part time waiters/waitress and two full time. Two of these employees will be part-timers while the rest will be on regular basis. Total employee remuneration is estimated to add up to $300, 000.. Table of Staff wages Estimates Staff Category Total annual wages for the first year Administration and supervisor $200, 000 Customer Service $100, 000 Employee motivation will include promotions, incentives and additional leave days. Employs will be paid for working overtime whereas exemplary behaviours shall also be rewarded. Timely training shall be included in employee schedule to improve on performance and key competencies. 4.0 Financial Feasibility 4.1 Start-up Capital It is estimated that the business will require $500, 000 during the start up. $200, 000 shall be invested in purchasing of equipments and, leasing and the interior decor of the premises. $100,000 shall be set aside to cater for licensing and legal cost while $200,000 shall be set aside for two months rent and for unexpected extra costs. Starting Budget Item Description Cost Lease of premises Promotion and advertising Equipment Licences and Permits Legal expenses Utility hook-ups and Installation fees Beginning inventory Utilities (Electricity, Internet and water) Salaries (All 7 employees) Leasehold improvements Computer and software Insurance Start-up Supplies Promotion Expenses Rent Supplies and postage Vehicle Expenses Telephone Travel Interest Maintenance Cash Other Miscellaneous expenses Total $5000 $1000 $200,000 $100,000 $15,000 $6000 $20, 000 $800 $100,000 $2500 $500 $300 $2000 $350 $150 $120 $300 $50 $600 $480 $250 $11550 $1000 $4000 $700,000 This amount shall be sourced from Starbucks accumulated revenue and part of it from investors. 4.2 Estimated Cash flow The new business venture is expected to thrive well and attract increased revenues due to Starbucks popularity. In the first month, the business is expected to attract revenue of $200, 000 and by the end of the financial year it will have accumulated to $250,000. Suppliers will receive their payments at the end of every month which expected to change to a weekly payment mode. 4.3. Financial Analysis The projected return on investment by the end of the year is 32.3%. The gross profit margin is expected to average at 45% for the one year period while the net profit margin is expected to be 23%. However, as earlier said, these figures are expected to improve for other periods. The improvement is attributed to stability of operations and creation of regular customers. Services are also expected to improve with time which will result to more sales. The current quick ratio acid test is high an indication of sound financial performance of the business. The current debt to equity ratio is 34.2% while the debt to total assets ratio is 24.3% an indication of sound financial position of the business. 5.0 References IBISWorld. (August 2016). Cafes and Coffee Shops in Australia: Market Research Report. [Online]. Available from < http://www.ibisworld.com.au/industry/default.aspx?indid=2015 > [Accessed on 12th October 2016] Starbucks (2013) 10-K Form for FY ended on September 29th, 2013. Retrieved From: http://www.starbucks.com/about-us/company-information/mission-statement http://www.starbucks.com/responsibility/sourcing/coffee Appendix A Start-up Expenditures and Expenses Worksheet Item Total Cost Cash Required Capital Equipment _____$500,000_____ __________ Computer ____$500______ __________ Beginning Inventory ____$5000______ __________ Start-up Supplies ____$2000______ __________ Licenses and Permits _____$3200_____ __________ Leasehold Improvements ____$2500______ __________ Utility hookups & Installation ___6000_______ __________ Advertising (Preopening) _____$150_____ __________ Insurance _____$300_____ __________ Other ____$1000______ __________ _______________ __________ __________ Total Estimated One-Time Cash Requirements ____$75050______ __________ Start-up Operating Expenses Estimate No. of Months Total Cash Item Monthly Expense X Before Break even = Required Employee’s salary, wages, benefits __$8000________ __________ __________ Rent _______$150___ __________ __________ Promotion expenses ___$350_______ __________ __________ Supplies and postage ____$120______ __________ __________ Vehicle Expenses ___$300_______ __________ __________ Telephone ___$50_______ __________ __________ Travel ___$600_______ __________ __________ Interest ____$480______ __________ __________ Maintenance __$250________ __________ __________ Other ____$1000______ __________ __________ ____________ __________ __________ __________ Total Cash Required to Cover Operating Expenses ___$20300______ Plus: Total One-Time Cash Requirements (Previous Table) __________ Add 10% Safety Factor __$14650________ Total Cash Required for Start-up __$700,000_______ Read More