Internal Analysis for Starbucks Corp.

Essay by akyprianouUniversity, Bachelor'sA, June 2014

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Section 3:

Points 2:

Starbucks Corporation, founded in 1971 in Seattle, Washington has steadily become a leading roaster, marketer, and retailer of specialty coffee internationally. Starbucks Corp. has an immense ability to effectively position their vast product mix to fit in with their differentiation strategies. Starbucks is built on selling the best quality of coffee and other beverage products to its customers. This is primarily derived from the superior customer service offered and the clean and aesthetically appealing stores. These two components essentially form the culture the Starbucks has built itself around, also known as the "Starbucks Experience." This experience attracts the diverse customer basis that Starbucks thrives off of. Starbucks Corp. has been one of the most successful companies to expand through effective strategic alliances, horizontal integration, and exploring international opportunities. Starbucks Corp. has a roadmap of its long-term objectives that breaks down how it intends to achieve those goals through its grand strategies.

The Resource Based View (RBV) of a firm assists in analyzing and identifying a firm's strategic advantages based on its unique bundles of its core competencies. Figure 3.2.1 shows the RBV analysis while Figure 3.2.2 shows the breakdown of each competency in regards to the RBV Guidelines. The RBV figure displays the tangible, intangible, and organization capabilities of Starbucks. The RBV and Guideline figure show how valuable Starbuck's resources are according to the four guidelines: Necessary to Customer Needs, Resource Scarcity, Appropriabilty, and Durability.

RBV

Figure 3.2.1

Resource-Based View Analysis

Tangible Assets

Intangible Assets

*Goods Available for Sale

* Employees

*Physical Store Fronts (Locations)

*Cash & Equivalents

*Strategic Allies

*Raw Materials

*Culture

*Long-Term Experience and Knowledge

*Starbucks Experience

*Starbucks Brand

*Reputation

*Multiple patented products

*Diverse, Knowledgeable Employees

Organization Capabilities

*Starbuck's Sensory Marketing

*Barista Training Program

RBV Analysis

Figure 3.2.2

RBV & Guidelines

Necessary?

Scarcity?

Appropriability?

Durability?

Competitive Implications

Sales/Retail Prime and Strategic Locations

YES

NO

NO

NO

Temporary Competitive Advantage

Global Brand Recognition

NO

YES

YES

YES

Sustainable Competitive Advantage

Aesthetic Appeal & Concepts

NO

YES

YES

YES

Sustainable Competitive Advantage

Firm Infrastructure

YES

YES

Partial

NO

Temporary/Sustainable Competitive Advantage

Diverse,

Knowledgeable Employees

YES

NO

Partial

NO

Temporary/Sustainable Competitive Advantage

HR Management and Company Culture

NO

YES

YES

YES

Sustainable Competitive Advantage

Starbucks Experience

YES

YES

YES

YES

Sustainable Competitive Advantage

Reputation/Customer Loyalty/Marketing Programs

YES

YES

YES

YES

Sustainable Competitive Advantage

Training Programs

YES

NO

YES

YES

Sustainable Competitive Advantage

Figure 3.2.3

Value Chain Analysis

Technology

Human Resources Management

Procurement

Firm Infrastructure

Service

Marketing & Sales

Outbound Logistics

Inbound Logistics

Operations

Figure 3.2.3 shows the Value Chain Analysis (VCA) of Starbucks. The VCA assists in analyzing how a chain of business activities transforms the inputs and outputs of a firm into measureable value for customers. The VCA analysis shows the primary and support activities as related to Starbucks Corp.

The Primary Activities:

*Inbound Logistics- The sourcing of coffee beans from a diverse group of strategic allies with whom Starbucks has built a loyal relationship.

*Operations- Starbucks operates well within 64 countries as of February 2014, with many plans of global expansion.

*Outbound Logistics- Most of Starbucks tangible products are sold at a physical store location. Payment is focused around a Point of Sale system; prepaid Starbucks gift cards, and mobile phone payments.

*Marketing and Sales- Starbucks has recently invested in the marketing of its Teavana products. However, Starbucks has traditionally relied upon the customer's word of mouth about the premium products and services received at the store. The goal is to promote the "Starbucks Experience" in which the customer is exposed to varying sensory stimuli. Starbucks is focused on accommodating people's values, lifestyles, and needs.

*Service- Extensive layouts are in place that prompts superior levels of service from the moment the customer walks into the door until the time he exits.

The Support Activities:

*Firm Infrastructure- Starbucks has been a successful corporation from the start. It has evolved into a company that not only provides products and services, but also provides a "third place". The "third place" is a location in which it is encouraged for people to sit and relax, while enjoying the aesthetically pleasing surroundings. Starbucks has an efficient and rising level of financial means, as well as accounting and legal departments that support the firm's infrastructure.

*Human Resource Management- Employees receive excellent health and retirement benefits. There is a great sense of employee empowerment and a corporate culture that promotes efficient management of human capital.

*Procurement- Starbucks procures its premium products from a group of dynamic strategic allies. Starbucks is continuously looking for improvements in its products.

*Technology- Recent investments in the innovative technological applications for mobile phones, computers, etc. A new payment plan via mobile applications, upgraded Point of Sale systems, etc.

Starbucks Current and Past Performance

Figure 3.2.4

Current vs. Past Performance

Strength

Evidence

Sensory Marketing

Starbucks has long relied on appealing to the customer's senses. It has made many mistakes in introducing products that don't mix well with their primary selling product (coffee). The sensory marketing has proven to reflect more of an immediate response/feedback system for the company that has allowed leaders to make decisions on a higher educated basis.

Differentiation and Competitive Advantage

Starbucks Corp. holds a large portion of the beverage market. Starbucks has been able to expand more recently into international means due to the innovative product placements. Starbucks has been able to learn how to implement its products in the world while maintaining a consistently premium product.

Reputation

Starbucks has been known for its efficient service that provides its premium products. The reforms made in the employee training have certainly improved employee and customer retention.

Weakness

Evidence

Not the most affordable of products

Starbucks prides itself on providing the customer with premium coffee beans, coffee products, teas, and juices. Along with the premium products comes a seemingly excessive price tag. Starbucks has since learned that it is a pricier product, and has introduced the Pike's Peak blend, which is a more affordable coffee option.

Too Diversified

Starbucks seems to have its roots in almost every beverage market possible. This may seem too extensive for the company to manage. With the recent acquisition of Teavana products, Evolution Fresh juicing stores, and the introduction of alcohol into its stores, Starbucks seems to be pulled in many different directions.

Summary

In 2008 and 2009 Starbucks financial reports appeared to take a downtown as most of the economy did at the time. Starbucks took this time to focus on its customers and to "get back to the basics." Starbucks began to offer more affordable products that the customers were beginning to demand. Starbucks strengths lie not only in their ability to overcome their weaknesses, but the ability to maintain their current strengths that provides the company with the leading edge in the beverage industry.

Figure 3.2.5

Starbucks Resource Competencies vs. Competitors

Starbucks has been able to find a way into the daily lives of most people. Starbucks has been able to position itself as a place that offers a customer what they want at a price that seems reasonable for the possibilities of customization available. Starbucks major competitors in the industry are Dunkin' Donuts, Costa Coffee, Pete's Coffee, and Caribou Coffee. These companies all together have been unable to accommodate the needs of its customers. Starbucks has consistently been an innovative firm that has been able to implement effective service trainings, efficient customer interaction flows, and consistent financial improvement from year to year. Starbucks has been able to implement technology into its interactions with the customers, which has shut the door on many of its competitors.

Figure 3.2.6

Starbucks Industry Success Determinants

Customer Base, Economy, Training, and Consistent Evaluation/Feedback

Starbucks has been able to build a cult like following, just as Kleenex or Band-Aids have. It has become a household name. The word-of-mouth and sensory marketing that appeals most customers to the storefronts have an immense influence on the success of Starbucks as a whole. Through the Great Recession Starbucks listened to its customers demand and was able to adapt to their needs. The ability of Starbucks to adapt has kept the company thriving and in demand. The specific training of the employees at Starbucks has essentially kept the business well afloat. The extensive training to become a barista at Starbucks is what sets the company apart from say a Dunkin' Donuts or Caribou Coffee. Listening to the customer's thoughts and ideas, Starbucks has been able to effectively evolve into a product and service that people demand on a daily basis.

Figure 3.2.7

Financial Health Analysis

Ratios and Working Capital

2010

2011

2012

2013

Meaning

Liquidity: Current

1.55

1.83

1.90

1.02

Measure of a firm's ability to pay debts within the fiscal year.

Quick

.99

1.17

1.14

.71

The ability of a firm to quickly convert assets into cash to pay off its current liabilities.

Debt-Equity

.15

.13

.11

.29

Proportion of equity and debt the company uses to finance it.

Financial Leverage

1.74

1.68

1.61

2.57

Shows the degree to which a company uses fixed-income securities

Asset Turnover

1.79

1.70

1.71

1.51

Efficiency of a company's use of its assets in generating sales rev.

Fixed Asset

4.32

4.90

5.31

5.08

Company's ability to generate net sales from fixed-asset investments.

Inventory Turnover

7.38

6.56

5.27

5.43

How a company's inventory is sold and replaced over a period of time.

AR Turnover

37.33

33.95

30.49

28.44

How efficiently a company uses its assets.

ROA

15.81

18.12

17.76

.08

How profitable a company is relative to its assets

ROI

28.14

30.91

29.15

.46

How efficient an investment is

ROE

28.14

30.91

29.15

.17

How profitable a company is by how much profit a company generates with the money shareholders invested.

Working Capital (US Millions)

977

1,719

1,990

94

The capital a company uses in its day-to-day trading operations.

As seen by the analysis above, Starbucks has been a very successful company. It is in great financial health, as it has been able to overcome the litigation with Kraft in the past year. It has been able to consistently overcome and financial hardships. Their current liquidity ratio indicates that the firm is able to payoff their short-term liabilities with their short-term assets. In 2013, their quick ratio reflected that they would have about $0.71 of liquid assets to cover each dollar of debt accrued. Starbucks has shown recently a large influx of financing with debt, as seen in the financial leverage ratio. Outside of this area, Starbucks appears to maintain a healthy financial standing, even reporting a record year in its recently released fiscal report.

Bullet Point 3:

SWOT Analysis

Strengths

Weaknesses

*Good, loyal relationships with its suppliers

*High reputation and Brand Standard

*Locations of aesthetically pleasing stores and drive thru's

*Reduced employee turnover rate, as compared to the fast food industry

*Strong Market Positioning

*High Quality Products

*Human Resource Management

*Diverse Product Mix

*Point of Sales System

*Customer base loyalty

*Strong firm infrastructure

*Employees report to two division heads; possibility of conflicting information

*Very quick diversification

*Heavy Reliance on the US Market

*Large corporate image

*Possibilities of overcrowding the market

*Expensive pricing of drinks

*In going global, there could be an Americanized view on Starbuck's behalf about coffee.

Opportunities

Threats

*Expansion further into Europe and Asia

*Distribution agreements with Starbucks and certain hotels, grocery stores, etc.

*Product placement on store shelves internationally

*Improve on the health aspects associated with their drinks to change the perception of their beverages.

*Expansion on Product Mix

*Brand extension

*Technological Advances

*New distribution channels

*Increased competition

*Price volatility in the Global Market (imports and exports)

*Developed Countries Economy

*Changing consumer tastes

*Heavy Market Saturation

*Potential rise in cost of coffee beans