Starbucks Essay

1492 words - 6 pages

In forecasting the financial statements for Starbucks, we started by understanding its core business strategy and the industry in which it is active. Starbucks is not only a premier coffee establishment, but also one that prides itself on the total “Starbucks Experience”. It offers its customer’s products that are priced well above average, yet conversely provides other value through its superior customer service and location décor. A Porter’s Five Forces analysis of the coffee industry in general quickly reveals that the buyers hold the power, due to low switching costs, a high number of substitutes on the market and high competitor rivalry. However, via a very successful brand launch, ...view middle of the document...

S. market in 2009, with overall sales picking up in 2010 and continuing with modest increases per year for remainder of our forecast through to 2013. Our forecast includes the closure of 205 stores, and the opening of 100 new stores. “Late in 2008, Starbucks announced a plan to close approximately 600 underperforming stores in the U.S. and 64 in Australia. Early 2009 it increased the restructuring plan to close approximately 800 U.S. stores and 100 additional stores in various international markets”. They also announced that in 2009 they planned to open 100 new licensed stores domestically and 300 new licensed stores internationally. They will also open 100 company-operated stores internationally as well.
In terms of Product Life Cycle, Starbucks is in a mature market domestically and in a growth market internationally. As a result, by focusing on expansion into the international market and increasing the number of licensed stores operations, Starbucks’ can invest in less risky investments.
With the anticipated drop in sales in their domestic market, Starbucks focus is on expanding their channel of distribution. The following are a few ventures they are implementing that will impact their revenues:
- Licensing agreement with Kraft Foods to market and distribute Starbucks whole bean and ground coffee to grocery stores and warehouse club stores. (At YE 2008, product placement in 39,000 grocery & warehouse clubs locations across U.S.A).
- Sale of whole bean and ground coffee through institutional foodservice companies that service business, education, office, hotel, restaurant, airline and other foodservice companies.
- Partnership agreements to produce and distribute bottled Frappuccino and Doubleshot drinks with PepsiCo and premium ice cream with Dreyer’s Grand Ice Cream, Inc.
With the anticipated product placement within grocery stores and warehouse clubs, we have estimated that Starbucks, being a recognized coffee brand name, will be able to capture approximately 40% of Folgers and Maxwell House’s market by 2013, representing $400k in additional revenue per year by 2013. We are also anticipating an adoption rate of 30% by 2013 in the ice cream and cold bottle drinks business, which would ultimately bring in another $300k per year in revenue by 2013.
Starbucks has three main products that impact their cost of goods sold. They are the cost of coffee beans, the cost of dairy together with the cost of paper and plastic resin, and occupancy costs, as outlined below:
• Coffee Beans – Fixed price contracts with various suppliers renewed annually
• Dairy products – Price of dairy is strongly correlated with prices of oil in Starbuck’s domestic market place (U.S.A.) and unfortunately prices of oil has been on the rise. Dairy products are sourced from local suppliers relatively close to Starbucks retail stores.
• Paper and Plastic products – Price is tied to the price of commodity paper and plastic resin
• Occupancy costs – These are...

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