Executive summary:

Starbucks Corporation, formed in 1985, is a leading specialty coffee retailer and one of the best known brands today. In addition to its sale of highquality coffees, Starbucks retail stores also offer Italianstyle espresso beverages, cold blended beverages, complementary food items, coffeerelated accessories and equipment, premium teas, and a line of compact discs. Outside of its companyoperated retail stores, Starbucks also sells packaged coffee and tea products, readytodrink beverages including its bottled Frappuccino beverages and Starbucks Double Shot espresso drinks, ice creams, and other products mainly through licensing relationships. The companys brand portfolio includes Tazo teas, Starbucks Hear Music compact discs, Seattles Best Coffee, and Torrefazione Italia coffee. Throughout its history, Starbucks has been known for its aggressive store expansion, as it seemed impossible to open new stores quickly enough to keep up with demand. However, since its stock falling from about $80 per share near the end of 2006 to its current price of about $18 per share, along with a dramatic decline in the growth of its samestore sales last quarter, it seems that Starbucks may have run out of growth opportunities. Furthermore, as other specialty coffee retailers such as Peets Coffee and Tea and Caribou Coffee have entered the market, and as competition from fast food chains such as Dunkin Donuts and McDonalds has increased, Starbucks has lost market share. Therefore, it may appear that the company is in decline. Despite these conditions, Starbucks remains the strongest company in the industry and it has many opportunities to increase its profits. The major issues facing the company include maintaining the Starbucks Experience for customers, store expansion and real estate issues, competition from fastfood chains and other specialty coffee retailers, specialty operations, generating more demand and penetrating new markets, and lowering input costs. Since the return of Howard Schultz in January 2008, much has been done that addresses the first three issues mentioned. The analysis in this report will help reaffirm those initiatives as well as discover others that address the last three issues and will enhance the companys performance.

Mission Statement:
Establish starbucks as the premier supplier of finest coffee in the world and Also to be established as the most employees valued company while maintaining Our uncompromising principles as we grow together with technological advances. The six principles are: Provide a great work environment and treat each other with respect and dignity. Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time

Contribute positively to our communities and our environment.

Recognize that profitability is essential to our future success. Vision statement: Starbucks vision statement is; To establish Starbucks as the most recognized and respected brand in the world and become a national company with values and guiding principles that employee could be proud of The vision statement clearly describes the dream or the future of the company that is to be the worlds most well known coffeehouse and also to be the most appreciated and positively graded brand by all levels of people around the world. The company also focuses its vision to employee satisfactions, so that the employees will be happy.

SWOT Analysis
Strengths

Brand recognition and consumer loyalty Diverse product portfolio catering to all tastes and ages, including noncoffee Beverage and food items Excellent customer service and the value of the Starbucks experience

Licensing relationships with topbrands such as PepsiCola and Kraft that minimize costs and leverage the strategic advantages of those companies.

Strong employee relationships Economies of scale providing superior distribution networks and supplier power Primlylocated retail stores Positive image attributed to social responsibility

Weaknesses Pay 23% more for coffee than market prices

Saturation of the market diminishes longterm growth prospects

Starbucks products not available at supermarkets. Not effective in advertising and marketing.
Potential limitations of international expansion due to cultural clashes with American

Coffee experience. Opportunities:

 Have the ability to reduce premiums paid for coffee

Room for international expansion (78% of revenues came from the United States in

fiscal 2007 and international samestore sales growth is strong). Express foods are getting famous to reduce time to be spent. Demand for non-chemical and healthy products. Threats: Increase in the inflation rates creates a demand in lower priced products. Many companies are pricing their products cheaper to impress customers. Increase in hypermarkets and economical supermarkets Strategic problems: Starbucks coffees price much expensive than other market competitor product, it is because Starbucks purchased only high quality coffee beans.This will increase the quality of the product as well as the price of the product. Starbucks have poor marketing strategy on advertising. They prefer to build the brand by promoting the drinks cup-by-cup with customers. Decrease in the revenue in recent years of the recession during 2007. Closing down of stores that are not earning the profit. Strategic objectives: Reduce their price by producing a new product of coffee using cheaper beans or may come out with special discounts promotions to increase the sales. Advertisement can develop through internet that services convinced for users to access, give the brochures, do road shows, so that public come to know more about Starbucks details.
Customization of stores by introducing more entertainment based things like Tv and

music and they should have leisure time to spend in their stores.
The company should go in for focus strategy and should differentiate the product

based on the customer segment. The product mix can be of best quality for the high class people and cheap for low end customers.

Porters five forces model:

Potential development of substitute products

Bargaining power of suppliers

Rivalry among competitors

Bargaining power of consumers

Entry of new competitors

The Radial Diagram above is Porters Five-force model. It helps the Companys Strategists to evaluate the industry growth, market development and organization Strategy accompanied with the good intuitive judgment. The big corporation firm such as Starbucks needs a systematic and effective external-audit system because external forces among foreign countries vary so greatly. The analysis of the Competitive can be divided into Porters Five-Forces. The five forces are as follows: 1. Potential entry of new competitors. 2. Potential development of substitute products. 3. Bargaining power of suppliers. 4. Rivalry among competing firms. 5. Bargaining power of consumer. Potential entry for new competitors shows a balance between different firms competing in a market. It also refers whenever a new partner enter into a market, they may become threat for one and opportunity for other competing partners. As all the new entries and existing firms are competing with each other so the new entry will definitely make an effect on every one transacting in the market. Starbucks new competitor is the McDonalds McCafe. There is a great deal of risk of entry by potential competitors due to the low start up costs. McDonalds is able to add specialty coffee to their existing services to tap into the specialty coffee market.

A potential development of substitute products also develops an environment of competition in the market among the competing partners. As all firms want to compete in term of quality and substitute will lasts for longer in the market if the quality of the substitute will be greater than the existing alternate. Nowadays coffees are being canned or bottled. The option to buy bottled coffee is also inexpensive compared to coffee in a mug at the Starbucks store. With the focus on time management, canned product is the ultimate choice. Other factors also have a major impact on the substitutes. Collective bargaining power of supplier is if vendors are less in the market and the organizations that have to purchase from those vendors is high. The demand for those suppliers will be more as the firms have to purchase from that less suppliers. The bargaining power of supplier affects the intensity of competition in an industry. It is best to have a mutual agreement between the supplier and the buyer. Starbucks have gone through this situation when the world coffee bean price increased by the suppliers in 2001. Starbucks have no choice but to buy at expensive price from the suppliers.

EFE matrix
EFE matrix S.No 1.) 2.) Opportunities Have the ability to reduce premiums paid for coffee Room for international expansion Weight Rating 0.10 0.15 4 3 Weighted score 0.4 0.45

3.) 4.)

Express foods are getting famous to reduce time to be spent. Demand for non-chemical and healthy products. Threats

0.08 0.10

3 2

0.24 0.20

5.) 6.) 7.)

Increase in the inflation rates creates a demand in lower priced products. Many companies are pricing their products cheaper to impress customers. Increase in hypermarkets and economical supermarkets Total

0.15 0.22 0.10 1

3 3 2

0.45 0.66 0.2 2.7

Weightage of TWSO = total weighted score/ total weightage = 1.19 / 0.43 = 2.77 Weightage of TWST = total weighted score/ total weightage = 1.51 / 0.57 = 2.65 External Evaluation Matrix comprises of 2 lists. Both are important for the company. Its identified as the opportunities and threats of the company. The factors are rated from 1 till 4, where 1 is the lowest and 4 is the highest. The highest weight is assigned to the most important factors or several very important factors. The most important factors maybe a threat or an opportunity. In this case, it is an opportunity. Based on the key external factors, the most critical factors are that many companies are pricing their products cheaper to impress customers. Increase in the inflation rates creates a demand in lower priced products comes along as the most critical threats to the company. Anyway, there are still opportunities to increase the growth of the company. It is known that the factors which carries most weight is the factor that most to be address. Globalization makes it easy to enter international market is a good opportunity for Starbucks. Since the total weighted score is 2.77 generally Starbucks is not so effective in addressing its CFS which exists in its current environment. It needs to upgrade its effectiveness. However, this is subject to further analysis of individual weighted score of opportunities (TWSO) and weighted score of threats (TWST). Based on the calculation, as shown in the table above, is more effective in addressing the Opportunities .Still, Starbucks must find the way to reduce the threats to focus on the future challenges. Internal audit: Financial ratio analysis:

Liquidity ratio: Ratios Current ratio Formula Current assets/current liabilities Current assetsinventory/ current liabilities 2008 0.798 2007 0.787 2006 0.79

Quick ratio

0.48

0.466

0.462

The Current ratio is another test of a company's financial strength. It calculates how many dollars in assets are likely to be converted to cash within one year in order to pay debts that come due during the same year. Liquidity can be measured through current ratios and quick ratio. An acceptable current ratio varies by industry. The more liquid the current assets are, the smaller the current ratio can be without cause for concern. For most industrial companies, 1.5 is an acceptable current ratio. This can be considered as a decline and should be seriously concerned and still enough to cover up current liability or short-term debt. Leverage ratio: Ratios Debt to asset ratio Debt to equity ratio Long term debt to equity ratio Formulas Total debt/total assets Total debt/total equity Long term debt/stockholder equity 2008 0.222 0.507 0.221 2007 0.236 0.552 0.241 2006 0.158 0.158 0.0008

The Debt-to-total-assets ratio Shows the proportion of a company's assets which are financed through debt. If the ratio is less than one, most of the company's assets are financed through equity. If the ratio is greater than one, most of the company's assets are financed through debt. Companies with high ratios are said to be "highly leveraged," and could be in danger if creditors start to demand repayment of debt and for Starbucks, the ratio is very low at both years. Activity ratio: Ratios Formulas 2008 2007 2006

Inventory turnover ratio Fixed asset turnover ratio

Sales/inventory Sales/ fixed assets

14.98 3.512

13.61 3.256

12.24 3.343

Activity ratios show how effectively a firms assets are being managed. Activity analysis, together with the leverage ratios are the key factors in determining profitability. Fixed Asset turnover ratio is one of the measures of activity. Another activity measure is the Total Asset turnover ratio. Based on the above tables, Starbucks has a bigger asset turnover which means that the company is using its assets more efficiently than other competitors in the industry. Companys no inventory policy has significant effects on its superiority. In both ratios , there is a slide increase which shows the companys efficiency on using assets has increased too. Profitability ratio: Ratios Gross profit margin Operating profit margin Net profit margin Formulas 2008 2007 0.575 0.112 0.071 2006 0.591 0.116 0.072

Sales-COGS/sales 0.055 EBIT/ Sales Net income/Sales 0.049 0.03

Profitability ratios measure and explain the ability of the firm to generate income. Gross profit margin has decreased. This shows that the company has a less margin to cover the operating expenses and suffering a loss. All the ratios have fallen after a great recession in 2007. IFE matrix: IFE matrix S.no 1.) 2.) Strengths Excellent customer service and the value of the Starbucks experience Licensing relationships with topbrands such as Pepsi Cola and Kraft that minimize costs and leverage the strategic advantages of those companies. Strong employee relationships Economies of scale providing superior distribution Weight 0.09 0.13 Rating 3 4 Weighted Score 0.27 0.39

3.) 4.)

0.10 0.12

3 4

0.3 0.48

networks and supplier power 5.) 6.) 7.) Primlylocated retail stores. Strong brand name Diverse product portfolio catering to all tastes and ages, including noncoffee beverage and food items Weakness 8.) 9.) 10.) 11.) Pay 23% more for coffee than market prices Starbucks products not available at supermarkets. Not effective in advertising and marketing. Potential limitations of international expansion due to cultural clashes with American Coffee experience. Total 0.10 0.13 0.05 0.03 1 4 4 3 2 0.4 0.52 0.15 0.06 3.07 0.09 0.08 0.08 2 2 2 0.18 0.16 0.16

Internal Factor Evaluation (IFE) Matrix is a summary step in conducting an internal strategic-management audit. This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of business, and its also provides a basis for identifying and evaluating relationship among those area. Based on key Internal Factor, the most advantage factor is Starbucks' company is expanding its market to china, Brazil and Russia. These are very big markets and will definitely increase its growth. The strategic of Starbucks' services provided, quality of coffees and management of the company makes strength became as very important factor. It is because Starbucks' provide a great work environment and treat each other with respect and dignity. Besides of that, other than that, Starbucks Purchase Ethos healthy water for 8 million and also does not use chemical flavor for coffee. This is also a great strength to it as its coffees are free from chemical flavors and it blends and mix the real hazelnuts to the coffee. Since the total weighted score is 3.14 generally Starbucks is effective in addressing its CFS which exists in its current environment. But still, its weakness is also high. 2.00 is very high, this means that Starbucks is still weak in identifying its weakness. Since Starbucks' has its own strength to increase the growth of the company, there is also has weaknesses. The prices of coffees sold at Starbucks are higher compared with other stores. This is a major strength for other competitors. Other than that, Starbucks does not interest in marketing its products through advertisings a lot. It focuses on its quality coffee which has the power to attract customers. Anyway, this is subject to further analysis of individual weighted score of strength (TWSS) and weighted score of weakness (TWSW). Based on the calculation, as shown in the table above, is more effective in addressing the

Strength, still, Starbucks' must find the way to overcome weaknesses to focus on the future challenges. BCG Matrix:

The Boston Consulting Group (BCG) matrix is enhancing a multidivisional firms efforts to formulate strategies. This matrix allows a multidivisional organization to manage its portfolio of businesses by examining the relative market share position and the industry growth rate each division relative to all other divisions in the organization. Starbucks are measured to identify the stores strategic position in the Boston Consulting Matrix. The BCG matrix, were included 4 divisions which is Question Marks, Star, Cash Cows, and Dogs. In division quadrant I, shows low relatives market position, high growth industry. Firms cash needs are high and cash generation is low. This division decides to strengthen on pursuing an intensive strategy. Division quadrant II, identifies best long-run opportunities for growth and profitability. Star division is high relative market share and high industry growth rate. In convince of substantial investment to maintain or strengthen their dominant positions. Next in quadrant III, Cash Cows with high relative market share position but compete in a low growth industry ,while this division will be managed to maintain strong position for as long as possible. Finally, in quadrant IV Dogs have low relative market share position and compete in a slow or no market growth industry. This divisional are weak into internal and external position and often liquidated, divested or trimmed down the retrenchment. Retrenchment can be best strategy to pursue because many dogs bounced back, after strenuous asset and cost reduction, to become viable, profitable divisions. In contrast, the highest scored is 3.5, and it determinant that relative share position is HIGH. Grand selection matrix:

Another tool for formulating alternative strategies is the Grand Strategy Selection Matrix. This matrix shows how the where ones company can be positioned. The matrix is like that of the company lies in the first quadrant then it has an excellent strategic position. And if the company lies in the second quadrant then the firm has to evaluate its present approach to the market place seriously. This also indicates that even the industry is growing they need to formulate a effective strategy to strive in the market place. Quadrant Three shows that the firm has weak competitive position. The firms must make drastic strategy to avoid the decline in states. Quadrant four shows that they have a strong competitive position but are in a slow growth industry. They have the capability to launch variety of products. They probably vie for JV.
Rapid growth rate

The starbucks lie Proforma analysis: 2008 2007 2006

Revenu e Cost of goods sold Gross Margin S,G & A Expenses Depreciation EBIT Interest EBT Taxes Net Income i.
ii.

8380.32 5564.53 2815.79 2346.4 149.6 319.79 4.5* 315.29 126.11 189.18

10056.38 6677.43 3378.95 2815.78 149.6 413.57 1.5 412.07 164.82 247.25

12067.65 8012.91 4054.74 3378.94 149.6 526.2 1.5 524.7 209.88 314.82

EXIBIT 1
The forecasted Income statement is prepared from 2009-2011. The basic assumptions made are as follows:

Growth in Sales Rate i.e. 20%: Interest at 1.5 million : this is because for the market to develop, the company is expecting an extra cash of $3 million per store for this the company has to raise capital. The company is planning to raise it through Debt and Equity in the proportion of 50:50.

Other details used for calculation include calculating of Cost of Goods sold at 66.40% and Selling, General and Administration cost as obtained from the previous year datas, Depreciation is charged same for all the years. The first year in interest calculation also carry the interest of the previous years(*). It should be noticed that the company is seeing a growing trend in net income, growth of 66.4%.

DURING OPTIMISTIC PHASE

During the optimistic phase the company is expecting a high growth in the in Sales the changed Performa statement is as follows:

9-Aug Revenu e cost of goods sold Gross Margin S,G& A Expenses Depreciation 9078.68 6028.24 3050.44 2542.03 149.6

10-Aug 12256.21 8138.12 4118.09 3431.73 149.6

11-Aug 17158.69 11393.37 5765.32 4804.43 149.6

EBIT Interest EBT Taxes Net Income

358.81 4.5 354.31 126.11 228.2

536.76 1.5 535.26 164.82 370.44

811.29 1.5 809.79 209.88 599.91

EXIBIT 2 In this the changes is only made on made on Sales i.e. increasing from 30% to 40%. We have maintained the Depreciation, interest and tax values the same. It can be that the during such a condition is the company is expecting a hike in net income, hiking more that 100%

DURING PESIMISTIC CONDITION

During such a condition, the company is low growth in sales; the changed Performa statement is as follows: Revenu e cost of goods sold Gross Margin S,G& A Expenses Depreciation EBIT Interest EBT Taxes Net Income 8031.14 5332.6 2698.54 2248.7 149.6 300.24 4.5 295.74 126.11 169.63 8834.25 5865.94 2968.31 2473.59 149.6 345.12 1.5 343.62 164.82 178.8 9275.96 6159.23 3116.73 2597.26 149.6 369.87 1.5 368.37 209.88 158.49

EXIBIT 3
In this the change is mad only to Sales i.e. decreased from 15% to 5%, maintaining depreciation, interest and taxes the same. It can be seen that during such a situation, the company is showing an initial increase .