Starbucks in 2009

Only available on StudyMode
  • Download(s) : 57
  • Published : March 26, 2013
Open Document
Text Preview
STARBUCKS IN 2009

1

TABLE OF CONTENT

Starbucks issues and causes…………………………………………...….……………….2 Starbucks current strategies and evaluation…………………………..…….……………..4 Analysis and recommendations………………………………………………………….10 SOAR analysis……………………………………………………..………………..10 Competitive analysis…………………………………………………………….......11 Value chain analysis…………………………………………………………………14 Recommendations……………………………………….………………..…………17 Appendix………………………………………………………........................................18 References……………………………..…………………….……………………….......19

STARBUCKS IN 2009

2

STARBUCKS IN 2009 Starbucks issues and causes Starbucks share price went down from the peak of $40(October 2006) more than 75% over the next two years. The sale and operating profits decreased 73.1 million dollars compared to the last year in 2008 (Table 1 in the Appendix). The growth rate of Starbucks store sales decreased 8% in 2008 (Starbucks Corporation, 2008).

60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2005 2006 2007 2008 ROA ROE

The chart above shows the ROA (return on assets) and ROE (return on equity) ratio of Starbucks has generally gone down between 2005 and 2008.

STARBUCKS IN 2009

3

Following are five main factors that caused Starbucks downturn in 2008: 1. Economic environment—Great Recession The global economic decline began in 2007 and took a sharp downward turn in September 2008. Due to this recession, each U.S. household lost an average of approximately $5,800 in income, and gross domestic product declined 6.2 percent annualized (PEW, 2008).

2. Competitors Some independent coffee shops, such as Caribou Coffee (U.S.), have imitated the operating model of Starbucks and have expanded and become national chains. In addition, fast food chains, including McDonald’s, Burger King, and Dunkin’ Donuts, started to provide coffee and get favorable comments.

3. Consumer performance Customers, especially coffee-lovers, became connoisseurs through the education process of coffee, which is a part of “Starbucks Experience”. Those educated customers would look for superior alternatives to satisfy the appetite. Another factor that affects sales is local preference. Customers could prefer different flavors and different types of coffee in different regions and areas. Ignoring the custom is the main aspect that leads to the failure of Starbucks in Australia.

STARBUCKS IN 2009

4

4. Excessive store expansions One of Starbucks’ operating strategies is to increase its market share by continuing to open new stores in the existing market, and expanding stores in the new market to support its long-term strategy. During the recession, Starbucks did not slow down the expansion which resulted in 300 store closures and 6700 job losses in 2009. In 2008, cost of sales increased from $3999 million to $4645 million from the previous year. The store operating expenses have increased $528.10 million between 2006 and 2007; and the long-term debt has also increased from $2.7 million in 2006 to $550.9 million in 2007 (Table 1 in the Appendix).

5. “Starbucks Experience” brand dilution Although Starbucks has already created a distinguished mission and value for the last twenty years, consumers’ perception towards the “Starbucks Experience” has changed rapidly. Consumers are becoming too familiar with the brand and consider Starbucks’ product overpriced compared to other coffee stores in the market. Many questions arise to if consumers really value and recognized the “Starbucks Experience”.

Starbucks current strategies and evaluation 1. Rediscover and Revitalize Starbucks Experience The “Starbucks Experience” includes the high quality coffee beans, employee involvement, community relations, social purpose, the layout and design of the stores,

STARBUCKS IN 2009

5

and Starbucks location strategy. Howard Schultz’s strategy is to redefine the core brand value. Although the company has a well-established image in the market in the past twenty...
tracking img