starbucks Business Turnaround Case

Topics: Starbucks, Howard Schultz, Coffee Pages: 7 (1968 words) Published: January 5, 2014
Business Turnaround
Case Study:
Starbuck’s Successful Implementation of Business
Turnaround

Identify a company that has overcome a crisis situation
Starbucks is an American global coffee company and coffeehouse chain. It is the largest coffeehouse company in the world, operating across 62 countries and having a chain of 20,891 stores across them. Starbucks serves hot and cold coffee based and refreshment drinks, pastries, snacks and sandwiches. Starbuck is one of the companies that have turned into a symbol of successful business turnaround.

Considering the economical conditions at the time in 2007, and the anticipated economic trends for the coming years, Starbuck took the decision to proportionally start closing stores across most major US markets. Starbucks customers have begun to visit the coffee shops less and less, which drove profits to a strong downturn. Starbucks share price declined by more than 75% in the following two years after 2006. Profits for the first 3 months of 2008 fell with 28% compared to the same period during the previous year. Final quarter revenues for 2008 showed that the company net income was down by 70%. This was the first decline of quarterly net income that the company was experiencing (decline to 64.3 million in comparison to 208.1 in December 2007). Sales and operating profit s of same-stores for 2007 slowed down with 1331.2 million in September 2007 to 1258.7 million is September 2008. In respond to those indicators of declining performance the company then decided to employ a business turnaround through preserving fundamental strengths and values of the Starbucks brand, increase value and becoming more innovative with their business. Furthermore they attempted to be more flexible and meet changing market trends, scale cost structure and improve operations efficiency. In 2012 the company had a record of, 13.29 billion dollars of revenues and 1.38 billion dollars of net income. Figure 1. Starbucks Business Turnaround

Comment on the internal and external causes of the crises
The economical crises
Strong external factor that has contributed to the Starbucks declining performance was, undoubtedly, the financial crisis that brought a strong impact on the business. Internally, a considerable mistake of the management team at the time was their misjudgment of the strengths of the coffee culture that Starbuck had. They believed that customer would continue to be consistent with their spending even during times of economical crises, which turned out not to be the case.

Fast Growth
At the time the company was focused on fast growth strategy. During the eight years of Schultz serving as a chairman the company grew from 5000 to 15000 stores. The attempted growth was too fast and resulted in Starbucks’ stokes dropping with 42% in 2007. In addition to the unfavorable external climate, the high growth strategy through an aggressive U.S expansion that the business was following until then has led to painful results.

Increasing Competition
Margins on coffee were high; competition was growing as major fast food chains would attempt to win part of the market. Fast food chains as MacDonald’s began to develop their own lines of coffee drinks; those were offered to the customer at strongly competitive prices, lower then Starbucks. There was also part of the market that continued to favor coffee, but preferred to switch to home consumption.

Overall
Poor management decision such as the Expansion Policy as well as the high price of raw materials, the charge of high prices, the low net margin and the poor differentiation from competition were some of the key contributing factors that led to the decline of Starbucks performance.

Reflect on the measures implemented in response to the crisis Leadership
To stabilize the company at a point of crises numeral measurements were implemented. Alarmed by the critical downturn Starbucks was experiencing the chairman, Howard Schultz, took the decision...

Bibliography: Allison, M., 2011. Review: Howard Schultz tells story of Starbucks turnaround in newest
book "Onward"
Groth, A., 2011. 19 Amazing Ways CEO Howard Schultz Saved Starbucks. Business Insider
[online]
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