Analyze Strategy Of Starbucks Essay

Question:

Discuss about the Analyze strategy of Starbucks.

Answer:

Introduction

This paper discusses the strategy of Starbucks Inc and analyzes how these strategies are modeled to help the company achieve its goals and objectives. The paper analyzes the growth strategy of Starbucks, its marketing and communication strategy as well as market segmentation. An analysis of the financial performance of the company is also done in this paper.

Starbucks` strategy

Starbucks strategy is anchored around future growth by growing the number of stores across various geographical regions. Starbucks is concentrating on increasing he number of stores especially in Asia Pacific and middle East. The strategy of the company also involves elevating the coffee experience of customers and hence improving customer satisfaction. Driving at home coffee and share occasion strategy will help to diversify and increase the brands product portfolio and hence fueling growth.

How is competing for Starbucks

Competition for Starbucks is stiff but the company has a strong brand that helps it to be competitive and it has helped the company to maintain its market leadership position(McGee, 89). Some of the main competitors for Starbucks include Dunkin` Donuts and McDonald`s. Competition from substitute drinks such as Soda is also high.

Where is competing

Competition for Starbucks is widely spread in all regions that the company operates. Competition is very intense in Europe and US. The company differentiates products depending on the market and the type and level of competition.

Types of competitive advantage experienced by Starbucks

There are two types of competitive advantage;

Cost competitive advantage involves a company competing in the market by minimizing cost and hence offering goods and services at lower prices compared to their of the competitor.

Differentiation strategy involves a company exploiting its ability to differentiate products and services and hence help the company become more competitive than other players in the industry (Jeyarathmm, 134). The cost may remain high but products offered are unique and hence customers will be attracted to the company.

Market segmentation

Starbucks segments its market based on a variety of factors. These aspects include;

Geographic market segmentation- Starbucks divides its market depending on the geographic location of outlets. This is done according to the continent in which the company is operating.

Demographic segmentation- Demographic factors such as gender and age are used by Starbucks when developing products e.g there are special products made for kids.

Market positioning

Starbucks has positioned itself as the premium and classic coffee outlet globally that focuses on optimizing consumer experiencing and satisfying the needs and desires of customers. Starbucks puts a lot of emphasize on customer experience and this has been instrumental to the company maintaining its strong brand and market position (Strategic Marketing Management,9-76).

Vertical scope

Starbucks is not vertically integrated. The company specializes in coffee retail through its various outlets in different locations. Starbucks does not engage in coffee production but it monitors the quality of coffee beans which are processed to become the coffee that it offers customers (Hitt, 17-56).

Geographical scope

Starbucks operates globally. It opens stores in all continents globally depending on market analysis and the forecast demand in a particular market. Starbucks strategy is to reach as many potential customers globally as possible and hence help it meet the goal of serving the world Starbucks coffee (Petit,47 ).

Product scope

Starbucks has a wide products portfolio. Starbucks main product is coffee and tea but both products are highly differentiated to cater for the tastes and preferences of different customers. There are more than 30 blends of coffee and a single-origin premium coffee (David and David 405-417) . Ready to drink beverages are also a popular product of Starbucks. The other products offered by Starbucks include; Handcrafted beverages, merchandise and fresh food.

Performance of Starbucks for the year 2016

For the financial year ended October 2016 Starbucks recorded an operating income of $4.2billion. This is an increase of 16% from the previous year’s operating income. The growth in income of the company can be attributed to the expansion of the company by opening more stores globally. The sales in Americas also increased by 11% and growth in the Chinese market were very encouraging. The global sales for the year 2016 increased by 4%. The revenue for Starbucks in the year 2016 was recorded at 21.32 billion US dollars. Starbucks stocks have not been performing well recently with the stock price having decreased by 13% in August 2016.

Sales growth computation for Starbucks

Sales for the year 2015 were $19.2 billion. The sales grew in the following year to $21.32 billion. The following is a computation of the sales growth for the year 2016:

Increase in sales= 21.32-19.2=2.12 billion Us dollars

Percentage increase in Sales= (2.12/19.2)?100=0.11=11%

Starbucks sales growth is 11%.

Return on Equity

Return on equity is the amount of net income that has returned to the business calculated as a percentage of shareholder equity. This ratio is used to measure the profitability of a company by revealing the amount generated from the investments by the shareholders. It is calculated as follows:

ROE=Net Income/Shareholders Equity=

Net income=$2,757,400

Shareholder=$5,890,700

ROE=2,757,400/5,890,700=0.47

ROE=47%

Operating margins

The operating profit margin for Starbucks for the 2016 financial year is 18.47%. It is calculated by finding the operating income and dividing it by the revenue of the company. The operating income for Starbucks during this period was $4.17.The revenue for the same period id 21.31B

OM=4.17/213.1=0.1847

=18.47 %

Long term debt equity ratio

This ratio is calculated by dividing the long term debt of the company with the equity of the company. This ratio is used to measure the long term solvency of the company and identify the balance between borrowed capital and owners equity.

Long term debt=$3,202,200

Total equity=5,890,700

Debt/Equity ratio=3,202,200/5,890,700=0.5436

=54.4%

Analysis of performance based on the calculations

The performance of Starbucks can be analyzed from the ratios calculated using the information available concerning the company. Starbucks recorded a sales growth of 11% (Wilson, 109). This means that the company is headed in the right direction and the increase in sales especially in the Americas and China. The growth in sales is a positive for the company and it means that the strategies of the company are working.

The return on Equity for Starbucks stands at 47%. This means that for every $1 of stakeholders’ investment, an investor gets $0.47. This return on equity is good for the investors of the company. A positive return on equity means that the company is able to generate enough profits to recoup good earnings on the investments. The operating margins for the company are also positive and it indicates good performance of the company. The debt/equity ratio of Starbucks is above 50%. This means that the company is operating using more debts than owners’ equity. Since the debts of the company are more than half of the capital of the business and therefore the management should focus on reducing the debt of the company since it reduces the solvency of the company. This is weakness since the cost of financing the debt may be high and become counterproductive.

The arguments on the performance of Starbucks are based on information obtained from the balance sheet of the company. The income statement of the company is also in providing information that is used to access the performance of the company (Cravens and Piercy, 122). Annual audited financial statements are available on the companies` websites.

Conclusion

The paper analyzes the strategies that Starbucks uses to become competitive and to grow and expand in the market. The growth and expansion strategy of Starbucks is to open more outlets in different regions globally. The company is currently focusing on the China market and the Asia Pacific. Starbucks mainly segments its market geographically and demographically. Starbucks has positioned itself as a premium coffee outlet globally that offers consumers unique customer experience.

References

Cravens, David W, and Nigel F Piercy. Strategic Marketing. New York: McGraw-Hill/Irvin, 2013. Print.

David, Meredith E., and Fred R. David. "Are Key Marketing Topics Adequately Covered In Strategic Management?."Journal of Strategic Marketing 25.5-6 (2016): 405-417. Web.

Hitt, M.A. "Relevance Of Strategic Management Theory And Research For Supply Chain Management."Strategic Direction 27.7 (2011): n. pag. Web.

McGee, John. Strategic Management. Chichester: Wiley, 2014. Print.

Petit, Y. "Advancing Project And Portfolio Management Research: Applying Strategic Management Theories."Strategic Direction 28.9 (2012): n. pag. Web.

Strategic Marketing Management. [Place of publication not identified]: Willford Pr, 2016. Print.

Wilson, Richard. Strategic Marketing Management. [S.L.]: Routledge, 2017. Print.

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