Starbucks business strategy analysis

Published: 2018-04-11 18:39:13
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University of California, Santa Barbara
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Starbucks Marketing Strategy Analysis: Strategic Gaps in the Marketplace

Starbucks Company has used available opportunities in increasing its growth. For this to continue, the Company should continue to capitalize on all its strengths and improve on the shortcomings. This achieved by identifying the market gap by looking at new opportunities through innovation. The company can change the shortcomings into qualities in order to counter competition.

One of the strategies Starbucks can come up with is developing a fiscally cognizant method that would improve their profits. The company should also look for a way of reducing the cost of production by inventing new technologies that can produce quality coffee at a lower cost enabling them to deliver all over the world at a low cost increasing the number of customers  (My Starbucks Idea, 2014). These will give Starbucks an edge ahead of its competitors as customers will not consider buying from any other provider other than Starbucks. This will continue to build customer loyalty to Starbucks. Starbucks could also develop a promotional program of donating part of its profits in the form of coffee to the less privileged countries (King, 2011). This will help them in selling their brand as well as removing the perception that Starbucks target the rich. The promotion will also familiarize their products with the consumers thus befriending them and because of its quality; the company will catch new customers. Starbucks could also take customers views in the international platform by advertising their mobile network platforms across the world as well as providing a platform to take comments in order to customize products to meet their expectations (My Starbucks Idea, 2014). It will likewise demonstrate more mechanically propelled level of business a long way past that of any aggressive competitor. These methodologies are routes in which Starbucks could connect crevices in the espresso advertise; exploiting qualities and openings while enhancing shortcoming.

Starbucks Current Financial Position

Starbucks as a company is in a sound financial situation. The following income statement indicates that Starbucks has performed better than expected as it has had a rapid growth of about 7%.

Starbucks financial position

This has enabled Starbucks to leverage its value line or fixed overhead expenses. The stock market of the company has also performed continue to perform well. The graph below shows Starbucks stock chart since 2012 to 2016 (HSPH, 2014).

Starbucks stock chart

Starbuck’s stock has been leading in the market since 2012. However, it remains more volatile. Financial ratios have also assisted the company in getting a grasp on the company’s internal weaknesses and strengths, which positions the company effectively in the market.  Using Fred David’s financial instruments, liquidity ratios were instrumental in measuring Starbucks capability to pay their obligation. The following exhibit show Starbucks financial ratios.

Starbucks financial ratios

Starbucks financial ratio analysis

Liquidity ratios measure Starbucks show whether the company will be able to pay their short-term obligations. Thus, Starbucks is able to liquidate their assets quickly to cover its liabilities if required.

The average Collection period is an important ratio, which can be used in measuring in measuring the value of the financial strength of Starbucks. The average Collection period can, be defined as the period that a company is able to collect credit sales. Companies with low average Collection period like Starbucks have a strong financial position those firms with high average Collection periods. Starbucks remain in good position with a ratio of 13.30. Profitability ratio is essential in measuring Starbucks overall effectiveness. An important ratio that is commonly used in this category the ROE (Return on Stockholder’s Equity) ratio. The ratio indicates Starbucks after-tax profits based on the company’s assets. The ROE indicate the profit generated by Starbucks, which is seen to be relatively high at 27%.

Starbucks Regression Analysis

The main factors that influence the retail snacks and coffee industry are personal saving rate, discretionary spending, customer confidence and unemployment rate. Thus, Starbucks is faced with challenges that arise due to the rate of unemployment, a decrease in customer confidence, spending, and discretionary income and increase in personal serving rate. Thus, through regression analysis, it is important to look into the impact of these macro-economic factors on Starbucks.

The figure below shows the regression analysis on consumer spending and Starbucks.

Regression analysis on consumer spending and Starbucks

The figure below shows the regression analysis of disposable income and Starbucks.

Regression analysis of disposable income and Starbucks

The figure below shows the regression analysis of unemployment and Starbucks.

Regression analysis of unemployment and Starbucks

Regression analysis of Starbucks Corporation shows that the company has a good defensive stock. From the regression analysis, it is clear that as the disposable income and the consumer spending increase or remain steady, Starbuck's stock price increases relatively faster. When disposable income and consumers are spending fall, Starbucks stock price remains stable. The same conclusion can be made based on the employment rate. Thus, the regression analysis shows, that dining out are among the areas, which the customers cut back their expenditures and customers continue to switch to quick service from full service to reduce cost.

The following figure shows Starbuck’s ordinary least square model applied against yearly revenue. The best-fit line has a 0.3 slope, which shows that Starbucks revenues will continue increasing yearly.

Starbucks yearly revenue

This means that competitor’s sales and profits made in the sector also increased. Starbucks has no clear competition in the market comparing it to its size and revenue on a global scale. Such increase in financial growth enables the Starbucks to fund different aspects in the company. Such an advantage gives the company more strength enabling it to continue expanding globally.

Starbucks Sustainable Competitive Advantage

Competitive advantages in an organization are advantages not easily copied by other organizations. However, to endeavor these managed advantages into long lasting ones is troublesome for most organizations. Firms should therefore not only fight to get the upper hand but should look for ways of sustaining it. A firm can do so by adapting to changes outside and during occasions as well as improving skills, abilities, and assets by successfully detailing, actualizing, and assessing systems (My Starbucks Idea, 2014). Starbucks Company has many strengths that have translated into competitive advantages.

i.            Brand devotion by its clients has been a sustainable advantage over the years, and this increased the growth of Starbucks in the coffee industry. If Starbucks maintains this advantage in the coming years, the company will continue to be the most dominant coffee outlet in the world.

ii.            Brand reliability has been the greatest pillar of Starbucks growth and maintaining this should be a priority to the company’s management. In order to do this, the company has to maintain its quality coffee.

iii.            Apart from quality, the company’s strategic placement of stores and outlets has been another agent of growth. The company can get new customers and capture them by the quality products.

iv.            Starbucks received criticism between 2006 and 2007 for opening up too many outlets, and despite these critics, Starbucks has continued to expand and are now in a good position within the Coffee Industry (My Starbucks Idea, 2014). The huge investments they are making for example in the real estate industry makes it hard for its competitors to overdo them.

v.            Starbucks competitors like McDonald's and other local coffee outlets have tried to imitate Starbucks for a long time, but this has proved difficult despite their financial capabilities

sheldon

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