CRAFTING AND EXECUTING STRATEGY SEC

001
RESEARCH AND CASE ANALYSIS
STARBUCKS
PART B

APARNA KRISHNA
STUDENT NO. 300807035
1) Go to Yahoo! Finance and create a line chart comparing the share
price of Starbucks Corporation with that of McDonalds Corporation
from 1992 up to the present time and describe in a summary
statement what the chart portrays. Also, do provide an insightful
comment on what the chart portrays, from the perspective of a
student of strategic management. Be sure that you attach a copy of
the chart with your submission.
a) The chart highlights the meteoric rise of the SBUX common share.
MCD has been rising, but the growth has paled in comparison to that
of SBUX. It is also apparent that Starbucks was more adversely
impacted by the recession as seen by the sharp drop in share prices
around 2008-2010 while McDonalds managed to fare better. This
could possibly be due to McDonalds having a larger international
presence than Starbucks; geographical diversification may have
cushioned the impact of the recession. SBUX would be a strong buy
since the company is enjoying a price premium that is driven by
very strong fundamentals and not fleeting trends.

2. For the purpose of updating the information provided in the case

material and also for other purposes, please consult the 2014
Annual Report of the company. Then state the total net revenues
($B), net earnings attributable to Starbucks ($B), ROA, ROE, and the
total number of stores in respect of the last five fiscal years 2014
to 2010, in that order. Please present your answer in tabulated
form.
Net Total Revenue (B$)
Net Earnings Attributable to
Starbucks (B$)
Total Assets (B$)
Total Equity (B$)
ROA (%)
ROE (%)
Total No. of Stores

3.

2014
16.45

2013
14.87

2012
13.28

2011
11.70

2010
10.71

2.07
10.75
5.27
19.23
39.23
2136
6

0.01
11.52
4.48
0.07
0.19

1.38
8.22
5.11
16.83
27.07

19767

18066

1.25
7.36
4.38
16.91
28.39
1700
3

0.95
6.39
3.67
14.81
25.73
1685
8

What factors might explain the relative decline in the

performance of the company during specific periods in the last

decade? (You can pursue additional research on this question. If you

do so, please use information from articles from Business Week and
Fortune

only.)

Be

sure

that

the

sources

are

appropriately

acknowledged.
a) The period of dramatically poor performance that I would like to
focus on is from 2006-2010.

According to Aaron Pressman in an

article titled Starbucks, Are You Listening?, the chief reason for
SBUX performing so poorly was due to intense competition from
rivals like McDonalds, Dunkin Donuts and others. He opines that
Starbucks lost its

coffee origins

and became vulnerable to

competition from its not as premium competitors. In an internal

memo that was leaked on the internet, Schultz admits to his
employees that Starbucks is facing tremendous competition from
not only goliaths like McDonalds and Tim Hortons but also small,
local coffee houses and mom and pop stores, which has lead to the
beginning of coffee-wars.
4. What specific measures had the company undertaken to affect a
turnaround in its performance? Was the company successful in this
regard?

Schultz was requested to re-join the company as the CEO.

Schultz lead a major restructuring and revitalisation initiative,
changing key personnel and their roles and responsibilities.

It was felt that the customer service experience had been

watered down. He hired a creative officer who was solely
tasked with elevating the in-store experience of customers.

He focussed his energies on three main themes: strengthening

the core, elevating the experience and investing and growing.

Cost containment and efficiency campaigns were launched,

which lead to a dramatic increase in productivity per
employee.

Continued to focus on international expansion to drive its

growth.
In my opinion, the transformation has been very successful as
evidenced by all financial metrics. The last 7 years have
proven to be very successful for the company with it scaling
new heights under the management and vision of Schultz.

5.

Why do you think Starbucks has opted for joint ventures as an

entry mode for international expansion?

In my opinion, Starbucks opts for joint ventures as an entry
mode as local partners would be able to shoulder the capital
costs and risks along with Starbucks. Local partners may also
be more clued in to local nuances and tastes, which may be
vital in the companys success. Starbucks can set various
rigorous criteria to ensure prospective partners share the
same commitment and vision towards success as the firm.
Once on board, the relationship would be mutually beneficial
the local partner can use the Starbucks brand name and be
relatively certain of earning an attractive return on its
investment, while Starbucks can leverage local partner to get
a pulse of the market.

6.

In a 2006 interview with a reporter, Howard Schultz had stated

that Starbucks business was recession proof. How would you

evaluate this statement?
a) I would have agreed with this statement had Starbucks
positioned itself as a low-cost, no-frills coffee chain like Tim
Hortons. Such a chain would be more resistant to recessions
since customers would probably not forgo a cup of coffee that
more of than not costs about a dollar. However, since
Starbucks is selling an experience and not merely coffee, its
customers probably have a much higher elasticity of demand
when skipping a Starbucks Venti Latte would lead to a saving
of USD 1,500 a year, as approximated by Katie Couric on CBS
News (Economys A Bitter Brew For Starbucks).
7.

State, in separate and numbered sentences, all the comments

made about Wall Street by Howard Schultz in the videotaped

presentation. Also, please indicate two distinct aspects of the
presentation that you have found to be personally interesting.

He says that Wall Street has a much narrower, short-term

focus.

He believes that some financial metrics that retail public

companies report to the Street promote a short-term
mentality and culture within the organisation that is very
detrimental in the long run.

He

adds

that

it

is

difficult

for

company

to

simultaneously serve the best interests of its customers

and of the company itself as well as the short-term

interests of the Street.

He believes that if customers and employees are happy,

it will eventually lead to long-term value creation, which
will tie back to profits for the shareholders as well.

He admits that there have been some missteps within the

organisation that has contributed to the companys
market capitalisation having fallen, but he doesnt seem
to be very perturbed by it because he has a much more
long-term focus.

8. A. G. Lafley and Roger L. Martin in their book, Playing to Win: How

Strategy Really Works, (2013) assert that strategy is the answer to
five interrelated questions. You have studied Starbucks Corporation
in some depth. Assume that you have been appointed as a Special
Assistant to Howard Schultz and that Howard has asked you to
prepare some notes for him on these five questions for an upcoming
presentation on Starbucks at the Rotman School of Management
and at which Professor Roger Martin would be present. Be sure that
your notes are compiled for each question clearly and fully and
numbered separately for each point that you put forward.
a) The purpose of the company is to deliver a coffee-experience to
its customers. The focus is not just on the sale of a cup of coffee but
also on the entire in-store Starbucks customer experience. The
company is attempting to position itself as a third space after a

persons house and office. Core competency would be to serve highquality premium beverages and superior customer service.
b) The playing field is primarily North America. Outside of the U.S.,
China is the biggest market. Intention is to further diversify
internationally. Since the brand has such global brand recognition,
the entire world can eventually be the playing field. The company
can leverage local partners in an attempt to make inroads into
emerging markets and other countries in which there is currently no
presence.
c) Product differentiation would be the primary winning strategy.
Differentiators could be the coffee itself, the store and its ambience,
superior customer service and strategic locations. Constantly
innovate

and

ensure

there

is

feedback

loop

across

the

organisation to make sure senior management is cognizant of

developments on the ground.
d) Heavy reliance on baristas as they are customer facing and
represent the company to the customer. The company ensures
customer service personnel and baristas are a strategic fit and
understand the firms goals. Thus, amassing the best human
resource pool is mandatory. The firm ensures deserving employees
are rewarded with monetary and non-monetary benefits. Also,
continue to invest in technology to better manage the customer
interface (mobile apps for instance) and also to manage the supply
chain more efficiently.

e) Long term focus without much regard to short-term volatility in

share prices. Management has full faith in its employees. Customer
requests are prioritised and employees are given significant leeway
in deciding what is the optimal solution to a customer complaint.
This discretion empowers employees as they feel they can make a
difference to the company. Management also treats all employees
fairly with health benefits, stock options etc. Contented employees
eventually lead to happy customers.
BIBLIOGRAPHY
1) Crafting and executing strategy. (2014). MC Graw hill
2) Retrieved

December

1,

2015,

from

http://investor.starbucks.com/phoenix.zhtml?
c=99518&p=irol-reportsannual
3) Pressman, A. (2007, July 14). Archrivals Storm Starbucks.
Retrieved

December

1,

2015,

from

http://www.bloomberg.com/bw/stories/2007-0718/archrivals-storm-starbucksbusinessweek-business-newsstock-market-and-financial-advice
4) Couric, K. (2008, December 1). Economy's A Bitter Brew For
Starbucks.

Retrieved

December

1,

2015,

from

http://www.cbsnews.com/news/economys-a-bitter-brew-forstarbucks/