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Please see Appendix a for a give year ratio analysis of Starbucks Corporation illustrating the significant effect the recession is having on gross margins. Yet despite this pressure, Starbucks continues to be successful in keeping its gross margins above industry average at 9.67% for the latest fiscal year. Also noteworthy about their financial performance is the increase in Revenue Per Employee from $53,864 in 2004 to $59,156. This speaks to the fact that Starbucks is being successful with their long-term strategy of delivering exceptional customer experiences, so much so that there is greater levels of repurchase of drinks and food even in a recession (Churchill, 2008). All of these factors point to the critical need for managing customer experiences more closely than ever, with a strong orientation towards giving customers and opportunity to have their voices heard on potential new products. Starbucks has excelled in the area of social networking, creating My Starbucks Idea, a website dedicated to capturing the ideas, concepts and concerns of customers. My Starbucks idea is also promoted heavily on the company's Twitter and Facebook accounts as well. Starbucks also is mentioned throughout the best-selling book Groundswell, one of the most critically acclaimed books on social networking today (Bernoff, Li, 2008). The use of multiple social networking websites and approaches to listening to customers has emerged as one of the most dominant strengths of the company in the last three years as well (Bernoff, Li, 2008). In summary, the bargaining power of buyers is significant and customer loyalty is directly proportional to the profitability of this industry (Rae, 2006). The dynamics of customer loyalty in this industry have also proven to enable it to be more protected from recessionary pressures compared to airlines and other service industries that rely purely on price over any other factor, including delivering exceptional experiences (Verhoef, Lemon,
Parasuraman, Roggeveen, Tsiros, Schlesinger, 2009).
Suppliers are the last factor in the Five Forces Model, and in this area Starbucks has worked to create the ethical and green or eco-friendly initiatives work to their advantage (Fridell, 2009). Suppliers today in the coffee industry control the balance of power in relationships. The entire industry is highly dependent on the futures prices of coffee beans and also on the costs of dairy products as well. The costs of coffee and dairy products together are so significant of a cost that Starbucks also forms strategic partnerships with other retailers to mitigate the costs of these essential ingredients by completing bulk buys of products (Fridell, 2009). Starbucks has transformed supply chain potential risk into branding advantages however through the use of their Fair Trade Initiative, which seeks to pay growers the fair market value for their coffee crops.
In summary, Starbucks is navigating through the competitive threats, threats of substitution, formidable strength of consumers due to their direct impact on profitability from their loyalty, and the impact of suppliers on the cost structures of their entire industry. Starbucks has chosen to take potential risks in the areas of Corporate Social Responsibility (CSR) for example in the areas of supply chains and Fair Trade and turn it into part of their unique value position and uniqueness as well (Fridell, 2009).
Implications on Marketing Plans and Change Management
Starbucks' initial approach of creating a highly cannibalized sales model globally was brought back to a more realistic scale in the current recession. The concept of having each store compete with a surrounding one on service and experience delivered as measured by customer satisfaction scores however did drive smaller competitors out of the market over time.
In analyzing how the core forces as captured in the Five Forces Model are redefining the Starbucks marketing strategy, starting with the force of Buyer Power (or customers) it is clear that the company's rapid and complete adoption of social networking including the development and continual use of Twitter, Facebook and the website My Starbucks Idea all illustrate how committed and passionate the company is about putting the customer at the center of their marketing, retailing and service strategies. The active role of customers on these social networking platforms is also creating a groundswell effect in terms of the company's brand being seen more as one willing to listen and improve, less on being one-dimensional or dictatorial in their approach to defining their services and product direction (Bernoff, Li, 2008).
The $7.6M investment in R&D on a consistent yearly basis also shows how attuned Starbucks management is to the development of substitute products and the corresponding need to create exceptional products. What Starbucks continues to work toward is a continual improvement in their internal knowledge sharing processes as they seek to create an e-learning network to make knowledge a competitive differentiator as well (Marahao, Carrieri, 2007).
The managing of supply chains not as a separate entity, which is the strategic error Nike made and paid a high price for lack of Corporate Social Responsibility (CSR) as a result, but as an integral part of their strategy also differentiates Starbucks from its many competitors. Starbucks has successfully taken their CSR strategies as they relate to supplier and transformed their value proposition globally as a result. As the costs of suppliers also is re-ordering the value chain (Porter, 1986) of this industry, Starbucks has also redefined partnerships and alliances for over a decade to find shared cost reduction strategies (Sergil, 1998).
What is unique about Starbuck's approach to change is that strategically all factors have become once again set on the customer though the use of social networks to listen to them and create more customer-based strategies. Aligning supply chain strategies, R&D initiatives, and new approaches to delivering customer experiences all have led to major change in the company's operating approach in the last five years as a result. As with any company that makes the transition from one significant change to the next, the company's CEO Richard Schultz has again taken leadership of the company to ensure the synchronization of all these systems, processes and strategies are in alignment with each other. The approach Starbucks has of systematically changing their strategies yet ensure synchronization across all systems provides an example of how agile companies need to be to survive in the turbulent economies times of today.
Appendix a Starbucks' Corporation Ratio Analysis
Starbucks Corporation Ratio Analysis
ROA % (Net)
ROE % (Net)
ROI % (Operating)
EBITDA Margin %
Calculated Tax Rate %
Revenue per Employee
Net Current Assets % TA
LT Debt to Equity
Total Debt to Equity
Total Asset Turnover
Accounts Payable Turnover
Accrued Expenses Turnover
Property Plant & Equip Turnover
Cash & Equivalents Turnover
Bernoff, J., & Li, C.. (2008). Harnessing the Power of the Oh-So-Social Web. MIT Sloan Management Review, 49(3), 36-42.
Chris Churchill. (15 July 2008). Starbucks competitors get jitters: Local coffeehouses, facing woes of their own, cast wary eye on chain's recent closings. McClatchy - Tribune Business News
Fridell, G. (2009). The Co-Operative and the Corporation: Competing Visions of the Future of Fair Trade. Journal of Business Ethics: Supplement, 86, 81-95.
Burt Helm. (2007, April). SAVING STARBUCKS' SOUL: Chairman Howard Schultz is on a mission to take his company back to its roots. Oh, yeah -- he also wants…[continue]
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This strategy was combined with the company's focus on CAFE-based compliance and support for Fair Trade-based trading practices with coffee suppliers. This renewed focus on managing their supply chains to tighter levels of profitability and performance metrics including increasing quality standards has led to a significant reduction in operating expenses and control of variable costs (Starbucks Investor Relations, 2011). Starbucks was also able to manage costs of closing locations
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