Fortune 500 Co. The Company That I

fortune 500 Co.

The company that I am writing about is Starbucks. This company operates in the quick service restaurant industry. With $14.89 billion in systemwide global sales, Starbucks is the #3 firm in the industry and by far the number one with a coffee focus (Oches, 2012). According to the company's most recent annual report, the United States has 62% of stores, but they have recorded double digit growth in Asia for 11 consecutive quarters. Other major markets for the company are Canada, the UK, Japan and China. The company also has licensed beverages, which are available in more stores than there are Starbucks shops, and furthermore they source their key ingredient in at least a dozen other countries where they have no retail operations.

History

Starbucks was founded in 1971 in Seattle. In 1982, Howard Schultz, an coffee equipment sales person, visited the shop and decided to join the company. He left to found his own firm, which then bought out the Starbucks brands in 1987. That same year, the company began expanding, to Chicago and internationally to Vancouver. The company's IPO was in 1992. By 1999, Starbucks had topped 2000 stores globally and was operating in 14 countries. There are now stores in 65 countries. The company moved into the packaged market in 1998 in a deal with Pepsi, acquired Tazo Tea, and lately has moved into the juice, bakery, and tea shop businesses to try and apply the Starbucks model to other lines of quick service.

Results

In the 2013 fiscal year, the company earned $14.89 billion in revenue, which was up from $13.29 billion the year before, a gain of 12%. Profits, however, were down. Starbucks earned just $8 million in FY 2013 compared with $1.38 billion in FY 2012. A massive special income charge of $2.78 billion appears to be the culprit, an arbitration settlement in a legal dispute with Kraft, which was the company's packaged distributor (Wong, 2013). Ex-charge, the company recorded improved operating income, a continuation of the trend for the past five years. Starbucks has seen its sales steadily increase since at least 2009 and its net income has also increased in that time, aside from the recent charge. In 2013, the company added to its long-term debt for the first time in several years, selling $750 million in bonds to help cover the cost of the arbitration settlement with Kraft (Mead, 2013).

Forces

There are a number of external forces that will influence how a company performs. These include economic, social and political forces. Economic and social are the most important. Starbucks is to some extent seen as a luxury good, the result of which showed in declining sales during the early stages of the economic downturn. The company at the time faced intense competition from company like McDonalds and Dunkin Donuts and this was undercutting Starbucks' price. However, the company adjusted well to this challenge and began growing its sales, even in 2009, indicating that the company was working through the recession better than was expected of it (Ahrens, 2009). Another economic force, however, that needs to be considered is the social.

Social forces are also important to Starbucks. The company was able to create demand in many countries for a coffeeshop experience, and in a lot of these places there was little such tradition. To do this implies that Starbucks has a good grasp of the social forces at work, especially considering how different the way of life is in China, the Middle East and the U.S. Social forces during the recession looked to conspire against Starbucks in that people realized they didn't need high-end coffee in their lives. However, the company's rapid rebound suggests that while people may not have needed it, they wanted it. Starbucks represented something of an affordable luxury, and also that its target market was less-affected by the economic slowdown than perhaps other target markets were. Starbucks has been compelled to respond to social demand for more ethical coffee by offering more fair trade coffees on its menu. It has argued that it cannot offer organic because it is too big and there is simply not enough organic coffee in the world to supply it. It purchased 8.7 million pounds of organic coffee (1.6% of its total volume) but 90% of its purchases were fair trade (Starbucks, 2012).

Political forces are less important. There are not many regulations of Starbucks' core business aside from the usual human resources and food service regulations that all firms in its industry must follow. The government is not a major buyer, nor is there any serious political dimension to its business. There have been a few random issues, however. Starbucks ran afoul of authorities in Britain for following laws that Britain signed up for when it joined the EU - go figure -- and this has resulted in Starbucks paying more taxes over there (Boyle, 2013). The ever-ethical communists in the PRC have also targeted Starbucks, a risk when you have corrupt regimes that sometimes need to deflect attention towards foreigners and away from their own indiscretions (Harrison, 2013). Neither of these issues, however, has had any significant financial impact on the company.

SWOT Analysis

Starbucks is a highly successful company because it has a lot of strengths. It has a great brand, which is becoming known around the world and has a lot of power in its major markets. The company also has a good operations system. It emphasizes the so-called Starbucks experience, which is the in-store experience that keeps customers coming back. This has been translated to a lot of cultures around the world successfully. The company's products are appealing as well, and it has a good financial standing. There are areas of weakness, however. Notably, the company has attempted on more than one occasion to diversify with different concepts and products, but has never been able to replicate its success with anything else. The company is also dependent on Howard Schultz as CEO. Without him, the company struggled, but with him they have always succeeded. The ability to succeed with a different CEO would be nice, but right now Starbucks is dependent.

There are many opportunities. The company is targeting new concepts to help diversify its business. It is also focusing on international markets where growth potential is strong, in particular China, India, the Middle East and other parts of East Asia. These areas are where the company envisions its growth in the future. The main threats to Starbucks come from coffee prices, consumer tastes and the economy. None of these are major threats. Competition, normally a threat, is not really much of one for Starbucks, which dominates its industry and has no strong competition aside from the occasional local threat.

The Future