Starbucks: Is It Just a Trend?

Starbucks: Is it just a trend?

WRDS Paper

Starbucks was established in 1971 operating in Seattle’s Pike Place Markets. The mission and goals of Starbucks has allowed them to succeed in a fast paced world, with loyal customers sticking by Starbucks through ups and downs. It is one of the fastest growing companies and has committed to connect with their consumers giving 100% satisfaction. Starbucks is considered one of the trendiest and well known coffeehouses with over 21,000 locations and continues to expand rapidly. They offer many perks such as meeting space, convenient locations, consistent products, Starbucks reward system and free Wi-Fi. Starbucks must expand their product line beyond coffee beverages to help increase profits and expand their brand. Even though, Starbucks is best known for their coffee products; their variety of other beverages, fresh pastries, muffins, soups and sandwiches will help continue their growth for what consumers want and increase revenue.

In the early 1990’s Starbucks became nationally known to be the first privately owned company that offered stock options to their employees. In 1992, Starbucks as a company went public and began selling its coffee in Nordstrom’s department stores. A year later Barnes and Noble helped Starbucks expand the brand by selling coffee in their cafes. Between 1993 and 1994, Starbucks coffee was sold in the Sheraton hotel franchise and partnered with Pepsi Co. to produce a bottled coffee beverage (Starbucks.com).  Starbucks expanded to multiple countries between 1996 and 1999 including Japan, Singapore and United Kingdom. In 1999, Starbucks purchased Tazo Tea Company and Hear music.  In the later part of 2001 Starbucks had 1100 stores worldwide increasing growth in Austria, Switzerland, Mexico, and Latin America (Starbucks.com). By 2003, Starbucks acquired Seattle’s Best Coffee Brand for $72 million and had 7,225 total stores; this added 150 additional coffee shops.

Starbucks is considered the top leading retailer in specialty coffee, however they are not only known for their coffee but for their teas, roasted beans, and handcrafted sodas. Starbucks covers over 40 countries with more than 20,000 stores to date. Almost fifty percent of the stores are operated by Starbucks; the remaining stores are franchised and licensed to qualified persons. A big part of their business is licensing the Starbuck brand. Dreyer’s ice cream partnered with Starbucks to increase market presence by adding coffee flavored ice cream. Starbucks was destined to become a successful company from the start (Starbucks.com). Starting in 2010 Starbucks extended its digital offering for consumers with free unlimited WI-FI and had a total of 16,858 stores. In the year of 2011 Starbucks celebrated their 40th Anniversary launching Starbucks K-cup, they acquired Evolution Fresh and had a total of 17,003 stores (Starbucks.com). With the company soaring, in 2012 Starbuck then introduced their Blonde Roast, launched Starbuck Refreshers, and also acquired La Boulange bakery brand and Teavana with a total of 18,066 stores (Starbucks.com). In 2013 not much activity happened due to the legal issues with Kraft Foods, however Howard Shultz did reinforce Starbucks commitment to marriage equality and by year end there was 19,767 stores (Starbucks.com). While 2014 showed more progression; Starbucks offered enhancements with the iPhone app including shake to pay and digital tipping, launched mobile order and pay, announced commitment to hiring veterans and continued to grow its stores to 21,366 (Starbucks.com).  As of June 28, 2015, Starbucks has a total of 22,519 stores and lunched cold brew iced coffee and handcrafted smoothies and sodas (Starbucks.com).

Developing a strategy is the first and most important factor to consider is its performance when studying a company. This helps you to carefully identify the company’s goals and track its progression. Using the Total Quality Management performance measurement concept will also help to compare Starbucks performance to the standard set forth by the company internally and externally; this will allow analyst to identify areas needing for improvement (Royalty). While analyzing Starbucks’ performance, we may want to consider many variables including accounting, financial criteria, marketing, and style of management.

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The chart above shows the amount of Starbucks total assets; it has fluctuated over the past five years and shows steady growth year to year. However, in 2013 Starbucks was sued by Kraft Foods and a mediator determined that Starbucks must pay $2.76 billion in damages plus $527 million in interest and legal fees due to early termination of a bagged coffee agreement (Starbucks.com). Net receivables shows an increase each year which is a plus; inventory shows a big increase between 2010 and 2011. Plant, property and equipment were at a steady growth during 2010 to 2014.

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The table above shows Starbucks net income is increasing at a strong upward level, except for 2013 when they were in the legal battle with Kraft Foods. If they did not have that tremendous liability payout they would have shown a significant increase in net income between 2013 and 2014. However, their profits were climbing during 2014. Their cost of goods and revenue seems in line across the board.  Cash flow adequacy seems strong which is shown by their operating income after depreciation. With a strong cash flow this will allow Starbucks to invest, operate, and finance without being required to liquidate any assets.

According to Study.com, “profitability ratio is a measure of profitability, which is a way to measure a company’s performance. Profitability is simply the capacity to make a profit, and a profit is what is left over from income earned after you have deducted all costs and expenses related to earning the income.” Gross Profit margin, net profit margin and return on assets help investors and creditors measure how profitable a company should be.

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After reviewing the above profitability chart it shows a 1% to 2 % increase. To calculate gross margin you must take revenue less the cost of goods sold and compare it to the actual revenues. In so many words it measures the company’s “financial strength” and how well it is operating by removing other issues; it may be due to a decrease in cost of goods sold.