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Overview
Started as a single retail store in coffee business at Seattle, Washington in 1971, Starbucks Corporation now (as of July 1, 2012) has 17,615 coffee chain retail stores spread across 60 countries with a loyal customer base of several millions. The Companys mission is inspiring and nurturing of humanity through serving coffee.
At the beginning, the non-descript store roasted and retailed in whole coffee bean and ground coffee along with tea and spices. Now the companys retail outlets have become gathering places for families and friends for consuming the coffee beverage. In its objective of serving the best available coffee, the company sources its coffee purchases of the best quality from around the world in Latin America, Africa and Asia.
The company serves to its customers at the retail stores, coffee of consistent quality by direct sourcing from the coffee growers in the above said world coffee markets. Apart from serving its own beverage, Starbucks sells a wide range of consumer products in coffee, coffee and tea brewing equipment along with other eatables.
Its brand portfolio consists of Starbucks Coffee, Seattles Best Coffee, Tazo Tea, Evolution Fresh, La Boulange and Torrefazione Italia Coffee . The company was incorporated in November 1985 and was listed on NASDAQ on June 26, 1992 at @ $ 17 per share which closed at $ 22.50 per share on the first day.
As a socially responsible company, Starbucks adopts ethical sourcing of high quality coffee direct from the farmers offering them support loans and forest conservation programs that have ensured long-term supply of coffee beans of consistent quality during the last 40 years of its existence. The companys policy of making its cups 100 % reusable or recyclable by 2015 reflects its environmental commitments.
Starbucks also has community involvement in the neighborhoods of the coffee growers it is sourcing coffee from and it has planned to devote one million volunteer hours every year from 2015 onwards as part of being a responsible neighbor .
The company has promoted its brand so well that the name Starbucks ranks next to the topmost ranking Coca Cola on the Facebook . Recently Starbucks announced launching of its retail chain in Sweden and Norway by 2013 through joint venture with the Norway based restaurant chain Umoe Restaurant Group.
Starbucks results for the quarter ended July 1, 2012 showed net revenues of $ 3,303.6 million and operating income of $ 331.3 million, Total Assets at $ 8,308.9 million and liabilities at $ 2,290.9 million .
Companys sales mix, product wise, at the company owned stores for the fiscal years 2009, 2010 and 2011 is as follows.
Financial Trends for the past five years
Year 2011 has recorded the highest annual sales turnover of $ 11.7 billion representing an increase of 11% from last year. The operating income of $ 1.7 billion represents an increase of 22 % from last year. Earnings Per Share of $ 1.62 has increased by 31 % from last year. During the year 2011, company introduced a new brand Starbucks Blonde Roast .
The company has served more than 156,000 hours of community service touching about 60,000 people in about 1,400 community service projects. There was an acquisition of super premium Evolution Fresh in juice segment. During the year, the company returned approximately $ 945million through share buy-back which was more than double that of previous year. Starbucks share price increased by 43 % from last year.
The Company claims that results achieved in the 40th anniversary year have improved its operational foundation and increased customer satisfaction which is a pointer to the development of a robust organization in the future.
Competition
Quick service restaurants and specialty coffee shops are the main competitors. Customers choose their product based on quality, service, convenience and price in which the company is continuing to face competition from quick-service restaurant sector and ready-to-drink coffee beverage market. Business is subject to seasonal fluctuations and hence quarterly results are not comparable.
Risk factors
Most of the risk factors described below are beyond the control of the company. These factors have the potential to affect adversely on the companys financial performance.
Some relevant factors are: Lower customer traffic due to the strategies of existing competitors and the ever increasing number of competitors that affect average value per transaction impacting on store sales, net revenues, operating income, operating margins, and earnings per share. Customers switch to lower priced products both within Starbuck and outside Starbucks.
Customers do not readily accept new products or price increases to offset higher cost of inputs. Adverse economic conditions prevailing lead to reduced customer spending. There is general decline in demand for specialty coffee products. Negative publicity and health risks from consuming coffee in general cannot be ignored.
Economic conditions in the US and International markets
Retails derive support from discretionary spending by the consumers and hence companys operations are susceptible to changes in macro-economic conditions prevailing in the US and other countries.
Job losses, foreclosures, bankruptcies, higher energy costs, higher interest rates, higher taxes do impact on the income of the consumer. This directly affects consumption of coffee which is just a beverage. Due to persisting adverse economic conditions, consumers are likely to develop changes in their discretionary spending practices on a permanent basis.
When recession hit the US and global economy in 2009, Starbucks had to close 900 of its stores resulting in the elimination of 34,000 jobs in an effort to earn more revenue with reduced cost of production. It started entering into strategic partnerships in foreign countries in order to reduce upfront investment and to share the risks with the strategic partners overseas.
Future Financial Trends
In spite of recessionary trends, Starbucks has registered 11 % growth in revenues in 2011 as also operating income which increased by 22 %. The companys resilience against the setback it had during the recent recession can be attributed to the brand loyalty which the company has built over the period of four decades.
Studies indicate that a retention of 5 % in customer base leads to an increase of 25 to 75 % in profit and cost of getting a new customer is five times more than the cost of retaining a customer.
Brand image of Starbucks has been positive which aids it to not only intensify its competition but also induce customers to make repurchases. Customer satisfaction is a factor in inducing customers to make repurchases that in turn leads to future growth in revenues and profits of an organization .
Undeclared results show a Total revenue as of September 29, 2012 as $ 13.3 billion as against $ 11.7 bn in 2011. Operating income for 2012 is $ 1997.4 million as against $ 1,728.5 million in 2011. These current trends as revealed by the analysts on Yahoo Finance demonstrate the positive trends in the growth of the company.
It can be safely predicted therefore that Starbucks brand image and customer satisfaction will continue to help the company post positive results in the years to come.
The company selected for investment is in the perishable consumer products industry and notwithstanding any adverse publicity of coffees health risks, sporadic reports on its health efficacy will continue to benefit the business in coffee which is an affordable soft drink for the consumer provided the company maintains its brand image and customer satisfaction.
References
AnnualReport. (2011). Starbucks Corporation Fiscal 2011 Annual Report. Seattle: Starbucks.
Anonymous. (2012). Yahoo Finance. Starbucks Corporation (SBUX) NasdaqGS. Web.
Anoymous. (2012). Starbucks Company Profile. Starbucks.com. Web.
Lee, K. (n.d.). Case Study : Starbucks Coffee. Itsmekathleen.com. Web.
Liston, E. (2012, September 27). Starbucks Corporation to Open its First High Street Stores in Scandinavia (SBUX). Web.
NehalHesham. (2012). My Starbuks Idea [Case Study]. Web.
Tu, Y.-T., Wang, C.-M., & Chang, H.-C. (2012). Corporate Brand Image and Customer Satisfaction on Loyalty: An Empirical Study of Starbucks Coffee in Taiwan. Journal of Social and Development Sciences , 3 (1), 24-32.
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