RUNNING HEAD: Starbucks Coffee Expansion Strategy Starbucks Coffee Expansion Strategy July 9, 2017 Starbucks Coffee Expansion Strategy Starbucks coffee has a huge presence in America, Europe, and Asia but very little penetration in the African market. In 2016, Starbucks opened two stores in South Africa. Africa has been commonly known for the production of coffee but not its consumption. This is, however, changing recently as the continent gradually adapts coffee drinking. Coffee drinking was low in most African countries due to their preference for tea which was cheaper. However, various countries have recorded a significant increase in coffee drinkings such as Ethiopia, Central African Republic, Ivory Coast and Madagascar. According to the Financial Times, coffee consumption in Africa has increased by about 20%. Ethiopia presents a good growth opportunity for Starbucks due to its strategic resources such as a domestic market and a domestic production of coffee. According to Starbucks, the company is set to open up new shops globally totaling to 12000 (Starbucks, 2016). The company has shown an interest in entering the market in South Africa and can also increase its presence in Africa by entering the Ethiopian market which would open it to other upcoming markets such as Kenya and Uganda which are also coffee producers and have a gradually increasing domestic coffee consumption rate. Starbucks growth strategy mainly involves market penetration. The Ethiopian market offers a great market opportunity for Starbucks for various reasons: Availability of Coffee Beans – Ethiopia is ranked as one of the largest coffee producers globally. It is ranked as the largest coffee producer in Africa and the fifth largest coffee producer in the world. This provides an ample opportunity for Starbucks to be able to enter the market as the cost of coffee beans will be lower without any exports needed. Increasing Domestic Consumption – Ethiopia is also ranked as one of the largest coffee consumers in Africa. Almost 50% of its coffee is consumed domestically as opposed to other African countries that export the coffee beans and have a very small domestic market (Mordor 1 Starbucks Coffee Expansion Strategy Intelligence, 2017). This increasing domestic consumption offers Starbucks a niche where they can enter a huge market for their product. Small Competition – Most global coffee companies have shied away from Africa. The main coffee provider in Ethiopia is Kaldi. Starbucks thus has an opportunity to enter the market providing its premium coffee as it positions itself as an aspirational brand. Starbucks growth strategy is aimed at distinguishing its products and Ethiopia as well as Africa as a whole presents a good opportunity for the company to grow. Opportunity for Brand Expansion – In Ethiopia and most African countries that produce coffee, the domestically consumed coffee is that which was not seen fit for exportation. This means that it is lower grade coffee. This presents a good opportunity for a global brand such as Starbucks as it offers the domestic consumers a higher grade coffee. Various reports have documented the frustrations of coffee drinkers due to the deteriorating quality of coffee being served in high-end coffee shops in Ethiopia (Tefera, 2015). The global brand that Starbucks presents would be well appreciated in the country as Starbucks focuses on ensuring the provision of good quality coffee as a way to distinguish itself from other coffee shops. Starbucks can also better penetrate the African market by including some tea beverages in their menu as this will attract more African drinkers. However, the coffee consumption is still increasing and with many countries in Africa being coffee producers; it provides a good opportunity for expansion into these countries. 2 Starbucks Coffee Expansion Strategy REFERENCES Mordor Intelligence. (2017). Ethiopia Coffee Market - Growth, Trends and Forecasts (2017 2022). Mordor Intelligence. Retrieved from https://www.mordorintelligence.com/industry-reports/ethiopia-coffee-market This report shows the projections for coffee production and consumption in Ethiopia. It helps in showing the forecasts that predict an increase in coffee consumption which offers a good opportunity for a coffee company to penetrate the market. Starbucks. (2016, December 7). Starbucks Presents its Five-Year Plan for Strong Global Growth. Retrieved from Starbucks: https://news.starbucks.com/news/investor-day-2016press-release This source provides the five-year plan by Starbucks to open up to 12 000 shops globally. Even though the focus is on China markets, as part of its global objectives, the company aims to open shops in Africa as well which avails the opportunity for them to open shops in Ethiopia. Tefera, A. (2015). Ethiopia - Coffee Annual report. USDA Foreign Agricultural Service. Retrieved from https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Coffee%20Annual_Addis%2 0Ababa_Ethiopia_5-26-2015.pdf This report shows coffee performance in Ethiopia in previous years. It also includes various policies that have been instituted by the government of Ethiopia to help in boosting coffee consumption and coffee production in the country. 3 MBA 640 Final Project Milestone One Guidelines and Rubric Overview: The final project for this course is the creation of an external capital funding proposal. Most businesses face a landscape of uncertainty and a never-ending stream of risks and opportunities. Managers must continually project the likely financial impact of decisions, make recommendations, act on those decisions, determine how to pay for them, and evaluate the costs and effectiveness of what has been done. Many decisions are short-term, routine, and operational. Others are longer-term investment decisions that require substantial new resources, such as developing new services, expanding into new geographic markets, or undertaking business combinations or spin-offs. Each requires managers to forecast, plan, and make decisions based on a thorough understanding of both internal and external factors that can affect a company’s financial success. For the summative assessment in this course, you will bring your finance and economics knowledge to bear by preparing an external capital funding proposal for a major international investment at a publicly traded corporation. In order to secure the support of potential financial backers, your proposal will need to lay out what the proposed investment opportunity is, how it fits within the company’s broader mission and goals, its financial impact, and the amount being requested and why (including alternative funding mechanisms considered). In addition, it will also need to include information on the organization’s context, risk factors, and microeconomic assumptions that could affect the success of the investment. Prompt: You have already chosen the company you will use for your final project, and you have started a narrative description of your expansion project into another country. In this milestone, you will build on that narrative description providing sufficient detail about the expansion, its costs, and its time frame to give a loan committee a firm sense of the proposed investment. You will also analyze the impact of the investment proposal on your business by explaining why now is the right time for this investment given the global context and by explaining how the investment is a good strategic fit with your company. This milestone addresses all of Section II and Section III (Parts A and B only) of the final project. Specifically, the following critical elements must be addressed: II. Investment Project: Use this section to describe the investment for which you are seeking funding, its costs, and time frame. Specifically, you should: A. Describe the investment project. Be sure to provide sufficient detail to give the loan committee a firm sense of the parameters of the activity, the need for it, and what financial metrics are relevant for determining success. In other words, what do you propose to do, where, what marketplace need will it fill, and how will you measure success? B. Specify the resources the project will require and where these resources will come from. In addition to noting the amount of the loan you are requesting, you should also consider human resources, facilities, government approvals, intellectual property, access to natural resources, and other resources that might be required to carry out the project. C. Time frame. When will the project start, what is the anticipated economic life of the proposed expansion, and how will you decide if, when, or how to exit? Justify your choices with appropriate financial metrics. III. Justification: In this section, you should analyze the impact of the investment proposal on your business. In particular, you should cover: A. Why is now a good time for this investment given the global context? Justify your response, citing specific external factors such as trade regulations, foreign currency considerations, or trends in foreign direct investment that might affect business financial decisions. B. Strategic fit. Use this section to discuss why the investment proposal makes sense for your company strategically. Specifically: 1. How does the investment align with the company’s organizational and financial priorities? Support your argument with evidence from company reports and financial statement analysis designed to persuade the lender that the investment is a good strategic fit for your company. 2. How does the project fit within the global microeconomic environment? Support your response with evidence. For example, would the expansion tap unmet demand for the company’s key products or services or fill a new niche? How do you know? 3. How does the project build on the organization’s core competencies and comparative advantage? For example, does the company have a strategic advantage from intellectual property, regional expertise, suppliers, or organizational structure? Rubric Guidelines for Submission: Your investment project and justification paper should be approximately 8-10 pages in length (excluding spreadsheets, other exhibits, and list of references as necessary). It should be double-spaced with 12-point Times New Roman font and one-inch margins, and should use APA format for references and citations. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Investment Project: Describe Investment Project: Resources Proficient (100%) Describes investment project, providing sufficient detail to give a firm sense of the parameters of activity, market need, and relevant financial metrics for determining success Specifies resources required, including amount of loan and other physical and financial resources, along with where resources will come from Needs Improvement (75%) Not Evident (0%) Value Describes investment project, but description lacks detail, contains inaccuracies, or omits key information on parameters, market need, and relevant financial metrics for determining success Specifies resources required, including amount of loan requested, other physical and financial resources, and where resources will come from, but response contains inaccuracies or omits key details Does not describe investment project 13 Does not specify resources required 13 Investment Project: Time Frame Determines when project will start, anticipated economic life, and exit process, justifying choices with appropriate financial metrics Justification: Why Now Evaluates why now is a good time for this investment in the global context, citing specific external factors that might affect business financial decisions in justifying response Justification: Strategic Fit: Priorities Persuasively argues how the investment aligns with the company’s organizational and financial priorities, supported by evidence from company reports and financial statement analysis Justification: Strategic Fit: Microeconomic Assesses how the project fits within the global microeconomic environment, supported by evidence Justification: Strategic Fit: Comparative Advantage Evaluates how project builds on organization’s core competencies and comparative advantage in explaining why the project makes sense strategically Articulation of Response Submission has no major errors related to citations, grammar, spelling, syntax, or organization Determines when project will start, anticipated economic life, and exit process, justifying choices with financial metrics, but response contains inaccuracies, omits key details, or financial metrics are not appropriate Evaluates why now is a good time for this investment in the global context, citing specific external factors, but response contains inaccuracies, omits key details, or links to business financial decisions are tenuous Argues how the investment aligns with the company’s organizational and financial priorities, supported by evidence, but argument is cursory, illogical, contains inaccuracies, or is poorly supported by evidence and sound financial analysis Assesses how the project fits within the global microeconomic environment, supported by evidence, but response is cursory, poorly supported, contains inaccuracies, or links between microeconomic factors and project are tenuous Evaluates how project builds on organization’s core competencies and comparative advantage in explaining why the project makes sense, but response is cursory, contains inaccuracies, or is only tangentially related to strategic fit Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Does not determine when project will start, anticipated economic life, and exit process 13 Does not evaluate why now is a good time for this investment in the global context, citing specific external factors that might affect business financial decisions in justifying response Does not argue how the investment aligns with the company’s organizational and financial priorities 13 Does not assess how the project fits within the global microeconomic environment 13 Does not evaluate how project builds on organization’s core competencies and comparative advantage in explaining why the project makes sense strategically 13 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas 9 Total 13 100% Keurig Green Mountain Inc., 33 Coffee Lane, Waterbury, VT 0576 Revenue Expenses Calculated Profit Calculated Profit Margin Actual 2014 2015 $100.000 $167.000 $65.727 $86.000 $34.273 $81.000 34,27% 48,50% 2016 $180.000 $123.786 $56.214 31,23% Forecasted 2017 $210.534 $130.875 $79.659 37,84% 2018 $243.897 $148.907 $94.990 38,95% Assumptions Increase in profit projection will be caused by increased asset invetment. Other factors of positive financial projections are diversified market opportunities, streamlined Corporate Social Responsibility, well attained competitive advantage, efective marketing and brand making strategies and inctreased productivity due to juicy employee compensation packages. s of positive financial nsibility, well attained d productivity due to
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