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INTRODUCTION
● History
GE was founded by Thomas Edison and formed in 1892 with the consolidation of
Edison General Electric Company and the Thomson-Houston Company. It became a
component of the Dow Jones Industrial average in 1896 and remains the only company of
the original twelve to still be on the list. The logo was trademarked in 1900 and their first
laboratory was established in Schenectady, NY. GE developed many different
technologies for their product lines, and much of the industrial advancement of the U.S
(and even the world) can be owed to them. A series of 5 “Blue Books” were published in
1953 and outline the company’s approach to management and decision making. GE
products were used during Neil Armstrong’s moon landing in 1969, from the boots he
wore to the ship-to-satellite system that provided the first live color TV images of the
splashdown and recovery stages. In 1978, GE became the first organization to be
assigned a 50,000th patent. In 1994, the company’s plastics division became the first non
computer company to start a website and the corporate website launched 2 years later.
The company continues to advance and come up with more technological innovations
that both help its products and inspire technological change.
● Finance
Aviation Finance
GE is a key financial partner to more than 245 customers in 75 countries, providing
aircraft leasing,financing, services and consulting in every sector of the industry.
Energy Finance
We deliver world-class underwriting and structuring capabilities for Power, Renewables,
and Oil & Gas infrastructure to meet rising demand and sustainability imperatives.
Industrial Finance
Offering customized financing to customers in Healthcare, Transportation, Distributed
Power, Marine industries and Municipalities around the world and optimizing cash flow
with Trade Payables Services.
GE is the only company listed in the Dow Jones Industrial Index today that was also
included in the original index in 1896. GE is listed on the NYSE. GE stock took a beating
in 2017, finishing the year down 45 percent. Shareholders were blasted by a parade of
negative headlines, including consistent earnings misses, aggressive guidance cuts, a 50
percent dividend reduction and a long list of analyst and credit downgrades. General
Electric finished 2017 as the worst-performing stock in the Dow Jones industrial average
and one of the 10 worst performers in the entire Standard & Poor's 500 Index.
● Management
Larger organizations usually have three levels of managers. By reason of GE is a
global digital industrial company, which is a hierarchical structure. Senior managers,
which set the strategic goals of the GE and make decisions to help company operation.
Middle managers, which include branch managers, department managers and regional
managers in GE. They need to come up with and execute innovative ideas. Also, they
need to connect the strategy and execution details on the hour-to-hour basis. Finally, they
should communicate the strategic goals of senior management to the front-line managers.
Lower managers, which include team leaders and supervisors. GE is a big company, and
there are total 997 cities with offices or facilities. Hence, there are a lot of team leaders
from different cities to operate the company.
● Human Resource
In February 2018, the number of employees in GE is around 300,000 people over
the world. The average salaries are between $65,000 to $100,000. When looking for new
employees, they want someone who can achieve their mission of moving, curing,
building, and powering the world. Besides, they provide well-structured training for the
employees.
● Marketing
General Electric is one of the world’s biggest conglomerate company which runs
business in multiple industries. Due to the diversity business, GE has to create multiple
marketing plans based on the business segment. The best way to understand GE’s
marketing strategy is to go through its marketing mix: product, place, promotion, and
price. As mentioned-above, GE produces numerous products for various industry. For
example, GE has products for the energy aerospace, aviation, healthcare, electric lighting,
oil and gas, and transportation industries (Kissinger). Diversification is the main
characteristic of GE’s product mix which involves strategic variation to present different
products (Kissinger). In place mix, authorized distributors and sales representatives and
online store are the two ways GE distribute their products. Besides, GE sells products in
the global market which require different tactic for the different location. In promotion
mix, GE uses direct marketing as its major tactic. On the other hands, advertising, sales
promotion, and public relation are also used to promote its brand. Market-oriented
strategy and value-based strategy are the two pricing method used in price mix. The
market-oriented strategy set price after evaluating the market condition which increases
its competitiveness (Kissinger). The value-based strategy focuses on the uniqueness of its
products which makes customer pay more for the value.
● Market
General Electric has a large market since it is a conglomerate company. They uses
the mix of demographic, psychographic and geographic segmentations strategies to
satisfy the target market in different business (Bhasin). Resellers, distributors corporate
companies and government organizations are the major customers of GE (Bhasin). GE is
facing lots of strong competitors in the market. However, the company has several
marketing strategies that help it to gain competitive advantage in the market. For
example, it operates in over 180 countries and creates a supportive ecosystem to against
its competitors (Bhasin).
● Product Line
GE has many different products. They first started with light bulbs and appliances
and eventually diversified into energy, transportation, healthcare, and investment (GE
Capital). TV was part of its portfolio until 2013 (it owned the “GE Building” at 30
Rockefeller Plaza, home of NBC) and invented many technologies that helped to develop
radios and televisions, including involvement with RCA. Most of the assets of GE
Capital were sold too, except for any investments that fits with the industries the
company focuses on.
● Supplier
At GE Power, we recognize that our suppliers are critical partners, and play a vital role in
the creation of our world-class solutions. We're happy to provide all of our suppliers with
tools and services to make you more efficient, knowledgeable, and above all, help to
sustain a close, productive relationship with GE.
Using our range of robust tools, suppliers can access all relevant areas of GE Power
including sourcing, purchasing, finance, engineering, production control and logistics.
Using our tools, suppliers can:
●
Reduce cycle time by accessing timely information
●
Create and review invoices and purchase orders easily
●
Conduct business 24x7 at your convenience
●
Reduce operational costs by streamlining processes
●
Access information about our sourcing requirements
Our reliance on third-party suppliers, contract manufacturers and service providers, and
commodity markets to secure raw materials, parts, components and sub-systems used in
our products exposes us to volatility in the prices and availability of these materials,
parts, components, systems and services. Some of these suppliers or their sub-suppliers
are limited- or sole-source suppliers. A disruption in deliveries from our third-party
suppliers, contract manufacturers or service providers, capacity constraints, production
disruptions, price increases, or decreased availability of raw materials or commodities,
including as a result of catastrophic events, could have an adverse effect on our ability to
meet our commitments to customers or increase our operating costs. Quality and sourcing
issues experienced by third-party providers can also adversely affect the quality and
effectiveness of our products and services and result in liability and reputational harm.
● Research & Development
GE has its own research and development system which is known as GE Global
Research. Their research are mostly in technological areas such as artificial intelligence,
additive manufacturing, silicon carbide, and edge control. The advanced research system
allows the company to produce breakthrough products that are setting a new standard in
the industry (“GE Global Research System”). For example, the latest innovations are Tier
4 Loco, Leap Engine, and HA Turbine. Besides, GE has amassed tens of thousands of
patents and two Nobel prizes in chemistry and physics (“GE Global Research System”).
CURRENT STRATEGY ISSUE
GE has used the conglomerate strategy for several years. The strategy involves high risk,
high impact, and high reallocation to the company. GE is currently trying to figure out what it
should focus on. Performance hasn’t been so great and the company’s identity is no longer clear.
SWOT ANALYSIS
Strengths
● Diversified Products: GE runs business in 8 different segments and serves different
markets.
● Strong Research & Development: GE has its own research system which is known as GE
Global Research.
● Diverse product portfolio: GE includes electric lighting, energy, oil and gas, aerospace,
transportation and healthcare industries, etc.
Weakness
● Dependence on Raw Material: Highly-dependence on raw material not only imposes a
limit on GE performance, but also easily affects its operation if the suppliers have any
problems.
● Asian market performance is weak: As a result of GE's management approach, it has
traditionally been concentrated mainly in the United States and other large markets.
● A high amount of borrowed funds: GE has a significant amount of debt level which
affects the company’s operations.
Opportunities
● Growth in the renewable energy market: The growth of the renewable energy market
provides the company with an opportunity to expand its renewable energy business unit.
Doing so can increase the financial importance of this sector relative to other departments
or group divisions.
● Growth in developing markets: The growth of the developing market is an external
strategic factor that corresponds to the potential growth of the company's revenue. For
example, a new strategy for entering the Asian market can increase GE's overall revenue.
● Growth based on digital technology adoption in all industries: All industries use digital
technology to provide opportunities for GE's further development. For example,
companies can achieve strategic growth by meeting the market demand for integrated
digital technologies in the transportation industry. In addition, this external factor
provides opportunities for GE to further diversify its business in other industries that
increasingly require digital industrial technologies.
Threats
● Intense Competition: GE is facing strong competition in all business segments.
● Government Regulation: GE has to deal with government regulations which may increase
the operation costs and prevent the company’s growth.
● Instability of the oil and gas industry: Instability in the oil and gas industry threatens the
company’s revenue.
● Exchange rate fluctuations: For a company like GE which has globalized operations in
various parts of the world, Volatile currencies and recessions could have a serious impact
on global operations.
ALTERNATIVE SOLUTIONS
Solution 1: GE should stop operating the business that doesn’t make profits.
Pros:
● Eliminate financial loss.
● Re-evaluate and rewrite the business plan.
Cons:
● The shrinkage of the company.
● The drop of the stock market.
Solution 2: GE Repositions itself to reflect changing times
Pros:
● Company can market to changing business environment
● Allows for the change of strategy that improves performance
Cons:
● Change of identity may upset longtime customers of discontinued products and services
● Element of uncertainty related to recognition of the change in strategy
Solution 3: GE refocuses back on the products and services they originally focused on and
terminates anything that doesn’t have to do with them
Pros:
● Strengthens the core and focuses resources on what the company is already good at
● Reinvigorates the company, as both the workers and consumers are reminded about what
GE was and always stood for
Cons:
● Missed opportunities for new ventures
● Loss of income from whatever is discontinued
SOLUTION TO BE IMMPLIMENTED
We chose the 3rd alternate solution. This solution allows GE to focus on what they do
best and promote a positive view of the company, especially from those who have been
customers for a long time and are used to how the company traditionally operated. GE actually
did implement this plan by focusing on their strengths: technology and industry. So they sold off
their GE Capital investments (except ones relevant to this new focus) and turned their attention
toward the products the company was always known for and continues to offer. We’ll see how
this works for the company to see if a better strategy would better suit the company.
Works Cited
Bhasin, Hitesh. “Marketing Strategy of General Electric - General Electric Marketing Strategy.”
Marketing91, 6 Mar. 2018, www.marketing91.com/marketing-strategy-general-electric/.
"Explore Over a Century of Innovation at GE." GE Transformation Timeline. General Electric,
2016. Web. 15 Apr. 2018.
“General Electric's Suppliers Performance.” General Electric Company's (GE) Suppliers
by Company, Division and Industry - CSIMarket,
csimarket.com/stocks/suppliers_glance.php?code=GE.
“GE Global Research System.” GE Global Research, 19 Dec. 2017,
www.geglobalresearch.com/about-us.
Immelt, Jeffrey R., Steven Prokesch, and Ranjay Gulati. "Inside GE's Transformation." Harvard
Business Review. Harvard Business School Publishing, 24 Aug. 2017. Web. 16 Apr.
2018.
Kissinger, Daniel. “General Electric Company's Marketing Mix.” Panmore Institute, 18 Oct.
2017, panmore.com/general-electric-company-ge-marketing-mix-4ps-analysis.
Duggan, Wayne. “The Hits Keep Coming For GE Stock.” U.S. News & World Report, U.S.
News & World Report, money.usnews.com/investing/stock-market-news/articles/2018-0116/general-electric-company-ge-stock.
Zigu. “GE General Electric SWOT Analysis | USP & Competitors | BrandGuide.” MBA SkoolStudy.Learn.Share., www.mbaskool.com/brandguide/conglomerates/8032-ge-generalelectric.html.
OCD122
UNIVERSITY OF BOLTON
WESTERN INTERNATIONAL COLLEGE FZE
BUSINESS MANAGEMENT
TRIMESTER 3 EXAMINATION 2015/2016
STRATEGIC MANAGEMENT
MODULE NO. BAM6002
Date: Friday 19th August 2016
Time: 10:00am – 01:00pm
INSTRUCTIONS TO CANDIDATES:
Answer ALL questions.
This
is
an
open
book
examination and you are able to
bring with you 2 x A4 pages (4
sides) of notes. Text books and
reference materials are NOT
allowed.
You must hand in your notes with
your exam paper.
The examination questions are
based on the pre-released case
study (attached).
ANSWER ALL QUESTIONS
Page 2 of 2
Western International College FZE
Business Management
Trimester 3 Examination 2015/2016
Strategic Management
Module No. BAM6002
1. Critically examine the strategies that Starbucks should implement by taking
advantages of the opportunities that exist in the industry while utilizing its
strengths?
(25 marks)
2. Critically explain how the company can optimally manage its weaknesses
while avoiding potential threats imposed by competitors and/or the industry.
(25 marks)
3. Identify strategies that CEO of Starbucks should consider in order to
continue surpassing its rivals in the industry.
(25 marks)
4. Critically analyse various strategies currently implemented by P&G along
with appropriate theoretical frameworks
(25 marks)
END OF QUESTIONS
18 Starbucks Corporation — 2011
Marlene M. Reed and Rochelle R. Brunson
Baylor University
SBUX
http://www.starbucks.com
In early 2011, it became apparent that Starbucks’ $9.1 billion in 2010 domestic sales had leapfrogged the company past Burger King ($8.7 billion) and Wendy’s ($8.3 billion), trailing only
McDonald’s ($32.4 billion) and Subway ($10.5 billion) as the nation’s third-largest chain restaurant. Compared to the prior year, Starbucks’ 2010 sales were up 8.7 percent, versus 4.4 percent
for McDonald’s, 6.0 percent for Subway, and declines of 2.5 percent for Burger King and 0.6
percent for Wendy’s.
Headquartered in Seattle, Washington, and the world’s largest coffee company, Starbucks has
entered into a strategic partnership with the maker of Keurig brewers, Green Mountain Coffee
Roasters, to deliver coffee to the fast-growing single-serve coffee market. Given the success and
popularity of Starbucks VIA instant coffee, the coffee companies are expanding VIA abroad.
Starbucks now offers its VIA instant brew in its Chinese stores and other countries. Starbucks
currently has locations in 35 cities in China, and CEO Howard Schultz said the company plans to
double the number of cities soon. The success of VIA in those Chinese stores exceeded expectations. Starbucks plans to open nearly 1,500 stores in China in the next four years—more than tripling the number of stores there. Estimates project Chinese consumption of Arabica at 15 percent
per year, making Starbucks a major player in the years to come, at least when it comes to coffee.
Starbucks is aggressively expanding its coffee line in the United States, where it sees a
potential $377 million market for flavored coffee. Starbucks already dominates the domestic
coffee market, having a staggering coffee market share of about 75 percent. Along with expanding its instant coffee business, Starbucks has also started a mobile payment plan in about 6,800
Starbucks stores and close to 1,000 Starbucks at Target stores. Through this payment plan,
Apple iPod touch and iPhone users and select Research In Motion BlackBerry users can make
purchases at the stores through their smartphones. All users would have to do is to download the
Starbucks app from the stores in order to use this service.
It has been rumored that Starbucks might acquire rival coffee provider Peet’s Coffee &
Tea Inc. Peet’s reported first quarter 2011 earnings per share was 41 cents, up 58 percent versus 2010. Peets says there has been a significant rise in the cost of coffee during the last three
months. Peets’ net revenue for that first quarter climbed 9 percent to $88.5 million from $81.2
million for the corresponding period of fiscal 2010. With excellent overall cost management,
Peets’ first quarter operating margin was 9.8 percent and its EPS growth was 58 percent. Peets
expects its 2011 total revenue growth to be 9 percent.
Starbucks recently ended its licensing agreements with Kraft wherein Kraft distributed
Starbucks products. Starbucks is opening more than 100 new stores in 2011 in Brazil, the
second-largest coffee-consuming country in the world. In early 2011, Starbucks has a total of
16,635 stores in 50 countries, including 500 stores in Tokyo and 500 in London. There is a
Starbucks in Beijing’s Forbidden City and on the boulevards of Paris. Of the existing stores,
8,832 are company-operated stores, and 7,803 are licensed stores.
History
Starbucks was founded in Seattle in 1971 as a roaster and retailer of whole bean and ground coffee, tea, and spices in a single store in Seattle’s Pike Place Market. The company was named after
the first mate in Herman Melville’s Moby Dick. The Starbuck logo was inspired by the sea and
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features a twin-tailed mermaid from Greek mythology. The company was incorporated under the
laws of the State of Washington in Olympia, Washington, on November 4, 1985. Starbucks went
public on June 26, 1992, at a price of $17 per share (or $0.53 per share, adjusted for subsequent
stock splits) and closed trading that first day at $21.50 per share. In 2007, Starbucks’ shares fell 50
percent as its United States sales slowed as both Dunkin’ Donuts and McDonald’s marketed low
price coffee. However, by 2011, Starbucks was again a boomingly successful business.
In January 2011, Starbucks unveiled an alliance with India’s flagship conglomerate—Tata
Group. Tata is a wide-ranging company that owns everything from Jaguar cars to steel mills and
tea plantations. Its Tata Coffee Ltd. Unit owns the Eight O’Clock Coffee Company in the United
States. Starbucks Chairman Howard Schultz, in commenting on this alliance, suggested that
India could one day rival China. He said one of the reasons for the alliance is to raise the profile
and use of Indian premium Arabica beans in Starbucks stores elsewhere.
Internal Issues
Vision/Mission
Starbucks’ vision is: “Starbucks is committed to ethically sourcing and roasting the highest quality Arabica coffee in the world. With stores around the globe, we are the premier roaster and
retailer of specialty coffee in the world.”
Starbucks’ mission is: “To inspire and nurture the human spirit—one person, one cup, and
one neighborhood at a time.” The principles by which Starbucks operates are found in Exhibit 1,
entitled “Starbucks Principles.”
EXHIBIT 1
Starbucks Principles
Our Coffee
It has always been, and will always be, about quality.
We’re passionate about ethically sourcing the finest coffee beans,
roasting them with great care,
and improving the lives of people who grow them.
We care deeply about all of this; our work is never done.
Our Partners
We’re called partners, because it’s not just a job, it’s our passion.
Together, we embrace diversity to create a place where each of us can be ourselves.
We always treat each other with respect and dignity.
And we hold each other to that standard.
Our Customers
When we are fully engaged,
We connect with, laugh with, and uplift the lives of our customers—even if just for a few moments.
Sure, it starts with the promise of a perfectly made beverage, but our work goes far beyond that.
It’s really about human connection.
Our Stores
When our customers feel this sense of belonging, our stores become a haven, a break from the worries outside, a place where you can meet
with friends. It’s about enjoyment at the speed of life—sometimes slow and savored, sometimes faster.
Always full of humanity.
Our Neighborhood
Every store is part of a community, and we take our responsibility to be good neighbors seriously. We want to be invited in wherever we do
business. We can be a force for positive action—bringing together our partners, customers, and the community to contribute every day. Now
we see that our responsibility—and our potential for good—is even larger. The world is looking to Starbucks to set the new standard, yet
again. We will lead.
Our Shareholders
We know that as we deliver in each of these areas, we enjoy the kind of success that rewards our shareholders. We are fully accountable to
get each of these elements right so that Starbucks—and everyone it touches—can endure and thrive.
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Management
The founder of Starbucks, Howard Schultz, serves as the chairman of the board, president, and
chief executive officer of the company. Exhibit 2 provides an organizational chart for the company. Starbucks employees are called “partners” and they are considered to be the heart of the
“Starbucks Experience.” Its store partners are committed to coffee knowledge, product expertise,
and customer service.
Products
Starbucks has as a primary goal—the delivery of the best coffee available. Operationally, that
involves purchasing coffee grown under the highest standards of quality, using ethical trading
and responsible growing practices. Starbucks’ coffee buyers personally travel to coffee farms
in Latin America, Africa, and Asia to select the highest quality Arabica beans. These beans represent 30 blends and single-origin premium Arabica coffees. When these beans arrive at their
roasting plants, Starbucks experts bring out the balance and flavor of the beans through the trademark “Starbucks Roast.”
Starbucks offers 100 percent Fair Trade Certified whole bean coffee from Rwanda as a limited edition coffee across the United Kingdom Starbucks. Starbucks has an ongoing investment
of nearly $9 million in loans to farmers in East Africa, which helps more than 85,000 farmers
develop their businesses.
Additional beverages served by Starbucks are hot and iced espresso beverages, coffee and
noncoffee blended beverages, Vivanno Smoothies, and tea. The company’s brand portfolio of
beverages consists of Tazo tea, Ethos water, Seattle’s Best coffee, and Torrefazione Italia coffee. Starbucks also sells related merchandise such as home espresso machines, coffee brewers
and grinders, coffee mugs and accessories, packaged goods, music, books, and gift items. For
customers desiring food items with their drinks, Starbucks provides baked pastries, sandwiches,
salads, oatmeal, yogurt, parfaits, and fruit cups.
EXHIBIT 2 Starbucks Executives
Cliff Burrows,
President,
Starbucks Coffee U.S.
Paula Boggs,
Executive V.P.,
General Counsel,
Secretary
Troy Alstead,
CFO,
Chief Administrative
Officer
John Culver,
President
Starbucks Coffee
International
Howard Schultz,
Chairman,
President, and
CEO
Jeff Hansberry,
President, Global
Consumer Products,
Foodservice
Arthur Rubinfeld,
President, Global
Development
Annie Young Scrivner,
Chief Marketing
Director
Michelle Gass,
Pres., Seattle’s
Best Coffee
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On February 17, 2011, Starbucks signaled plans for further expansion in the singleserve coffee market by signing a deal with Courtesy Products, a provider of in-room coffee
service to hotels. Starbucks had already made a foray into single-serve coffee in 2009 with
the development of its VIA instant coffee. Because of the alliance with Courtesy Products,
Starbucks coffee will now be available in as many as 500,000 luxury hotel rooms nationwide. Single-serve coffee is seen as attractive because it is still a relatively new market with
big growth potential. Single-serve coffee pods rang up $180 million in sales at supermarkets,
drug stores, and mass merchandisers, excluding Wal-Mart, Inc., in the 52 weeks ending
October 3, 2010. Analyst Mitchell Pinheiro in commenting on Starbucks’ chances of competing with Green Mountain’s Keurig division, which produces home-brewing machines,
suggested:
While Starbucks could decide to launch its own brewer or partner with someone other
than Keurig, the quickest and most effective way for Starbucks to gain traction in the
single-cup coffee segment is through Keurig.1
Marketing
A Morgan Stanley study of people drinking coffee at least once a week recently showed that the
average Starbucks customer earns over $75,000 per year, but 17 percent make less than $30,000.
On Starbucks’ 40th Anniversary in 2011, the company unveiled a new logo with no words entitled “Starbucks Logo.” The newest logo drops the green band that says “Starbucks Coffee” and
leaves the iconic mermaid/sea nymph all alone. In explaining why Starbucks is eliminating its
name from the logo, CEO Schultz explained:
This new evolution of the logo does two things that are very important: It embraces and
respects our heritage, and at the same time evolves us to a point where we feel it’s more
suitable for the future…. What I think we’ve done is we’ve allowed her (the mermaid)
to come out of the circle in a way that I think gives us the freedom and flexibility to
think beyond coffee.
Starbucks has a credit card program called My Starbucks Rewards Program. Gold Level
members earn a free drink after 15 purchases at participating Starbucks stores. Starbucks’ cards
are accepted at all company-owned stores and most licensed stores. Company-owned stores
generate 84 percent of Starbucks’ revenues worldwide.
Finance
Exhibits 3 and 4 provide Starbucks’ recent income statements and balance sheets, respectively.
Note the dramatic improvement from 2009, when the company closed 600 unprofitable stores in
the United States. The net effect was that it closed more stores than it opened that year. Founder
Howard Schultz said this decision was part of a plan to revitalize the chain, which was struggling
during the recession, when consumers cut back their spending on expensive coffee.
By-Segment Financials
Starbucks operates within three segments or divisions: 1) USA, 2) International, and 3) Global
Consumer Products Group. The company has both company-owned retail stores and licensed
(called specialty) retail stores. Starbucks’ international specialty operations are in nearly 40
countries, with special emphasis in Canada, the United Kingdom, and Japan. The company’s
Global Consumer Products Group includes packaged coffee and tea, Starbucks VIA Ready
Brew, and other branded products sold in grocery stores and convenience stores. Starbucks’ bysegment financials are provided in Exhibits 5, 6, 7, and 8.
Claims of Water Waste
Starbucks has been criticized by environmental experts for pouring millions of gallons of water
down the drain at its coffee shops. The company has a policy of keeping a tap running nonstop
at all of its outlets worldwide, which has been estimated to waste 6.2 million gallons a day.
Critics suggest that amount would provide enough water for the entire two million population of
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EXHIBIT 3
Starbucks’ Income Statements, 2008–2010
(in millions, except earnings per share)
Fiscal Year Ended
Net Revenues
Company-operated retail
Specialty
Licensing
Foodservice and other
Total specialty
Total net revenues
Cost of sales including occupancy
Store operating expenses
Other operating expenses
Depreciation & amortization
Gen. & admin. expenses
Restructuring charges
Total operating expenses
Income from equity investees
Operating income
Interest income and other, net
Interest expense
Earnings before income tax
Income taxes
Net Earnings
Per common share
Net earnings—diluted
EXHIBIT 4
4FQ
4FQ
4FQ
$8,963.5
$8,180.1
$8,771.9
1,340.9
403.0
1,743.9
10,707.4
4,458.6
3,551.4
293.2
510.4
569.5
53.0
9,436.1
148.1
$1,419.4
50.3
(32.7)
1,437.0
488.7
$948.3
$1.24
1,222.3
372.2
1,594.5
9,774.6
4,324.9
3,425.1
264.4
534.7
453.0
332.4
9,334.5
121.9
562.0
36.3
(39.1)
559.2
168.4
$390.8
$0.52
1,171.6
439.5
1,611.1
10,383.0
4,645.3
3,745.1
330.1
549.3
456.0
266.9
9,992.7
113.6
503.9
9.0
(53.4)
459.5
144.0
$315.5
$0.43
Starbucks’ Balance Sheets, 2008–2010
(in millions, except per share data)
4FQ
ASSETS
Current Assets
Cash and cash equivalents
$1,164.0
Accounts receivable, net
302.7
Inventories
543.3
Other current assets
746.4
Total current assets
2,756.4
Net fixed assets
2,416.5
Other noncurrent assets
1,213.0
TOTAL ASSETS
$6,385.9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable
$282.6
Short-term debt
—
Other current liabilities
1,496.5
Total current liabs.
1,779.1
Long-term debt
549.4
Other noncurrent liabs.
382.7
TOTAL LIABILITIES
$2,711.2
4FQ
4FQ
$599.8
271.0
664.9
500.1
2,035.8
2,536.4
1,004.6
$5,576.8
$269.9
329.5
692.8
455.9
1,748.0
2,956.4
968.2
$5,672.6
$267.1
0.2
1,313.7
1,581.0
549.3
400.8
$2,531.1
$324.9
713.7
1,151.1
2,189.7
549.6
442.4
$3,181.7
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Shareholders’ equity
Preferred stock equity
Common stock equity
TOTAL EQUITY
TOTAL LIABILITIES and SE
Shares outstanding (thousands)
4FQ
4FQ
4FQ
—
3,674.7
3,674.7
$6,385.9
740,100
—
3,045.7
3,045.7
$5,576.8
742,900
—
2,490.9
2,490.9
$5,672.6
730,600
Source: Company documents.
EXHIBIT 5
Starbucks’ Company-operated and Licensed Retail Store
Summary as of Oct. 3, 2010
64
Companyoperated stores
Licensed stores
Total
AS a % of
5PUBM64
4UPSFT
*OUFSOBUJPOBM
As a %
PG5PUBM
*OUFSOBUJPOBM
4UPSFT
5PUBM
As a
% of
5PUBM
4UPSFT
6,707
60%
2,126
37%
8,833
52%
4,424
11,131
40%
100%
3,601
5,727
63%
100%
8,025
16,858
48%
100%
Source: Starbucks’ Form 10k, 2010, P.6.
EXHIBIT 6
Starbucks’ Total Company-operated Retail Store Data
for the Periods Indicated
/FU4UPSFT0QFOFE
$MPTFE %VSJOHUIF
Financial Year Ended
Oct. 3, 2010
(57)
US International
Canada
United Kingdom
China
Germany
Thialand
Others(2)
Total International
Total company-operated
4UPSFT0QFOFEBTPG
Sep. 27, 2009
(474)
24
(65)
29
(2)
2
(3)
(15)
(72)
44
2
13
13
4
27
103
(371)
Oct. 3, 2010
6,707
Sep. 27, 2009
6,764
799
601
220
142
133
231
2,126
8,833
775
666
191
144
131
234
2,141
8,905
Source: Starbucks’ Form 107, 2010, P.6.
Store openings are reported net of closures. In the U.S., 13 and 121 Company-operated stores were opened during
2010 and 2009, respectively, and 70 and 595 stores were closed during 2010 and 2009 respectively.
EXHIBIT 7
Starbucks’ Retail Sales Mix by Product Type for Company-operated
Financial year ended
Beverages
Food
Whole bean and soluble coffees
Coffee-making equipment and other
merchandise
Total
Source: Starbucks’ Form 10K, 2010, P. 7.
0DU
4FQ
4FQ
75%
19%
4%
2%
76%
18%
3%
3%
76%
17%
3%
4%
100%
100%
100%
173
174
."3-&/&.3&&%"/%30$)&--&3#36/40/
EXHIBIT 8
Starbucks’ Total Licensed Retail Stores by Region and Country
at Fiscal Year End 2010
Asia pacific
Japan
Greater China
South Korea
892
525
315
Philippines
Malaysia
Indonesia
New Zealand
168
117
85
39
Total
2,141
&VSPQF.JEEMF&BTU"GSJDB
Americas
Turkey
U.K.
United Arab
Emirates
Spain
Saudi Arabia
Knwait
Greece
Switzerland
Russia
Others
Total
137
102
95
U.S.
Canada
Mexico
75
69
66
60
47
37
152
840
other
63
Total
5,044
4,424
274
283
Note: In the U.S., 166 and 286 licensed stores were opened during 2010 and 2009, respectively, and 106 and 251
stores were closed during 2010 and 2009, respectively. Internationally, 335 and 375 licensed stores were opened during 2010 and 2009, respectively, and 100 and 84 stores were closed during 2010 and 2009 respectively.
Source: starbucks’ Form 10K, 2010, P.8.
drought-hit Namibia in Africa, or fill an Olympic-sized pool every 53 minutes. Every Starbucks
branch has a cold tap behind the counter providing water for a sink called a “dipper well,” which
is used for washing spoons and utensils. This practice has angered environmentalist groups, who
have applauded many of Starbucks’ programs to protect the environment.
In response to these criticisms, the Starbucks website suggests that in 2009 they began implementing new alternatives to the dipper well system, which include water-saving technology
in its equipment specifications. For example, the company states that its mechanical dishwashers
in the U.S. company-owned stores use less than one gallon of water per cycle through highpressure spray arms. Starbucks’ stated goal is: “We’re committed to reducing our water usage by
15 percent in company-owned stores by 2012.”2
Competitors
Starbucks competes against whole bean and ground packaged coffees sold through supermarkets,
club stores, and specialty retailers. Starbucks specialty operations face significant competition from
established wholesale and mail-order suppliers. The company states that some of these have greater
financial and marketing resources than they do. Starbucks also faces competition from both restaurants and other specialty retailers for prime retail locations and qualified personnel to operate both
new and existing stores. Perhaps Starbucks’ major competitor is Dunkin’ Brands Group.
Dunkin’ Brands, Inc.
Coffee, doughnuts, and ice cream are delicious at Dunkin’ Brands, Inc. The company is a quickservice restaurant franchisor that operates both the Dunkin’ Donuts and Baskin-Robbins chains.
It has more than 16,000 franchise locations operating in about 55 countries. With some 9,800
units in about 30 countries (including approximately 6,800 in the United States), Dunkin’ Donuts
is the world’s leading doughnut chain. Baskin-Robbins is a top ice cream and frozen snacks outlet with nearly 6,500 locations in 45 countries (2,500 in the United States).
Dunkin’ Brands announced in May 2011 that the company will soon be going public.
Dunkin’ has focused intently on expanding throughout the world, opening its first store in India in
February 2011. It’s also expanded beyond the coffee-and-doughnuts menu in recent years, adding
egg-white sandwiches to appeal to the health-conscious. Even though it was a private company,
Dunkin’ Brands released 2010 financial statements as a prelude to the company going public.
In fiscal 2010, Dunkin’ Brands reported operating income of $193.5 million on sales
of $577.1 million—an operating margin of nearly 34 percent. Dunkin’ is a franchise-based
business, which means that it doesn’t take on the kind of capital risk some retailers do. And the
$"4& t 45"3#6$,4$03103"5*0/
franchisee economics are excellent: new stores opened in 2010 generated annualized revenues
of $855,000, with capital expenditure costs of just $474,000. The fact that 90 percent of 2010
openings were made by existing franchisees suggests that it not only treats its partners well, but
the majority of those partners are expanding their number of owned stores.
Dunkin’ has international growth plans—from China to Russia to India—but there’s still
big opportunity in the United States. In New York and New England for example, there is a
Dunkin’ restaurant for every 9,700 people. In the western United States, that ratio stands at just
one for every 1,193,000 folks.
For the first quarter of 2011, Dunkin’ Brands lost $1.7 million, a big difference from $5.9
million in net income the year before. About 60 percent of Dunkin’ Donuts stores’ revenue
comes from coffee drinks, which offer high profit margins because they’re relatively cheap to
make. Over the past several years, it has positioned itself as something of an “anti-Starbucks,”
a place to get a good cup of coffee at a low price. Dunkin’ Brands is going public and will soon
trade on the Nasdaq Global Select Market under the ticker “DNKN.”
Future
Starbucks’ second quarter 2011 earnings reached $261.6 million, or 34 cents per share. That
was an increase of 20.4 percent over the $217.3 million, 28 cents per share, reported a year ago.
Starbucks’ revenue rose 10.3 percent, to $2.79 billion, on a 7 percent increase in same-store sales.
Starbucks says it expects full-year fiscal 2011 earnings-per-share in a range of $1.46 to $1.48.
In that second quarter, Starbucks booked comparable same-store sales—or sales at stores open
at least one year, a closely watched metric in the restaurant industry—with growth of 7 percent,
driven by a 6 percent increase in traffic and a 1 percent increase in average ticket.
Starbucks reported excellent fiscal third quarter 2011 results that ended July 3, 2011.
Company earnings were $279.1 million for the quarter, up from $207.9 million in the same quarter last year. Company revenue rose 12 percent to $2.93 billion, beating analysts’ expectations.
Starbucks is aggressively expanding abroad, reporting that revenue from its U.S. operations rose
9 percent to $2 billion while revenue from its international business rose 20 percent to $658.5
million in that fiscal third quarter. That quarter was the company’s first full quarter with complete control over distribution of its consumer products after ending a contract with Kraft Inc.
Revenue from that business unit rose more than 25 perent to $218.4 million as a result of the
change. Starbucks plans to add 800 stores in the 2012 fiscal year.
Starbucks executives attributed the fiscal third quarter success to the company having
upgraded the customer experience with new products and improved service. Fiscal third quarter
revenue at Starbucks stores open at least a year rose 8 percent in North America and 5 percent
internationally. This comparison is a key measure of a retailer’s performance because it excludes stores that recently opened or closed. Also during the quarter, Starbucks announced it
has acquired full ownership of its retail operations in Switzerland and Austria. This follows an
agreement in May with joint-venture partner Maxim’s Caterers Ltd. to buy its stores in Central,
South and Western China in a broader strategy in which China will be its largest market outside
the U.S. According to Starbucks’ CEO Howard Schultz: “Starbucks has never been healthier,
more connected to our customers and partners, or better positioned to go after the tremendous
business opportunities that lie ahead.” Analysts are reminded however that Dunkin Brands and
McDonald’s plan to gain and attract customers globally who otherwise may go to the pricier
Starbucks stores.
CEO Schultz at Starbucks needs a clear strategic plan for the future. Help Mr. Schultz out in
light of the many opportunities, threats, strengths, and weaknesses that face the company.
Notes
1
Julie Jargon. (February 17, 2011). “Starbucks Signs Deal for Hotel Coffee
Machines,” Wall Street Journal, p. B7.
2
http://www.starbucks.com/responsibility/environment/water.
175