Swot Starbucks

Strengths

Strong brand image

Starbucks is a global brand. High quality products and a consistently-positive consumer experience have helped the company build a strong brand image. Starbucks, for instance, was ranked 91st in the 100 Top Brands 2006 ranking of BusinessWeek and Interbrand, an international branding consulting firm. The BusinessWeek-Interbrand combine valued the Starbucks brand at $3,099 million in 2006, up from $2,576 million in 2005.

Starbucks uses innovative and cost effective marketing strategies to build its image including billboards, freestanding inserts in newspapers products and samplings, as well as innovative schemes such as paying for a day of free parking in a downtown area. Strong brand image helps the company attract new customers to its stores, which leads to additional revenues.

Robust financial performance

Starbucks has recorded robust financial performance in the past few years. During 2002-2006, the company's revenues, operating profit and net profit grew at a CAGR of 24%, 28.6% and 28.6% respectively. Moreover, the company's average return on equity and return on investment during 2002-2006 were 19%, and 18% respectively, significantly higher than the industry averages of 15.3% and 11.3%. Robust financial performance enhances investor confidence and strengthens the financial position of the company.

Large scale of operations

Starbucks has over 13,000 locations in 39 countries, which witness more than 44 million customer visits per week. The company employs over 146,000 people. Its competitors such as Diedrich Coffee, Green Mountain Coffee Roasters (GMCR) have a lower scale. Starbucks generated revenues of $7,787 million in 2006 against Diedrich Coffee's $59.5 million and GMCR's $225.3 million in the same period. Greater economies of scale provide a cost advantage to Starbucks in the marketplace.

Weaknesses

Weak compliance function

Starbucks has been involved in several legal proceedings, which taken overall indicate a weak compliance function. In June 2004, two then-current employees of the company filed a lawsuit in the US District Court for the Southern District of Florida claiming the company violated requirements of the Fair Labor Standards Act (FLSA). Trial is currently set for August 2007. In October 2004, a former hourly employee filed a lawsuit in San Diego County Superior Court alleging that the company violated the California Labor Code by allowing shift supervisors to receive tips. Trial is set for May 2007.

In March 2005, a former employee filed a lawsuit in the US District Court for the Southern District of Texas claiming that the company violated requirements of the FLSA. No date has been set for this trail. Several lawsuits alleging violations of existing laws indicate weaknesses in the company's compliance function and procedures.

Narrow product mix

The company's retail sales mix by product is approximately 77% beverages, 15% food items, 3% whole bean coffees, and 5% coffee making equipment and other merchandise. The company's sales growth has been largely driven by innovative beverages. If consumers were to reduce their consumption of coffee for some reason or the other, then the company's performance would be negatively impacted. High dependence upon a single product, however, increases the business risk of the company.

Low employee productivity

Although the company has a better scale than its competitors, its employee productivity is relatively lower. Starbucks' revenue per employee was $53,408 in 2006 as compared to an industry average of $93,330 per employee. Diedrich Coffee, a competitor of Starbucks reported $84,054 revenue per employee during the same period. Furthermore Starbucks' net profit per employee is $3,870, as compared to an industry average of $8,299 per employee. Lower revenues and net profit per employee indicate scope for improving employee productivity.

Opportunities

New markets

Starbucks has opened stores in several new countries, including Jordan, the Bahamas and the Republic of Ireland in 2005. In 2006, the company entered the ready-to-drink coffee category in South Korea through a licensing agreement with Dong Suh Foods. The Korean firm will import US-produced bottled Starbucks Frappuccino coffee drinks. Starbucks entered Brazil and China in late 2006. The coffee market in Brazil and China are expected to grow by 11.4% and 38.9% respectively during the 2007-2010 period.

In addition, Starbucks proposes to enter Russia. The company with its joint-venture