Starbucks Case

Sahil Gadimbayli

How is Starbucks performing? Is Starbucks in dire straits?

Ever since Starbucks opened their first shops across the states, they have been expanding and growing in the market. Unlike the previous performance within the 20 years being in the market, they came up to the turndown which was unexpected in huge numbers. Indicating that they reached the 40$ value at a point but showed 75% decrease over the following years. Lots of cost reductions have been applied by CFO Troy Alstead for that cause.
The Company is indeed not in dire straits, as it can be justified by the quarterly revenue figure of 2.571 billion, which showed good performance in comparison with previous years. However, things got worsened in 2008 by a serious cut in revenues.

What are the sources of Starbucks’ declining performance? How far Starbucks’ problems are in February 2009 the inevitable consequences of the economic recession and to what extent are there other reasons for Starbuck’s declining performance?

We can list several issues related to the Starbuck’s declining performance those are:

• Aggressive US expansion
• Competitive market
• Changes within the market
• Declining financial leverage
• Declining ‘Net Margin’

Looking through the problems Starbuck’s did face back in February 2009, we can assume the slight relating between them and economic recession. Competition was not stable and same and competitors do not follow the same trends which bring in the decent reason. Management decisions like expansion policies were internal. Apart from the problems those affected by the economic recession there were other reasons behind them such as not complete management decisions following expansion and concentration policies. Furthermore base raw materials were too pricy charging high prices with low net margins.

What is Schultz’s strategy for restoring Starbucks’ financial performance? Do you agree with the measures that Schultz is taking? What should Schultz be doing differently?

If we analyse the statements by Schultz and Alstead we can observe the fact that main strategies were firstly performing more efficient operations while preserving the Starbuck’s brand. Furthermore bringing innovation into the next level as well as meeting current business trends, scaling cost structures and positioning the company in situation where they will successfully drive margin expansion when environment improves. However the actions have been taken slightly differed. New retrenchment measures have been operated. In addition, new rediscoveries and reinventions on the so called ‘Starbuck’s’ experience have been applied and emphasis on social responsibilities have been made.

If I was asked to do something differently for the strategies applied, I would’ve started with new ways to differentiate ourselves (Starbuck’s) from the competitors in the market. We have competitive rivalry in the market and this has to be done with precise analysis.  We can see conflictions between our strategy and short term profits and net income. Increasing ROE making better use of assets and increasing ROA would be a good idea. I would see a need to concentrate more on cost structures and net margin issues.