Starbucks Case Study Help
Current Ratio
The Starbucks current ratio was 1.370 and 1.0885 in 2014 and 2015 respectively. In 2014 and 2015, the company does have enough current assets to pay its current liabilities. This means that Starbucks has enough resources to beat its short-term liabilities.
Debt Ratio
The Starbucks debt ratio was 0.38% and 0.404% in 2014 and 2015 respectively. This shows the company’s ability to pay its debts with its assets. Starbucks most of the assets are based on equity financing. Avery large portion of the debt is incorporated intothe company’s assets financing.
Profitability Ratio
The Starbucks profitability ratios are higher than the industry average. Starbucks earned 58.29% and 59.361% of gross profit margin in the fiscal year2014 and 2015 respectively. The net profit margin is 12.57% and 14.39% in 2014 and 2015 respectively.Starbuck's financial performance is much better and the company is earning higher profits. The company is using its investment efficiently.
Alternative options
Alternative 1: Expansion in Domestic Markets
Starbucks focuses on international growth, but, it could also pursue expansion in US markets rather than a geographical expansion to avoid any kind of political and other external environmental risks along with the achievement of potential revenue growth. Expansion in local markets could increase revenues for the company with fewer risks and investments.
Pros
- Less chances of risks incurrence.
- Low amount of investment required
- Expertise in the local markets.
- Low threat of foreign competition.
- Familiarity with the culture and the consumer preferences.
Cons
- Low amount of revenue growth as the firm already has large number of stores in local markets.
- Economic crisis can lead towards the wastage of potential investment with low purchasing power and consumer preferences towards products like coffee.
Alternative 2: Promotional Strategy
Another alternative option for Starbucks could be maintaining its current number of stores with no domestic and international expansion. Here the company is suggested to maintain its current stores with implementing aggressive promotional strategies to attract a large number of consumers and achieve potential revenue growth. Starbucks spent $315 on the advertisement, which is far less than the competitors.
Pros
- Provides information to the consumers about the different existing products.
- Information about the different facilities and services offered by the company to its consumers.
- Increased consumer base and retaining the potential consumer.
- Creates brand perception in the consumer mind.
Cons
- Required additional cost for advertising.
- Easy to imitate the information about the product by the competitor and use the same strategy.
Alternative 3:International Expansion
International expansion refers to the growth of foreign stores and the speed of opening new stores. The company could be considered both chain and franchise in international expansion. The company has to open a few new stores if needed. The company could also use product development strategies and market development strategies.
Pros
- The profit will increase as the company will concentrate on the existing stores.
- Reduces the competition threat for the company.
- Enhanced core competencies.
- Understands the demand of different cities.
- Help in maintain different culture in different countries.
- An increased consumer base by offering a variety of products.
Cons
- Require high capital in order to open new stores.
- Maintains the standard at different countries.
- Easy to be imitated by the competitor.
Decision Matrix:
| Decision Criteria | Alternative 1 | Alternative 2 | Alternative 3 |
| Smooth Growth | 3 | 4 | 4 |
| Efficiency | 4 | 4 | 5 |
| Consumer base | 3 | 4 | 5 |
| Total | 10 | 12 | 14 |
Recommendation
In the above analysis it is recommended that the company should work for international expansion as it has already made significant inroads to China, therefore it should move its center skills and abilities country to the county for its worldwide development. Although, the company recently closed the dome of their coffee stores due to the economic recession. It should be recommended that the company increases its products line with internationalization to improve their profits. The company would go in internationalization by open joint ventures which proves profitable to the company and reduce cost. Starbucks uses high quality of beans as compared to its competitors, this can be used as an opportunity to provide better quality products by managing other costs.However, in the increase in coffee consumption throughout the world the company would an opportunity to increase its product line to retain potential customers. Although, the increases in the prices of coffee beans may increase the price of the Starbucks coffee by controlling other cost factors such more focus on existing stores rather than opening new stores may help the company to maintain its existing cost of coffee.
Implementation Plan
The recommended alternative can be implemented by having more promotional strategies and domestic as well as international growth. Competing with competitors with a competitive advantage and talking their weaknesses as Starbucks opportunities in growth as they also sell a variety of products.
Conclusion
On the above analysis, it is concluded that Starbucks was enjoying the tremendous growth during the last few years but due to the economic recession the prices of the coffee beans increases. However, the company did expandbut had to shut down some of its stores during the economic recession. The company would grow further by introducing the more product line and by focused core competencies. The company should go into internationalization ata low pace as the company already has a lot of stores in the international market. By the introduction of the new product line the company will increase its profitability and increase the consumer base by retaining the existing consumers. Moreover, the company should spend on promotional activities for growth.......................................
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