Starbucks Term Paper Sample

1. Introduction
The paper will present the public company Starbucks Corporation. The focus will be on examining the background of the company and the industry in which the company operates. The analysis of the competition in the sector, the risks and mitigation of the company will follow. The research will involve the financial analysis of the global active company.
1. Background and overview of the company and the industry
The official name is the Starbucks Corp. and is present in the consumer services industry. A sector in which the company operates is a travel & leisure. The foundation of the company has roots back in the 1971 with headquarters in Seattle, Washington. Today the company operates on a global scale and is present in the 63 countries and 22.519 stores worldwide. Worldwide operates as a marketer, roaster and retailer of coffee in the Americas, Europe, Africa, China/Asia Pacific and in the Middle East. The company is providing fresh drinks, coffee, tea, snacks and various food products and accessories (Starbucks Corp., 1-9).
The Starbucks is operating in the industry that is the second largest sector in the United States. The U.S. food service industry revenue of only 100 top company’s revenue was at $136.2 billion (Lockyer, n.p.). Tourism and business travel contribute a lot to the GDP growth. The coffee and snack shops contribute to the industry revenue with the $40bn. The annual growth is predicted at 4.6% from 2011 to 2016 and will offer 676.561 job positions in the United States. The increase in consumer spending in the industry and the segment of coffee and snack sector has grown faster as the food-service sector. The coffee represents around 51% of the purchased products (IBIS World, n.p.).
2. Competition
The company has a lot of competition that is varied from the products and services. The competition to the Starbucks Corp. represents the coffee shops and quick-service restaurants. Among the competitors are companies and corporates that are active in the hotel, restaurants and leisure industry.
The peer group competition involves the major restaurants that are comparable to the size of the Starbucks and include: Delta Air Lines, McDonald’s Corp. Priceline Group Inc. and YUM Brands Inc., Darden Restaurants Inc., Aramark Restaurants Brands Intl., Domino’s Pizza CO, Dunkin’ Brands Group Inc., Cracker Barrel Old City Sto. and Chipotle Mexican Gril Inc (The Street Ratings, 2-4; Lockyer, n.p.). Comparison between the U.S. food & beverage revenues ranked the Starbucks Corp. on the third place, beside the Compass Group PLC and Darden Restaurant Inc. The corporation is one of the largest besides the Compass Group PLC and Darden Restaurants (Lockyer, n.p.). The comparison between the Starbucks Corp. and the competitor can be shown with the net profit margins. The net profit margins differ from year to year and in 2014 the net profit margins for the Starbucks Corp. were at 12.57%, for Delta Airlines 1.63%, McDonalds Corp. 17.34%, Priceline Group Inc. 28.69% and for YUM! Brands INC 7.91%. The Starbucks was based on the data on the third out of fourth places. In the previous year 2014 the net profit margins for the Starbucks Corporation were at 0.06 when the company was dealing with the rising costs, lawsuits and product recall that will be examined in the risks and mitigation of the company as they were the lowest among all of the competitors. From the data based on the timetable of the net profit margins the Starbucks was behind its competitors from the 2005 till 2015, for the company was having lower net profits as McDonald’s Corp, Priceline Group Inc., Yum! Brand Inc., but did reach better results as Delta Airlines (Stock Analysis on net, n.p.).
The data can be interpreted by looking at the products served in the companies and corporations. By comparison the Starbucks is one of the most known brands, but has been focused mainly on the provision of quality coffee and only in recent times made some expansion on the snacks, juices, but the products offer is still low in comparison to the companies described and used as a comparison.
Starbucks corporation is based on the Alpha research (Hunter, 2) outperformed the family business in various segments. In technical ranking it outperformed 87.7% of the companies, 96.2% in profitability and 95.6% in the investors’ concerns. It was among 2% of the companies with the lowest liquidity and outranked only 14.2% in the category of value. From this we can see that the Starbucks is very competitive and efficient.
3. Risks and mitigation related to the company
Risks and threats the company is facing are intensifying competition and compliance costs associated with government regulations. The Market line (4) has marked the product recall and tax evasion and lawsuits as the weakness of the corporation. The company is involved in various lawsuits because of the recent tax affair. The company did not payed the necessary tax based on the sales and the dispute with the Kraft food has a potential of hurting the brand and its image in the local and global scale and could have a negative impact on the short and long term company’s sales. The company recalled various products because of the food mislabeling, which has been reported by the media and creates the potential risks to the loss of consumers which is affecting the profits.
Beside the tax evasion and the lawsuit the company is also confronted with the outside threats. One of the risks the company has been faced in the recent times is also the safety regarding the political situation in some of the countries with the terrorist attacks in the Malaysia and closing the stores.
Another point that could also be examined is the fact the fast food and high calorie beverage have on health. Calorie intakes are the major factor contributing to the obesity rates around the world. Based on the Baseett, Dumanovsky, Huang, Nonas and Silver (n.p.) that concluded that the coffee served in the chain are contributing to the obesity epidemic and are high in calories since one beverage at Starbucks has a similar calories as 12 cans of sugar sweetened cola.
The company has mitigated several of mentioned risks in their report, the most important risks and vulnerabilities expressed were violence and terrorism, finical crisis, customer satisfaction, work, violence, partner relations, discrimination, pricing of products, the leadership decisions, communication and rumors. It is obvious that the company is aware of all the risks we have previously determined. The health however was not marked as one of the most important factors. The corporation did make and assessment on the risks and vulnerability with the risk action plan that will reduce the vulnerabilities and risks (Clampitt, 69-72).
4. Growth or mature company
The food service industry is a mature one. The companies and organization are facing great competition with the thin earwigging margins. The Starbucks Corp. is a long standing company and has a tested business model that is ranked the company higher based on the competitive advantage that is coming from the powerful and well-known brand all around the world. The size and age of the corporation in the case of Starbucks is the advantage, since it is a known brand and people know what can accept from perusing their products. The company characteristics with the relatively stable cash flow and stable growth rate and revenues define the company as a mature company. The company has been regarded as good to invest in, which means that dividends tend to be more predictable. The company is in comparison with the competition underperformed in the brand evolution and also in the offering of food, but it has made some improvements with offering snacks, spread on the tea and fresh juice products. The lack of innovation in comparison to the competition is one of the factors that the company is defined as a mature company.
5. Financial analysis
The sales growth for the Starbucks Corporation has been at 7% in 2015 in the Americas, 9% in China and Pacific and has been growing in the EMEA. The sales growth has declined for one percent based on the comparison between the 2014 and 2015 and was at 4% in EMEA region. The average growth store sales were at 7%. Total net revenues increased for about 17% and were in the year 2015 at $19.2 billion. Total operating expenses were in 2015 calculated to $15,811.6 (Starbucks Corporation, 20-24). For every corporation and company the stock valuation is an important factor. The stocks of the Starbucks Corporation score growth was better as 90% of the stocks the Street Rating Team (3) measures and overall scores for the total return, efficiency, price volatility and solvency got the highest ratings.
5.1. Profitability management ratios
There are many different financial ratios and the paper will provide the most common ones for the Starbucks Corp. for the year 2012, 2014 and 2015. Profitability management rations are measuring the ability of the company to cover its costs and combine three different measures, the gross margin, operating margin and net margin. The gross margin, which measures the ration of gross profit of revenues/ sales was in 2015 for Starbucks at 28.46%. From previous year there was seen the decline and it was in the year 2010 and 2012 higher as is presumed for the strong equity brand (The Street Rating Team, 3-5).
The second ration is operating margin that shows the operating income/ sales and is also known by the name of earning before the interest and tax and was in 2015 at 18.19% and are lower than the operating margins because of the high expenditures on operations and ensuring the highest quality products for the customers. With the emerging of the new stores the expenditures are rising and also because of the product withdraw from the sales (The Street Rating Team, 3-5).
The third profitability ratio, net margin is calculated based on the net income and sale known also by the name of return on sales and was at around 10.4% in the year 2015 (Hunter, 5). The causes for that can be the result of higher taxes for the Starbucks, but are not the only reason. The net profit margins were the lowest in the year 2008 and 2009 and have seen a drastic decrease in the 2013 to 0.06% (Stock Analysis on Net, n.p.).
5.2. Debt management ratios
The current ratio of debt based on the Street ration Team (The Street Rating Team, 4) is at 1.28. The debt of the corporation has decreased and one possible explanation could be the profitability of the Starbucks since it generates more net income each year. The ratio is shown as the current ability of the Starbucks Corporation to meet the short term debt obligations. The low ratio can represent the liquidity and efficiency problems for the company in the future. Number 1.28 means that Starbucks has a 1.28 times more current assets than the current liabilities. It can affect the company’s current debt payments. The Street Rating Team (3) has also included the data about the total debt of the corporation in million $ and was for the year 2015 at 2.048,40.
5.3. Asset management ratios
Profitability and debt are important factors in generating the returns for stakeholders, but also is the efficiency of utilization of the corporate assets. There are many different rations that measure different factors. The asset management rations are measuring the success of managing the assets in order to generate sales. For the paper, we will use the return on assets – ROA which measures the net income and total assets and was in 2015 for the corporation at 20.32% (The Street Rating Team, 4). The measure can tell us the most if we compare it to the other companies or previous number of the ROA for Starbucks. We can see that Starbucks is converting the money better since the number has grown from the past years and the company is earning more money on less investment. Which means it is making a profit for less investment on the assets it has then in previous years.
5.4. Equity
The equity of the company is regarded as a notable return. Return on equity was at 28.9% in the year 2014 and was higher than the equity for the whole industry which was at the rate of 16.4%. The equity calculated for the 5 year time was at 23.1% for the Starbucks and for the industry at 7.1% (Hunter, 2). The value is proper since the company has very successful and has a long history and reputation. The value of the company available to owners and shareholders includes the higher enterprise value and financial assets along with the investments and shows that the performance of the Starbucks is better than the average companies inside the industry. We can see that the liability did not exceed the assets.
6. Summary and view of the company
Starbucks Corp. is a mature company present in the market since the seventies and has been a global actor with known trade mark. The company is active in the food and leisure tourism industry that is the second biggest industry in the United States and is contributing a big share of the national GDP. Thorough the recent past has gained the investors trust with the annual growth rate and it’s economic with minor ups and downs. There are various competitors in the sector and the company is affected because of the trusted brand, but will need to improve and make innovations of its services in the terms of the quantity of its products served to keep up with the competitions. There are various risks and vulnerabilities affecting the corporation, but the mitigation has been seen in the right direction. The economic analysis of the Starbucks has shown that the company is the adequate financial situation. Based on the analysis done, the opportunities for improvements has been pointed out and for further analysis and extension to the benchmarking analysis that would compare the Starbucks Corp. and its competitors would highlight the advantages and disadvantages and competitive advantage of the corporation.
7. Work cited
Bassett, T. Mary, Dumanovsky, Tamara, Huang, Christina, Nonas, Cathy, Silver, D. Lynn. Calories From Beverages Purchased at 2 Major Coffee Chains in New York City, 2007. Preventing Chronic Disease – Public Health Research Practice and Policy. 2009. Web. 28. Feb. 2016 (http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2774632/)
Clampit, G. Phillip. Starbucks Coffee Company: Crisis Case Part I. 2009. Web. 28. Feb. 2016. (https://www.uwgb.edu/clampitp/phils%20site/internet_broadcast/Hall%20of%20Fam e/Starbucks_Coffee_Company.pdf)
Hunter, Orr. SBUX. Starbucks Corp – Company Analysis and ASR Ranking Report. 2013 web. 28. Feb 2016. (http://ntserver1.wsulibs.wsu.edu:2069/ehost/pdfviewer/pdfviewer?sid=3d504990- 9d5e-446f-a08e-8545ca834fe3%40sessionmgr102&vid=1&hid=128)
IBIS World. Coffee & Snack Shops in the US: Market Research Report. 2016. Web. 29. Feb. 2016. (http://www.ibisworld.com/industry/default.aspx?indid=1973).
Lockyer Sarah. Company Analysis. Nation’s Restaurant News. Vol. 48. Issue 12. 2014. Web. 28. Feb. 2016 (http://ntserver1.wsulibs.wsu.edu:2069/ehost/detail/detail?sid=c73dda55-aea2-4cfe- bbc4- 0d0d3177b410%40sessionmgr111&vid=1&hid=128&bdata=JnNpdGU9ZWhvc3Qtb Gl2ZQ%3d%3d#AN=96974688&db=bth).
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Starbucks Corporation. Fiscal 2015 Annual Report. 2015. Web. 28. Feb. 2016. (Starbucks%20Fiscal%202015%20Form%2010-K.pdf).
Stock Analysis on net. Starbucks Corp. (SBUX). Web. Retrieved 28. Feb. 2016 (https://www.stock-analysis-on.net/NASDAQ/Company/Starbucks-Corp/Long-Term- Trends/Net-Profit-Margin#Calculation).
The Street Ratings. Starbucks Corp. 2016. Web. 28. Feb. 2016 (http://www.thestreet.com/files/r/ratings/equities/SBUX_weiss.pdf).