Starbucks Corporation is considered to be one of the leading roaster, retailer and effective marketers of specialty coffee across the globe. The company’s operations include 7,300 coffee shops in the UK, South Korea, United States, and Japan among other countries. The firm enjoys a large market coverage considering the number countries and number of shops it operates. Business organizations across the globe are concerned about their financial stability as most companies associate business growth with financial stability. As a coffee company of an international status, Starbucks is highly focused on delivering quality products.
Starbucks is a strong brand in the coffee market. A strengths, weaknesses, opportunities, and threats (SWOT) analysis of the firm point at a company that is well placed to navigate through various market challenges (Bush). According to Bush, the firm’s strengths include a good financial model, proper budgeting, a strong brand, and highly professional top management. Starbucks attracts a number of opportunities due to its strong brands. Some of the business’s opportunities include market expansion as well as growth of sales. One of the company’s leading weaknesses is limited application of advanced technology in its operations.
Starbucks enjoys numerous strengths that have formed the backbone of the firm’s continued operation and growth even in testing and highly competitive markets. The company’s strengths include;
- Effective marketing
- Extensive global Distribution/Supply Chain
- Diversified business
- Effective Financial Model (profitable, credit worthy and good asset base)
- Sound management
Starbucks is a leading roaster and distributor of specialty coffee across the globe. The firm enjoys an enormous portion of the roasted coffee market. Dudovskiy also states that the company benefits from powerful marketing teams and strategies. The main marketing strategies that the firm applies are purely based on its ability to collect customer information and roast coffee quality coffee.
Effective Financial Model
The company also boats of an effective financial model. The financial model includes an effective budgeting and cash flow analysis. Budgeting remains a significant tool for any successful organization. Starbucks’s operations are guided by periodic budgets that cover all operational elements. Budgeting comprises a number of essential items. One of the critical aspects of a budget is operating expenses (Bush). Operating expenses mark a significant part of any budget.
At Starbucks, quality management takes a center stage. Looking at the firm’s financial model, the management deserves credit for their high professionalism. The company embraces experts in most of its financial operations. The difference between Starbucks and other organizations is entirely based on the fact that its operations follow laid-down and well recognized guidelines.
Even though the firm is performing relatively well, it has a number of weaknesses that need addressing. The weaknesses include;
- High prices.
- Imitable Products.
- Lack of diversified products.
Most Starbucks products are relatively expensive. This makes them less accessible to a large population of potential buyers. Due to the pricing issue, some customers classify Starbucks products as luxurious goods.
Starbucks is less innovative. The firm rarely initiates new product changes. Besides, the firm is not quick to introduce new products to its market. The lethargy is disadvantageous to the firm as it can lead to missed growth opportunities.
There are a number of opportunities that the firm can take advantage of to achieve even better growth. This way, the firm will be able to meets its goals. The potential opportunities that the firm can leverage on include;
- Expansion to Asian, the Middle East, and Africa regions.
- Diversification of its products.
- Partnership with other organizations.
Expansion to Asian, the Middle East, and Africa regions
Starbucks enjoys a good reputation across the globe. Therefore, the company stands a better chance at expanding to other markets. Currently, the firm is yet to fully exploit its Asia, Middle East, and Africa markets. Its presence in the regions is scarce, leaving further room for expansion. The regions enjoy a booming middle class (Lombardo). Besides, they have high populations, presenting an unrivaled pool of clients. Therefore, the firm would benefit immensely from taping the opportunities presented by the three regions.
Diversification of its products
The company still has limited products on offer. Therefore, the firm has a great opportunity for diversification. It should consider innovating new items on offer to attract more clientele. For example, the organization could adopt local cuisines in some of its operational regions such as Africa and Asia.
Partnership with other organizations
The firm mainly operates on its own without partnering with other organizations. However, given the company’s need to expand to new regions, it would also be ideal for it to partner with other organizations. The firm can get into partnerships with competitors too. This is an ideal way of dealing with competition from a win-win perspective (Lombardo). Often, partnerships with other organizations give companies a better opportunity at accessing new markets.
The company faces numerous threats that endanger its long term existence. If not addressed adequately, the threats could lead to the firm’s collapse. Therefore, it is paramount for Starbucks to promptly address those threats. The threats include;
- Rising cost of coffee
Rising cost of coffee
Global coffee bean prices have been on a steady rise. This has resulted in ever increasing production costs for Starbucks. To avoid the increased prices cutting into its margin, the firm results to increasing the price of its coffee products. This is not sustainable as clients are not willing to spend more. Therefore, the firm has to strike a balance between adding its product prices and pleasing and retaining its clients.
Starbucks mainly offers high quality roasted coffee. However, the prices are relatively high. This offers low priced coffee shops a chance at competing in the same markets. To beat the Starbucks, the other coffee suppliers often imitate the firm’s products, posing a huge threat to its existence.
The company faces competition from other organizations such as McDonalds, Dunkin Donuts, and independent coffee shops and fast food chains. The firm needs to identify its market niche and exploit it to the maximum.
Starbucks coffee’s SWOT analysis shows that the company is highly stable. It has numerous strengths and faces a good future from its diverse opportunities. Despite the many strengths, the company must exploit available opportunities for effective global expansion. Moreover, the business needs to address the issue of competition as well as the low-priced coffee. Starbucks can counter the competition by emphasizing on the quality and uniqueness of its products.
Starbucks’s Financial Performance
Since Starbucks has a high debt ratio, it is deemed to have a reasonable asset basis. This implies that the company can handle most of its operations without the need for a lot of credit facilities. Even though organizations are expected to boost some of their operations on credit, Starbucks stands a better chance at operating under no credit facility. With regards to percentage, Starbucks enjoys reduced credit risks. This implies that the firm has more assets than debts and can easily settle or meet its liabilities on time. The firm natures its credit risk both in the short and long term.
The long-term risk of the company is vital because it dictates the sourcing and application of funds (Dalavagas). Starbucks is a stable organization based on its strategy on financial operations and decisions. The firm remains stable due to its continued operation on going concern, a clear indication that the firm is highly concerned about its profitability. The company’s analysis is mainly based on a good asset base and prudent management of its operating expenses. The ratio figures obtained on return on assets and the profit margin ratio demonstrate that the firm is headed in the right direction.
Projections of Stock Performance
Starbucks’s share prices have been steadily rising over the past years. According to Nasdaq, the price of the firm’s shares rose from $29 in 2013 to $59 today. This represents an increase of 100%. Over the last few 5 months, the price has been fairly constant (Yahoo Finance). This shows that the firm is likely to achieve even better growth. Therefore, based on this observation, it is evident that the company’s share price performance is commendable.
Buy/Do Not Buy Recommendation
Based on Nasdaq and Yahoo Finance’s historical data, it is evident that the Starbucks has enjoyed tremendous growth in share price and the amount of traded volumes. In addition, the firm enjoys the benefits of sound management and effective marketing strategies. Therefore, the share prices are expected to rise further. Based on this evidence, I would advise one to buy Starbucks’s shares.
Bush, Thomas. “SWOT Analysis of Starbucks, the World’s Leading Coffeehouse Chain.” Pestle Analysis, 20 Apr. 2016. Web. 11 Apr. 2018. Retrieved from http://pestleanalysis.com/swot-analysis-of-starbucks/
Dalavagas, Iason. ”SWOT Analysis: Starbucks Corp.” Value Line, 11 Jan. 2016. Web. 11 Apr. 2018. Retrieved from http://www.valueline.com/Stocks/Highlights/SWOT_Analysis__Starbucks_Corp_.aspx#.Ws47LIhuaMo
Dudovskiy, John. “Starbucks SWOT Analysis: Strengths based in Quality and ‘Third Place’ Experience.” Research Methodology, 3 Apr. 2017. Web. 11 Apr. 2018. Retrieved from https://research-methodology.net/starbucks-swot-analysis/
Lombardo, Jessica. “Starbucks Coffee SWOT Analysis.” Panmore Institute, 31 Jan. 2017. Web. 11 Apr. 2018. Retrieved from http://panmore.com/starbucks-coffee-swot-analysis
Nasdaq. “Starbucks Corporation Common Stock Historical Stock Prices.” Nasdaq,11 Apr. 2018. Web. 11 Apr. 2018. Retrieved from https://www.nasdaq.com/symbol/sbux/historical
Yahoo Finance. “Starbucks Corporation (SBUX).” Yahoo Finance, 11 Apr. 2018. Web. 11 Apr. 2018. Retrieved from https://finance.yahoo.com/quote/SBUX?ltr=