Team # 2 Kim Thompson Matt Schaeffer Simran Dhalinal Geanine Gafni

1. SWOT Analysis Team # 2 Kim Thompson Matt Schaeffer Simran Dhalinal Geanine Gafni

2. Starbucks SWOT Analysis

3. Strengths • Brand Image • Financially Strong • Steady Cash Flows • Socially & Environmentally Responsible

4. Brand Image • Globally known for its quality products • They use innovative and cost effective marketing strategies • Their goal is not only to sell coffee products, but provide the customer a unique experience

5. Financially Strong • Considered to be very profitable and steady yielding consistent revenue growth • In 2006, the company generated revenue of more than $7 Billion • During 2001-2005 periods, the company's average return on equity was 16.6%, against industry average of 14.7%.6

6. Starbucks Continues to Grow Growth of Starbucks during fiscal year 2005!

7. Steady Cash Flows • Approximately $250 million in fiscal year 2005. • The strong cash flow position helps the company to expand aggressively in international markets.

8. Starbucks’ Environmental Mission Statement • Starbucks is committed to a role of environmental leadership in all facets of the business. We will fulfill this mission by a commitment to: • Understanding environmental issues and sharing information with our partners (employees) • Developing innovative and flexible solutions to bring about change • Striving to buy, sell and use products that are environmentally sound • Recognizing that financial responsibility is essential to our environmental future • Measuring and monitoring our progress for each project • Encouraging all partners to share our mission

9. Environmentally Responsible • In 1992, Starbucks adopted their Environmental Mission Statement. • First one in introduce the first-ever paper cup made with 10% post-consumer recycled fiber; which reduced wood use by 11,300 tons-the equivalent of 78,000 trees (in the first year alone). • They recycle in 79% of their U.S. & Canada stores. • They quadrupled their renewable energy purchase to equal of 20%of the energy used in their company.

10. Socially Responsible • In fiscal 2006: • They have donated $36.1 million in cash and products. • They have volunteered 383,000 hours in their communities through their volunteer program Make Your Mark. • They pay their farmers premium prices for coffee; they also provide them access to credit through various loan funds, so farmers can invest. • Starbucks created C.A.F.É. Practices (Coffee and farmer Equity Practices), a set of socially responsible coffee buying guidelines. • They invest in social programs to build schools, health clinics and other projects that benefit coffee-growing communities.

11. Weaknesses • Reliance on the U.S. Market • Narrow Product Mix • Too Focused on Global Expansion • Decrease in Customer Service

12. Reliance on the U.S. Market • In 2005, they derived 83.7% of its total revenues from the U.S. market • The risk: reliance on 1 single market

13. Narrow Product Mix The company’s retail sales mix by product type is roughly: • 77% beverages • 15% food items • 4% whole bean coffees • 4% making equipment • Beverage innovation: It may not be sustainable in the long term

14. Too Focused on Global Expansion (2007) Customer Service Decreased Howard Schultz is back!

15. Opportunities • Entry into new market • New Stores • Growth in coffee market

16. Entry Into New Market • In 2005, Starbucks entered Jordan, the Bahamas and The Republic of Ireland. • Currently have only 200 stores in their largest foreign market opportunity, China • They plan to expand into South Korea by way of a licensing agreement with Dong Suh Foods that will bring already bottled Frappuccino’s into the country. • Future Market: developing countries Russian and Brazil.

17. New Stores • In 2005, they opened an enormous 735 company-operated stores. • Starbucks’ empire is currently at a cool 10, 241. This a growth of 19.5% from 2004 when they had a meager 8,569 stores. (these include company operated stores and licensed stores). • If they continue to grow at this rate by 2010 there will be 24,956 store bearing the Starbucks name.

18. Growth in coffee market • The coffee market is growing exponentially fast (125% over the next five years). • That will make the gross profit available to coffee shops almost $20 billion ($18,839 million). • Starbucks has a market share of over 40%. • That means that in the year 2010, they stand to gross $7.5356 billion dollars.

19. Threats • Volatile Coffee Market • U.S. Economic Recession

20. Volatile Coffee Market • Coffee is the second most traded commodity in the world and consistently quite volatile. • Several factors contribute to commodity volatility: weather, economic and political conditions in each of the coffee producing countries. • What ‘s causing volatility? The underlying issue is supply and demand • A production shortage of 8 million bags of coffee will promote price increases for 2008

21. U.S. Economic Recession • The US dollar is weak, gas prices are rising, credit is tightening, home values are declining, and energy rates are increasing. • Industrial Production: Weak • Inflation: Pressure Increasing • Retail Sales: Slowing • Job Growth: Unemployment rate increase • Manufacturing: declining • Consumer Confidence: low

22. U.S. Economic Recession Nation’s Restaurant News reports that : • 59% of consumer will eat out less • 43% have already cut back • Demand for coffee is surprisingly inelastic. • However, the demand for expensive coffee is more elastic. Consumers wont give up their coffee, they will seek out cheaper coffee.

23. Recommendations Stop focusing on expanding, instead, focus on customer service