Explore the relationship between financial analysis and strategic analysis in a review of the case study Case 9: Starbucks Corporation
Explore the relationship between financial analysis and strategic analysis in a review of the case study Case 9: Starbucks Corporation, p.462 (from your textbook)
A case study is a puzzle to be solved, so before reading and answering the specific questions, develop your proposed solution by following these five steps:
Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course modules which apply to the situation described in the case study.
Record the facts from the case study which are relevant to the principles and concepts of the course modules. The case may have extraneous information not relevant to the current module. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.
Describe in detail the actions that would address or correct the situation.
Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.
Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions, but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.
In an original post, present a well-written answer and diagnosis for the following case study questions:
Examine the reasons why Starbucks’ strategy has been so successful.
Examine the threats to Starbucks’ success in the future.
How does Starbucks link organizational goals to measures of value?
How does Starbucks link organizational goals to measures of performance?
Embed course material concepts, principles, and theories (which require supporting citations) in your initial response along with at least one scholarly, peer-reviewed journal article. Keep in mind that these scholarly references can be found in the Saudi Digital Library by conducting an advanced search specific to scholarly references. Use Saudi Electronic University academic writing standards and APA style guidelines.
Case 9 Starbucks Corporation, March 2018
Starbucks Corporation’s annual shareholders’ meeting on March 22, 2017 marked Starbucks’ 25th anniversary as a public company. It also marked a changing of the guard: Howard Schultz, Starbucks founder, CEO, and chairman announced his retirement as CEO and handed over the key of the first Starbucks store to his successor, Starbucks’ president and chief operating officer, Kevin Johnson. Johnson was a 16-year Microsoft veteran who had been CEO of Juniper Networks before joining Starbucks. Stepping in Schulz’s “venti-sized” shoes presented a massive challenge to Johnson and for his first year as CEO, he kept a low profile. When Starbucks hit turbulence—as in April when two African-American men were arrested at a Starbucks in Philadelphia— it was Schultz who was the public face of the company. However, in June 2018, Schulz also announced his retirement as executive chairman of Starbucks—fueling speculation that he was planning to run for president of the United States of America as a Democratic candidate. Johnson was now the official and de facto leader of Starbucks Corporation. As he acknowledged: “The most difficult transition any company will ever go through is from founder-led to founder-inspired.”1 Moreover, Starbucks was facing significant strategic and operational challenges. Some of Starbucks’ diversification—into tea shops for example—had been unsuccessful, and in the United States, same-store sales growth had declined, causing the company to announce in June 2018 the closure of 150 stores. But to put these challenges in context, Starbucks’ financial health continued to be robust: in the first quarter of 2018, Starbucks’ revenues grew by 7% (year-on-year), its operating margin was 12.8%, and it earned a return on equity of 14.0%. Starbucks’ rise from a single Seattle coffee store to a global chain of over 27,000 coffee shops employing almost 280,000 people and generating revenues of $22.4 billion in 2017 was one of the wonders of American entrepreneurial capitalism. Howard Schultz was a legend among US business leaders. During 2017/18, Starbucks’ profits and share price had set new records (Table 1 and Figure 1). For many observers, including the owners of the Milanese cafés that had provided the inspiration for Schultz, the Starbucks story was little short of miraculous. America’s first coffeehouse had opened in Boston in 1676. How could brewing a better cup of coffee in the 1980s produce a company with a market value of $78 billion? Given the ubiquity of good coffee, could Starbucks possibly sustain its success? Any sense of trepidation that Johnson might have felt would have been heightened by the memory of Schultz’s previous retirement as CEO in 2000: Starbucks’ faltering performance forced Schultz to return as CEO in 2008.
TABLE 1 Starbucks Corporation: Financial data for 2010–18 ($million) 12 months to end-Sept. ($m) 2018a 2017 2016 2015 2014 2013 2012 2011 2010 Total net revenues of which: 16,448 22,387 21,316 19,163 16,448 14,892 13,300 11,700 10,707 —company-operated stores 12,978 17,651 16,844 15,197 12,978 11,793 10,534 9632 8964 —licensed stores 1589 2355 2318 2104 1589 1360 1210 1007 801 —CPGb , foodservice, other 1881 2.381 2318 2104 1881 1739 1555 1061 1744 Cost of sales 6859 9038 8511 7788 6859 6382 5813 4916 4459 Store operating expenses 4638 6493 6064 5411 4638 4286 3918 3595 3551 Other operating expenses 450 554 545 522 450 457 430 393 293 Depreciation and amortization 710 1011 981 894 710 621 550 523 510 General and administrative expenses 991 1393 1361 1197 991 938 801 636 570 Special chargesc — — — — — 2784 — — 53 Total operating expenses 13,635 18,643 17,462 15,812 13,635 15,469 11,513 10,176 9436 Operating income 3081 4135 4172 3601 3081 (325) 1997 1729 1419 Net earnings 2068 2885 2818 2757 2068 8 1384 1246 946 Net cash from operations 608 4174 4575 3749 608d 2908 1750 1612 1705 Capital expenditures (net) 818 1519 1440 1304 1161 1411 974 1019 441 Working capital 450 1063 211 719 690 94 1990 1719 977 Total assets 14,752 14,366 14,313 12,404 10,752 11,516 8219 7360 6386 Long-term debt 3648 3933 3585 2335 2048 1299 550 549 549 Shareholders’ equity 5610 5450 5884 5818 5272 4482 5115 4385 3675
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