Starbucks Corporation -2009

Summary Starbucks was founded in 1971 by Gordon bowker, Jerry Baldwin and Zev Siegl who joined forces to open a coffee shop in Seattle, Washington. By 1972 with the success of first store they opened a second store and in the next ten years business expanded to five more stores. By 1993 the company had licensed 12 stores and were operating 260 company-owned facilities with revenues reaching $176.5 million and net earnings at $8.3 million and opened 200 new stores outside of the United States during 2000.

Starbucks experienced its first setback in 2002 when its Japanese operation posted a $3.9 million loss but they did not get discouraged by this, international expansion continued as Starbucks opened its first store in Turkey. However, then the worldwide economic recession hit in 2007 and Simultaneously McDonalds entered the coffee business big time and became the competitor of Starbucks. Starbucks closed 600 underperforming stores in the United States in 2008 and plans to open only about 200 new stores in 2009.

The Starbucks Corporation is the global leader in specialty coffee consumption they want customers to smell coffee aroma all day long. This change is part of the companys effort to give a boost to the Starbucks experience in the face of heavy competition from McDonalds, 7Eleven, and Dunkin Donuts. Iced coffee is clearly a female drink according to many analysts, perhaps because it is low calorie and high caffeine to capitalize on this trend, Starbucks sold a 16-ounce iced coffee for $1.95 for the first half of 2009.

CEO of Starbuckss says the media exposure concerning McDonalds versus Starbucks coffee products actually helped his firm by creating unprecedented awareness for the coffee category overall. Starbucks company vision statement describes to inspire and nurture the human spirit one person, one cup, and one neighborhood at a time. Starbucks strives to lift up the simple task

of drinking coffee to a new level with its retail outlets seen as a place for socialization, relaxation, and reflection and its stores are designed to make customers comfortable. Starbucks products can be found in convenience stores, grocery stores, department stores, movie theaters, businesses, schools, and even airports Research and development is constantly in pursuit of the new products and service that are both trendy and stable. Starbucks is rated by ten Fortune as one of the best top 10 places to work. They also encourages the use of its Web site where customers are able to register their Starbucks cards, receive nutritional information about Starbucks products, shop online, search for careers. Starbucks financial position depicts that for the 26 weeks ending March 2009, Starbucks revenues decreased 7 percent to $4.95 billion and net income decreased 72 percent to $89.3 million. Moodys Investors Service recently downgraded Starbucks credit ratings. Starbucks expects to add approximately 20 net new stores to its global store base in fiscal 2009. Capital expenditures for fiscal 2009 are expected to remain unchanged, at approximately $600 million. The company plans to open approximately 65 net new licensed stores in the U.S and approximately 320 net new licensed stores internationally.

Starbucks has three operating segments: United States, International, and Global Consumer Products (CPG) which accounts for its growth. The U.S. operations represent 80 percent of total company-operated retail revenues, 55 percent of total specialty revenues, and 76 percent of total net revenues for fiscal year 2008. At the end of the fiscal 2008, the U.S. segment reported total revenues of $7,877 million and the U.S. company operated retail business continued deteriorating trends. U.S. comparable store sales declined 8 percent, due to a 5 percent decline in the number of transactions and a 3 percent decrease in the average value per transaction.

Company-operated retail revenues increased primarily due to the opening of 445 new companyoperated retail stores in the 2008 fiscal year but was partially offset by a 5 percent decrease in comparable store sales for the same period. For the second quarter of fiscal 2009, U.S. total net revenues were $1.8 billion, a decline of $131.5 million, or 6.8 percent, due to decreased revenues from company operated retail stores. Operating margin was 5.0 percent of related revenues for

the second quarter fiscal 2009 compared with 10.0 percent in the corresponding period of fiscal 2008. Starbucks International operations represent the remaining 20 percent of company-operated retail revenues and 21 percent of total specialty revenues as well as 20 percent of total net revenues for fiscal year 2008. Specialty operations in International primarily include retail store licensing operations in nearly 40 countries and foodservice accounts, primarily in Canada and Japan. Company-operated retail revenues increased due to the opening of 236 new companyoperated retail stores in the last 12 months, favorable foreign currency exchange rates, primarily on the Canadian dollar, and comparable store sales growth of 2 percent for fiscal 2008.

International total net revenues were $433.7 million for the 13 weeks ended March 29, 2009, down $59.7 million, or 12.1 percent, compared with the same period last year. The UK and Canadian markets reported negative comparable store sales for the quarter. International operating income decreased to $6.0 million for the second quarter of fiscal 2009 versus $17.8 million for the same period a year ago. Starbucks global consumer products segment represents 24 percent of total specialty revenues and 4 percent of total net revenues for fiscal year 2008.

Global Consumer Products Group total net revenues decreased by 2 percent to $94.8 million for the second quarter of fiscal 2009, due primarily to lower margin on sales of packaged coffee. Dunkin Donuts competes directly with Starbucks through the addition of branded coffee both in their stores and in grocery stories. Dunkin is a privately owned, multi concept quick-service franchisor, with more than 13,000 locations in more than 40 countries, including its popular Dunkin Donuts and Baskin-Robbins Chains. Dunkin Brands has released estimated net sales of $517 million for the 2008 fiscal year.

Caribou Coffee another competitor of starbucks is a gourmet coffeehouse operator in the United States with 464 coffeehouses, including 24 franchised locations reported in 2006. The company operates. Coffee houses located in 18 states and the District of Columbia, including 193 coffeehouses in Minnesota and 62 coffeehouses in Illinois. Their financial results reported at the end of 2008, although generating $253,899,000 in total revenues, posted a net income loss of

$16,342,000. Caribou also sells its products to grocery stores and mass merchandisers, office coffee providers. Peets sells its products in grocery stores, home delivery, office, restaurant and foodservice accounts, through both companies owned and operated stores in six states in the United States. Peets reported total revenues of $284,822,000 with a resulting operating income of $17,001,000 for the 2008 fiscal year. McDonalds also offers coffee and the traditional breakfast items of Egg McMuffins and pancakes. Although most of its outlets are free-standing units, MCD also has many units located in airports and retail areas. MCD reported staggering total revenue of $23.5 billion in 2008, generating a net income of $4.3 billion.

Crispy Crme Donuts operates a chain of almost 300 doughnut shops and more than 200 smaller format locations throughout the United Kingdom and in more than a dozen other countries. Like other competitors, their profits have been impacted by the economy of 2009, posting a loss of net income of $4,061,000 (2008) from their net sales of $383,984,000. Gourmet coffee consumption also rose with the drinkers educational level. Those who finished college bought 49 percent more gourmet coffee on average, and those with some postgraduate education bought 71 percent more.

Despite its size, Starbucks alone purchases only 2 percent of the coffee produced worldwide. Starbucks continues to be the coffeehouse of choice for many domestic and international Consumers and their strategy remains one of progressive expansion. Firms such as McDonalds and Dunkin Brands desire to lure all Starbucks customers away to cheaper cups of coffee so starbucks needs to develop clear strategic plans for its future.