STARBUCKS

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Introduction

Starbucks is a famous coffee café that have initiated their business in Seattle, United States in the year

1971 from a single store. Starbucks was a retailer and a roaster of ground coffee and whole bean. The

business model aimed by the founders of Starbucks was to sell beans of coffee and equipment of high

quality. However, with the changing business environment the owners decided to convert it into a café

palace where the customers could experience their finest coffee. Nevertheless, Starbucks tends to

provide an exceptional coffee with an everlasting experience to their customer. Though, Starbucks not

only aim to provide the customers with best coffee experience but in the same time also thinks of

providing a healthy and eco-friendly beverages to the customer. In regards to this the business have

aimed to discontinue the use of plastic straws. This might be a problematic decision for the business at

start but on contrary it will provide health effective benefit.

Discussion

In this report the discussion reside on the evaluation of Starbucks from a ground coffee and whole bean

seller to the most well recognized brand of coffee in the whole world. Providing millions of customer

with their finest coffee in the world. Additionally, it is also famous for their variety of cold drinks.

However, the billion people serving companies has turnout to provide their customers with the straw

less drink by replacing it from the recyclable straw less lids.

Recycling of Plastic Straws and Using Straw less Lids

The main focus of this paper is the eco-friendly idea of Starbucks to eliminate billions of straw each year

from over 30,000 stores in the world. The mission of the company is time bounded and they have

suggested that the work would be done by the end of 2020. Nevertheless, Starbucks, being the largest

beverages and food retailer aims to make such a world-wide commitment, and expect that their efforts
would eliminate the plastic straws of more than 100 million every year. On the contrary the company

have designed and produced a straw less lid that would be replaced to straw and will be used for all the

iced espresso, tea and coffee, and other beverages. Though, in practice of the aim, Starbucks have

succeeded to replace in beyond 8,000 stores in the Canada and United States in present time for specific

beverages consisting Cold Foam and Draft Nitro of Starbucks. Expanding their mission and aim, the

company has further replaced the plastic straws in the market of Vietnam, Thailand, Singapore, Japan

and China. Moreover, for the sake of customers the Starbucks have also developed alternative materials

made straws comprising the compostable plastic and paper for their blended beverages, just in case if a

customer demands it.

Issues of using Plastic Straws

The sudden change of plastic decision have spread like a fire across the board. Though, the core reason

of Starbucks to initiate the idea of removing plastic straw is that, it would provide an eco-friendly

environment to their customers. In viewing the plastic as a problem for the nation it reveals that plastic

is a substance that could take several years to diminish. Plastic is supposed to be the main reason for

environment problem that ends in landfill. However, the straws are widely used in all cafes and

restaurants, resulting in harm to the entire globe. The plastic straws whether dump into the landfill or

thrown in the ocean, in both circumstance it creates problems. In keeping in view of the above problems

and disadvantages, Starbucks took stance to cut down the use of plastic straws from all of their stores

nation-wide and replace it from the new innovative thing lids. On the other hand, it can also be change

by transforming the plastic straw into an entirely sustainable decision, as it would provide an eco-

friendly environment to the world.

Implementing of Straw less Lids

However, now the main question that stuck into the minds of owner is that, whether the idea would

work out for Starbucks, whether the customers would accept the changes made by the Starbucks or

they would demand for the regular straw provided by them. This entails an additional work out as it

would be cost effective for the company? What would be the turnover cost for replacing the regular

plastic straws from the recyclable straw less lid? Does the plan would be beneficial for the organization?

Costing and Budgeting of Changes

The further report mainly focused on the costing and budgeting of the using recyclable lids against the

regular law apart from the pros and cons of the plastic straw. The overall cost estimated for replacing

and reverting the plastic straw to the vendor is of 13 million dollars. On the other hand the replacement

cost apart from developing and producing of lids accounts for 5.6 million dollars. However, the

developing and producing of new stock of straw less lids turns out to be 50 million dollars for the nation-

wide distribution and using over 30,000 stores of Starbucks. Starbucks have suggested that their aim of

using the straw less lids would not only eco-friendly but it would also provide a cost effective benefit of

using lids instead of plastic straws as the lids would account for only 20% equivalent material of plastic.

Though, it is anticipated that the customers of Starbucks would accept this changes and that their

efforts and cost will not go in vein.

Conclusion

It conclude that the Starbucks are striving hard to initiate the plan for replacing the plastics straws.

There are multiple concern related to the option of replacement. However, the project is of cost

effective as it would use minimum amount of material as compare to the plastic. Additionally, this would

reflect the customer’s further decision in visiting the Starbucks.

Financial Analysis

Cash Flow Estimation

The cash flow generated from the project is based on the removing of existing and implementing of new

item. However, the cash flow estimated from the replacement project of recyclable strawless lids are

shown under:-

Cash Flow Estimation

Particular 2019 2020 2021 2022

Removing of Plastic Straw - 1,556,800 - 1,401,120 - 1,261,008 - 1,134,907
Raw Material - 368,995 - 522,486 - 626,983 - 783,729
Producion Cost - 86,750 - 104,100 - 114,510 - 137,412
Replacement Cost - 248,910 - 224,019 - 156,813 - 172,495
Gain from Recyclable Strawless Lids 1,899,650 1,961,489 2,185,486 2,369,870
Total Cash Flow - 361,805 - 290,236 26,172 141,327

The above estimation shows that the company would be witnessing a loss in cash flow due to opting the

project of eco-friendly, however, the other general cost associated with the project also poses a

negative effect on the project in its starting phase. Nevertheless, it turnout to be resulting in positive

cash flow ones the refunding of old straws are completed.

Net Present Value

NPV or Net present value shows the amount of cash outflow placed by the firms and looks for the cash

inflow generated by the company. In the below Net Present Value calculation. The rate of interested is

suggested to be 12% and the investment put in for the project is 1.5 million.

NPV

NPV = -Cash Outflow + Cash Inflow 1 + Cash Inflow 2 + Cash Inflow 3

NPV = 1500000+ (750000/(1.1)^1) + (800000/(1.1)^2) + (900000/(1.1^3))

NPV = 3,519,159
Internal Rate of Return – IRR

It is the percentage where the value becomes zero, therefore it is necessary to opt the project below

this rate.

IRR

Cash Outflow = -1,500,000

Cash Inflow 1 = 750,000
Cash Inflow 2 800,000
Cash Inflow 3 900,000

IRR = 28%

The IRR calculated for the project shows that the company needs to select the project in case the IRR is

below 28 percent. Only then the project would provide a cost benefit to the company.
Weighted Average Cost of Capital – WACC

Weighted average cost of capital shows the potential of the project as to what extent the project would

be feasible for the company. The following calculations shows the percentage of WACC against the

project.

WACC for Project

Equity = 40,000,000
Debt = 15,000,000
Cost of Equity = 14%
After Tax Cost of Debt = 6%

Debt% = Equity / Equity + Debt

Debt% = 36%
Equity% = 1 -Debt%
Equity% = 64%

WACC = rd x D + re x E
WACC% = 6% x 36% + 14% x 64%
WACC% = 11%