Running head: STRATEGIC BUSINESS MANAGEMENT 1

Strategic Business Management

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Introduction

Based on a strategic business evaluation of a organization the strategy and path

alongside other decision-making processes in regard to allocation of resources for every

approach will constitute of capital and the people. Numerous strategic business techniques

have been employed for strategic business techniques that are employed incorporating the

conceptual framework. Alongside strategic costs tools and techniques with target costing, net

present value, benchmarking and many more. The main objective of the paper is presenting

an analysis of Starbucks company incorporating market data, product assortment, financial

data analysis and an explanation of its conceptual framework.

Statement of Problem

This paper explains how strategic business management increases the annual income

of Starbucks Company by responding to the following questions:

1. What is the relationship between strategic business and generating higher income

of Starbucks Corporation?

2. What are the retail strategies of Starbucks for profitable growth?

Presentation of Data

The entire paper evaluates and identifies various business evaluation methods and

cost management tools for the Starbucks Coffee Company.

Company Overview

Starbucks Coffee organization was developed within Seattle during 1971. Its

expansion has been swift and accounted for. Its first international store was initially created

in Japan during 1996 and other stores were later created in Mexico and the UK. During 2007,

the entire brand expounded its establishments in including Russia and during 2013 it set up
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its store within the Chi Minh City within Vietnam. The company ventured in Brunei in 2014,

hence making it the 15th within the Asian market and 64th entirely within the region.

Furthermore, the shops were established within Panama and its objectives were established

hence sourcing almost 99% of the coffee it offers. In June 2019, Starbucks had established

almost 30,000 shops within 80 nations and it was foreseen to develop in a rapid manner. The

organization’s logo incorporates an exposed breasted, mermaid purposed to be just regarding

the actual espresso. The Starbucks’ original owners offered the company to Howard Schultz

at a price of $3.8 million in 1987. Howard came in as a leader of Starbucks and within this

moment he changed the company’s vision and mission (Fottrell, 2012).

Product Assortment

The products of Starbucks have been isolated in 4 distinctive groups they include:

single-service espresso, food drinks, bundled food and other items. Based on the

organization’s annual reports, these refreshment deals take up about 60.05% of the

company’s stocks in 2021, 58.49% during 2020 and in 2019 it was 52.34%. On the other

hand, the food segment for the Starbucks menus would far much be respected as part of the

company’s rising star including deals that rise over 2 years from almost 17.10% during 2019,

17.79% for 2020, and 18% for 2021. Single-serve and bundled food deals rose for the first

two years including income rates that declined from about 12.8% within 2019 to about 8.03%

in 2021.Different products for Starbucks has assured a stable monetary situation for the entire

organization considering the highlighted deals. These deals have accounted for almost

12.32% for every establishment deals within 2019, 12.37% for 2020, and lastly 13.32% for

2021. More information has been portrayed in the table shown below:

Table 1: Starbucks Product Assortment

2021 2020 2019

Refreshment Deals 60% 58.49% 52.34%

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Bundled food and single-serve espresso 18.06% 17.79% 17.10%

Deals Revenue Contribution 12.32% 12.37% 13.32%

Drawing from table 2, all out establishment deals were 12.32% in 2019, 12.37% in

2020, and 13.32% in 2021 respectively. Food and beverage are known to be a rising stars as

showcased in the table below. On the other hand, the sales and revenue generated have

dropped slightly in respect to the different products being offered by Starbucks due to the

effect of the covid-19 pandemic. The sales in 2021 were high for the beverage products at

57.70% and less for other at 12.33%, which shows that the more revenue was generated for

the beverage products compared to other products as exhibited below.

Table 2: Sales and revenue generated from Starbucks product Assortment

2021 2020 2019

Sales Revenue Sales Revenue Sales Revenue

% Generate % Generate % Generated

d d

Beverage 57.70 12918.15 58.50 14459.71 60.05 15919.16

Food 17.11 3829.45 17.80 4399.91 18.07 4789.75

Packaged & Single 12.86 2879.59 11.33 2799.94 8.03 2129.89

serve coffees and teas

Other 12.33 2759.61 12.38 3059.94 13.84 3669.81

Market
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As market share and popularity of our product increases the product prices can slowly

increase. This will begin the profit-oriented strategy. The profit strategy will focus on where

the price of the product or even a little more for delivery can be added. New products will

also be added to the menu and pricing for these items will be set at the best price the market

will afford. The ability to create profit is nothing new for the coffee industry. Some coffee

shops are even reaching seven dollars a cup. This hype is due to the use of relatively rare

beans from the Gesha tree. The interesting part is the price of this bean should only raise the

cost of a Grande at Starbucks by about $1.30. The $7.00 price provides an eighty percent

markup (Fottrell, 2012). As the above example provides, the sources for profit are limited to

the imagination of the marketing department (Zmuda, 2010). The international market for

Starbucks is known to be up in the air and solely dependent on many nations for example the

Asia pacific and China. Such markets have also been established in the air and hence they are

very less nations incorporating the Asia pacific and China. The markets tend to be out of

hand for the management since it tends to be reliant on politics and regulatory uncertainties.

Incorporating more risk and the diversifying markets the main question for the company is

how will it grow? One suggestion is growing and continuing based on diversification

strategies. Whether it be adding in new food or drinks, or selling products to third party stores

(like supermarkets), being able to diversify gives customers options. Selling the same

products over and over again can get old and boring, but being able to add in new menu items

or expand its market keeps consumers on their toes and increases chances.

Logistics

The logistic channels are governed through the use of the Internet as a marketplace

and customer facing portal for orders to be placed. By eliminating a brick-and-mortar

location that is open to the public the organization is able to personalize the interaction and

experience in way that a static location simply cannot. The increased personalization brings
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about an increased desire for engagement which can lead to increased purchases and revenue.

Using the internet as the storefront also helps with expansion efforts as future constructs

would only need to be designed for the delivery hubs.

Along with the Internet, mobile-apps are the driving force of the organization’s direct

distribution channel. The “always there, always ready” convenience of the mobile app

ecosystem allows for a more streamlined and efficient stream of communication between the

organization and the consumer. This stream of communication quickens the organization’s

ability to respond to emerging consumption needs, while allowing the personalized

experience to truly cater to the unique needs of each individual To expand on the personal

experience through the process of distribution, phone-based communication and reception is

available for those with a more custom approach to their brewing desires. The functionality is

built into both the internet site as well as the mobile app, so the end-user does not have to

interrupt either experience in order to obtain the assistance or fully customizable order that

they are seeking (Jaffee, 2007).

Financial Summary

Table 3: Starbucks Monetary exhibition Data

2021 2020 2019

Growth

Revenue 26,508.60 24,719.50 22,386.80

Revenue Growth Rate 7.24 10.42 5.02

Net Income 3,599.20 4,518.30 2,884.70

Net Income Growth Rate -20.34 56.63 2.38

EPS (d) 2.92 3.24 1.97

Profitability
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Gross Profit Margin 28.25 29.6 30.53

ROA 16.60 23.46 20.12

ROE N/A 136.51 50.90

Liquidity

Current Ratio 0.92 2.20 1.25

Quick Ratio 0.67 1.95 0.93

Based on the data drawn from Starbucks annual reports every deal and overall gain

value are in dollars. Starbucks has its high points and low points in respect to the funds within

the recent 3 years (2021-2019). Well, in 2020, the overall compensation increased 56.6%

much more than in 2019 with a decrease of 20.3% in 2021 as depicted in table 3. In the midst

of 2019 and 2021, the company’s net gain rose by 24.7%. On the other hand, income per

share increased by more than half starting from 2019 to 2021 showcasing that the company’s

anticipated benefits from its investors. Productivity proportions within 2019 were less

compared to ones in 2019 and 2020 portraying that organizations were not in a position of

making consistent income unlike spending and different expenses being invested within the

energy time frame (Perreault, Cannon & McCarthy, 2011). In regard to Starbucks’s liquidity

as depicted in table 3 above, it can be concluded that its liquidity proportions declined from

2019 to 2021. It is evident that the company’s capacity for reimbursing its transient duties

have disintegrated, implies that the security edge has contracted in a considerable manner and

the Starbucks should enhance its liquidity segments so that it could forestall issues refunding

all its momentary credits.

Conceptual Framework
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Figure 1: Conceptual Framework

Increase
in
annual
income
Costumer
of
loyalty
Starbuck
Assess the s
profitability Compan
ratios y

Based on Starbucks conceptual framework the cause or independent variable is

increasing profitability ratios and the effect or dependent variable is increase in the annual

income of Starbucks Company. The inferred variable is customer loyalty.

Profitability Ratios

Starbucks profitability ratios are crucial for understanding the company’s

performance. They present a perfect picture of the organization in comparison to its rivals.

An essential objective for the whole business and most arguably an important ratio will be

those that are focused on profitability (Internal Revenue Service, 2014). According to table 4

the total debt to assets for Starbucks for the 3 years has been declining from 0.581 in 2019 to

0.296 in 2021 whereas the capitalization ratio in 2019 was 0.482 and 0.245 in 2021, Debt

equity ratio in 2019 was 0.929 and 0.325 in 2021, and lastly the interest coverage ratio was

2.516 in 2019 whereas in 2021 it was 1.761. This portrays that the company has been

performing poorly recently most probably due to the impact of the pandemic.

Table 4: Financial Leverage Ratio

Financial leverage ratio 2021 2020 2019

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Total debts to assets 0.296 0.331 0.581

Capitalization ratio 0.245 0.295 0.482

Debt equity ratio 0.325 0.418 0.929

Interest coverage ratio 1.761 2.033 2.516

Many scholars have come to a common judgement that higher ratio will present more

profit, the main reason for this is that business might have less money that is tied up for the

fixed assets for each dollar in terms of sales revenue. A lower ratio will exhibit that the whole

business has over-invested in terms of plant, equipment and other fixed costs. For Starbucks,

the ratio might decline as depicted in table 5, its inefficiency enhances the probability of

becoming a default investor. Similarly, table 5 elaborates vividly the turnover ratio for the

company which is below the industrial levels. It shows that minimal inventory liquidity are

incurred.

Table 5: Starbucks Efficiency ratio

Efficiency Ratio 2021 2020 2019

Cash Turnover 44.93 72.81 143.48

Total Assets Turnover 0.38 0.39 0.98

Accounts Receivable 14.55 104.58 6.09

Turnover

Conclusion

Starbucks requires a dimensional look by following an integrated approach for the

new market venture. Comprehending the current market for understanding the operational
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structure its very crucial. Its conceptual framework aids the company in pinpointing the

issues within the whole company. Consequently, the organization should look forward in

investing in training and development for its employees’ key positions and once that are in

charge of realizing the perfect mix so that their knowledge and expertise can be improve

which would translate for the benefit of the organization. Ensure that every employee has the

perfect intention, competencies, and skills so that the whole organization can move forward.

Some of the recommendations for Starbucks include:

 Starbucks should come up with long-term strategic objectives for the business not

only annually budget prior it ventures in different investments.

 The company should be flexible in reacting to market changes and competition. They

should additionally benchmark consistently in order to attain best practices.

 It could also be beneficial for Starbucks to create more locations that have drive-thru

options. With the current times that we live in being able to still create revenue even

with stores closed could be huge in growing financially.

 With more drive thru options available, Starbucks can penetrate the consumer market

of those that don’t have the time to go in and socialize. A lot of people are racing

from one destination to the next, and being able to get a coffee or something on the go

without having to leave their car is enticing.

 Along with drive thrust, it might be beneficial to create or improve upon mobile

ordering. Being able to order ahead and skip potential long lines is favourable

amongst customers.

 Whatever course of action Starbucks takes, it is important that the company keeps its

eyes on finding ways to grow, even if it might seem impossible.

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