COMPANY PROFILE

Starbucks Corporation

REFERENCE CODE: E86AFA79-07E1-4115-AA0C-0016416541FE

PUBLICATION DATE: 9 May 2014
www.marketline.com
COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.

Starbucks Corporation
TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................3
Key Facts...............................................................................................................3
SWOT Analysis.....................................................................................................4

Starbucks Corporation
MarketLine

Page 2

Starbucks Corporation
Company Overview

COMPANY OVERVIEW
Starbucks Corporation (Starbucks or the company) is a premier roaster, marketer and retailer of
specialty coffee. The company operates in 62 countries across North America, Asia Pacific, the
Europe, Middle East and Africa (EMEA), and Latin America. Starbucks is headquartered in Seattle,
Washington and employed approximately 182,000 people as of September 29, 2013.
The company recorded revenues of $14,892.2 million in the financial year ended September 2013
(FY2013), an increase of 12% over FY2012. The operating loss of the company was $325.4 million
in FY2013, compared to an operating profit of $1,997.4 million in FY2012. The net profit was $8.3
million in FY2013, compared to the net profit of $1,383.8 million in FY2012.

KEY FACTS
Head Office

Starbucks Corporation
2401 Utah Avenue South
Seattle
Washington 98134
USA

Phone

1 206 447 1575

Fax
Web Address

http://www.starbucks.com/

Revenue / turnover 14,892.2

(USD Mn)
Financial Year End

September

Employees

182,000

NASDAQ Global
Select Ticker

SBUX

Starbucks Corporation
MarketLine

Page 3

Starbucks Corporation
SWOT Analysis

SWOT ANALYSIS
Starbucks is a premier roaster, marketer and retailer of specialty coffee. Through its various
value-added services, the company not just sells coffee but also creates a differentiating
coffee-drinking experience to its in-store customers and meets their unstated needs, which, in turn,
helps it in surviving in the highly competitive foodservice retail space. However, increasing competition
may lead to price wars, which, in turn, could affect the market share of the company.
Strengths

Weaknesses

Building strong customer connect through

value-added services
Leveraging technology to build a robust
distribution channel strategy
Strong financial position

Product recalls
Tax evasion and lawsuits

Opportunities

Threats

Entry into the health and wellness space

Growing presence in key Asian markets
Expanding presence in the growing
single-serve coffee market in the US
The growing office coffee marketplace

Intense competition
Compliance costs associated with
government regulations

Strengths

Building strong customer connect through value-added services

Starbucks operates in the highly competitive foodservice retail space that demands consistent
delivery of quality service to either retain existing customers or to attract new ones. Apart from selling
its world-renowned coffee blends in a variety of flavors, the company is focused on providing a
coffee-drinking experience to its in-store customers. In the past several years, the company has
been focusing on meeting its customers unstated demands by offering various value-added services,
such as entertainment on premises.
Starbucks offers free, instant and unlimited Wi-Fi connectivity at all its company-owned stores across
the US and Canada. The customers, who come for a drink or a snack, are encouraged to spend
more time inside the store through free access to internet and the Starbucks Digital Networka
news and entertainment web portal offered in association with Yahoo.com. The Starbucks Digital
Network also offers free access to subscription editions of various premium news resources, such
as The Wall Street Journal, New York Times, USA Today, The Economist and ESPN Insider. It also

Starbucks Corporation
MarketLine

Page 4

Starbucks Corporation
SWOT Analysis

offers exclusive iTunes downloads and e-book downloads for its in-store customers. Apart from
these in-store experiences, the company also targets customers by up-selling merchandise including
music, movies, apparel, books and accessories. To further improve its in-store experience for
customers, in July 2013, Starbucks selected Google to provide the next generation of its Wi-Fi
offering for its customers. Beginning August 2013, the new US company-operated Starbucks stores
will begin to receive up to 10 times faster network and Wi-Fi speeds. Over the next 18 months,
Starbucks will convert more than 7,000 US stores to the upgraded store network and Wi-Fi experience.
In addition to providing faster Wi-Fi, Starbucks and Google will also work together to co-develop the
next-generation Starbucks Digital Network.
While the companys strategy is to build stronger customer connect, through these initiatives it is
also able to gain a higher footfall as more and more customers walk in for the exclusive in-store
experiences. Additionally, Starbucks is able to create a unique selling proposition by combining its
customized coffee blends with in-store experiences that customers look forward to. All these strategies
are aiding the company in building its competitive advantage.
Leveraging technology to build a robust distribution channel strategy
While operating in the vast food service space, Starbucks is required to build a robust distribution
strategy to stay ahead of its competition. In terms of distribution, the company sells through four
channels: company-operated retail stores, licensed stores, CPG and foodservice operations. In the
recent times, the company has been expanding its distribution network to include as many channels
to reach customers where they work, travel, shop and dine.
Besides the traditional distribution channels, the company has been utilizing digital channels such
as internet and mobile applications, to reach its customers. In the beginning of 2011, Starbucks
launched its mobile payment application at all of its 6,800 company-owned stores and 1,000 stores
operated by Target in the US market. This application allows customers to pay for their in-store
purchases through select smartphones. The Starbucks Card Mobile App displays a barcode that
can be used just like a Starbucks Card to make a purchase. To pay, customers need to hold the
mobile device in front of a scanner on the countertop and scan the Starbucks Card Mobile Apps
on-screen barcode to make a purchase. The application also allows customers to track rewards and
reload balance using PayPal. After extensive testing, it was found to be an efficient and quick way
to process payments at the companys stores. According to Starbucks, there is a demand for such
a type of payment service. Over one-third of its customers use a smartphone and one in five uses
a Starbucks card at checkout.
In mid-2011, the company launched Starbucks for iPhone, a mobile application that introduces its
popular Starbucks Card eGift feature on a mobile device and also combines the features of its two
popular applications for iPhone and iPod touchmyStarbucks and Starbucks Card Mobile. The new
application allows customers to access their favorite Starbucks Card features, use the mobile payment
capability and track their My Starbucks Rewards and custom Starbucks features in a single application.
The new application also allows customers to send a mobile gift. On the same lines, Starbucks also
launched a mobile application for Android-based smartphones, Starbucks for Android application.
The Android application provides consumers access to the fastest way to pay and other features to

Starbucks Corporation
MarketLine

Page 5

Starbucks Corporation
SWOT Analysis

manage their Starbucks Card on-the-go. Following the success of these mobile applications, Safeway,
the US-based retail supermarket chain, rolled out mobile payment at nearly 1,000 Starbucks in
Safeway supermarkets across the US in 2011.
In 2012, the company began accepting Square Wallet, a mobile payment application offered by the
American company Square Incorporated. The new service was made available at approximately
7,000 Starbucks stores across the US. Starbucks became the first retailer in the US to combine its
own mobile payment technology with a loyalty program, with the launch of Starbucks Card Mobile
App in 2011. Currently, the company generates more than three million mobile transactions each
week in the US, accounting for approximately 10% of total US tender. In addition, the total Starbucks
Card transactions, including both physical card and mobile application purchases, constitute more
than 30% of the company's US payments. Starbucks also began integrating the Starbucks Card and
My Starbucks Rewards loyalty program across several of its brands, including Teavana.The registered
customers who make purchases with a Starbucks Card or through the Starbucks mobile application
will receive various benefits depending on the number of stars they earn. At the end of October
2012, the company had 4.5 million active members.
By leveraging technology, the company is not just reaching out to an expanding base of consumers,
but also is offering them a more convenient way of making transactions. Furthermore, these strategic
initiatives will allow Starbucks to break through its traditional distribution channels, increase the
addressable market and add new avenues for revenue generation.
Strong financial position
The company has a strong financial position, indicated by its revenue growth. Starbucks has witnessed
a steady growth in its revenues over many years. The companys revenues increased at a compound
annual growth rate (CAGR) of 11% from $9,774.6 million in FY2009 to $14,892.2 million in FY2013.
The revenues of the company grew by 12% in FY2013 over the previous year. The revenue growth
was mainly attributable to increased revenues from company-operated stores (contributing $1.3
billion), driven by a 7% increase in comparable store sales. It was also due to incremental revenues
from net new company-operated store openings and licensed stores. The companys operating
results included a litigation charge as a result of the conclusion of its arbitration with Kraft Foods
Group which resulted in a pretax charge to operating expenses of $2.8 billion. Excluding this charge,
the companys operating profit increased 23.1% in FY2013 over FY2012.
In addition to the revenues of the company, the other financial parameters have been impressive.
Cash flow from operations was $2.9 billion in FY2013 compared to $1.8 billion in FY2012. Total cash
and cash equivalents increased by more than 100% to $2,575.7 million in FY2013. Thus, strong
financial performance will provide the company with financial flexibility and also help in expansion
activities.

Weaknesses

Starbucks Corporation
MarketLine

Page 6

Starbucks Corporation
SWOT Analysis

Product recalls
Starbucks has been registering increasing instances of product recalls lately. In February 2014,
Evolution Fresh initiated a voluntary product recall of approximately 1,700 bottles of organic sweet
greens and ginger juice sold by grocery retailers in California and Nevada as a small number of
these products were swollen. La Boulange Cafe & Bakery voluntarily initiated a product recall of 75
Soft Caramel Jams in 8.4 oz. jars as a precautionary measure in November 2013. This product was
sold exclusively in 20 La Boulange Cafe & Bakery stores in the San Francisco Bay area. The recall
was initiated after it was discovered by the company that the product was inadvertently mislabeled
and filled with Hazelnut Jam (containing undeclared hazelnut). In February 2013, the company
recalled all its products containing wheat grass sourced from Sprouters Northwest, due to the possible
contamination with Listeria monocytogenes. The recall included all varieties of wheatgrass products
sold across the companys Seattles Evolution Fresh retail stores, including handcrafted beverages
containing wheatgrass. In 2012, the Canadian Food Inspection Agency issued a warning against
consuming Justin's-brand honey peanut butter, used in Starbucks protein bistro boxes. Starbucks
voluntarily recalled the protein bistro boxes, which were feared to contain salmonella, potentially
fatal bacteria. In the same year, Starbucks Seasonal HarvestFruit Blend, another product of the
company, was recalled due to concerns over possible salmonella braenderup contamination.
Earlier, in 2011, the US Department of Agriculture's Food Safety and Inspection Service reported
finding Listeria bacteria in samples taken from chicken to be used in one of Starbucks' bistro box
line of ready-to-eat meals. Following the report, FSIS and Flying Food Group, suppliers to Starbucks,
recalled all Starbucks Chipotle Chicken Wraps and Starbucks Chicken and Hummus boxed meals
produced during that time. Later, FSIS and Flying Food expanded the recall to include two more
contaminated productsStarbucks Salami and Cheese and Starbucks Chicken Lettuce Wraps. Product
recalls could affect the value of the Starbucks brand and result in a decline in demand for its products.
Tax evasion and lawsuits
Starbucks is involved in several lawsuits. In 2012, Starbucks was alleged to have diverted its profits
earned in the UK to other European nations and avoided taxes for the last three years. According
to reports, the company paid only 8.6 million (approximately $13.5 million) in corporation tax since
launching in the UK in 1998, despite recording cumulative sales of 3 billion (approximately $4.7
billion) during this period. A network of UK-based protest groups established to protest against tax
avoidance in the UK targeted the companys coffeehouses in the UK. In December 2012, it staged
protests across more than 40 Starbucks shops, which disrupted business at these locations. In
January 2013, Starbucks committed to pay about 20 million (approximately $31.4 million) in British
corporation tax over the next two years.
In the first quarter of FY2011, Starbucks notified Kraft Foods Global (now known as Kraft Foods
Group, Inc.) the discontinuation of its distribution arrangement due to material breaches by Kraft
Foods of its obligations under the supply and license agreement between both companies. Through
the companys arrangement with Kraft Foods, Starbucks sold a selection of Starbucks and Seattle's
Best Coffee branded packaged coffees in grocery and warehouse club stores throughout the US,
and to grocery stores in Canada, the UK and other European countries. Kraft Foods managed the

Starbucks Corporation
MarketLine

Page 7

Starbucks Corporation
SWOT Analysis

distribution, marketing, advertising and promotion of these products. In December 2010, Kraft Foods
commenced a federal court action against Starbucks seeking injunctive relief to prevent Starbucks
from terminating the distribution arrangement until the parties' dispute is resolved through the
arbitration proceeding. The District Court for the Southern District of New York denied Kraft Foods'
request for injunctive relief. As a result, Starbucks has been in full control of its packaged coffee
business since March 2011.
In April 2012, Starbucks and Kraft Foods exchanged expert reports regarding alleged damages on
their claims. Starbucks claimed damages of up to $62.9 million from the loss of sales resulting from
Kraft Foods' failure to use commercially reasonable efforts to market Starbucks coffee, plus attorney
fees. Kraft Foods claimed damages of up to $2.9 billion, plus attorney fees. The arbitration hearing
process was carried out during JulyAugust 2012. In November 2013, the arbitrator ordered Starbucks
to pay Kraft Foods $2,227.5 million in damages plus prejudgment interest and attorney fees. The
company estimated prejudgment interest, which includes an accrual through the estimated payment
date, and attorney fees to be approximately $556.6 million. As a result, it recorded a litigation charge
of $2,784.1 million in its FY2013 operating results.
Such lawsuits and tax evasion controversies have the potential to severely tarnish the brand image
of the company, which could negatively impact the companys sales in the long term.

Opportunities

Entry into the health and wellness space

Growing concerns over lifestyle-related health issues like obesity, diabetes, hypertension and chronic
heart disease are encouraging consumers to make a shift in their food preferences. In the recent
past, consumers have consciously made a preference shift towards healthy, fat-free and no-sugar
options in processed foods. According to a survey conducted by an industry source in 2012, about
50% of all the adults in the US acknowledged the need to make changes to their diet to improve
their overall health. Also, the same survey revealed that about 33% of US adults showed a strong
interest in functional foods and beverages, while 25% of them are already using a functional food
or beverage at least once a day.
Starbucks entered the US health food market with the opening of its first Evolution Fresh store in
Washington in the first quarter of 2012. The store sells bottled Evolution Fresh fruit and vegetable
juices, smoothies and food, such as oatmeal, wraps, salads and soups. The menu also includes
vegan and vegetarian options and much-in-demand super foods like kale and quinoa. The store
also has a unique, patent-pending interactive juice wall that displays educational and entertaining
digital illustrations of juices and smoothies being handcrafted. Since acquiring the Evolution Fresh
brand in 2011, Starbucks expanded the brands distribution to additional grocery channels. As of
October 2013, Evolution Fresh juices were sold in nearly 5,000 Starbucks stores. The company
plans to make Evolution Fresh juices available in approximately 11,200 stores in the US in 2014.
The company claims that each beverage is prepared using a Heat-free, High-pressure Pasteurization

Starbucks Corporation
MarketLine

Page 8

Starbucks Corporation
SWOT Analysis

(HHP) process that retains more of the nutrients in the juice, compared with the conventional heat
pasteurization used by some rivals in the refrigerated juice category.
Despite being the latest entrant into this high-growth health and nutrition space, the companys
unique selling propositions like the HHP process and unique store experiences can help it achieve
an edge over its competitors. Additionally, the new portfolio of healthy beverages will complement
the existing revenue channels of the company and provide it with additional income sources in future.
Growing presence in key Asian markets
Starbucks has been aggressively expanding its presence in Asia, particularly in China and India.
The fast pace economic development in China coupled with the rise of the middle class income
group and their increasing disposable income have contributed to the increase in demand for various
consumer goods in the country. More than 160 cities in China have population greater than one
million. Furthermore, the middle class population in China is expected to double by 2025. These
factors are expected to lend support to the growing demand for consumer products offered by
Starbucks. In order to tap into this growing market, Starbucks has already embarked on aggressive
expansion plans in the country. By the end of FY2013, the company had 906 company-operated
stores (including 614 in China) and a further 2,976 licensed stores (including 403 in China) operating
in the CAP region. Furthermore, the companys total net revenues for FY2013 from the CAP region
increased 27.1%, primarily driven by increased revenues from the newly-added 240 net new
company-operated stores and 348 net new licensed store openings during the year. China is currently
the fastest growing retail store market for Starbucks, outside its home market, the US. The company
believes that China will become its second largest market by 2014.
Besides China, the company is also focused on the high-potential Indian coffee retail market. The
Indian market primarily consists of tea drinkers. However, the changing demographic and the countrys
rising middle class population are contributing significantly to the rise in coffee consumption. According
to latest industry reports, there is a largely untapped market potential for coffee in the country. In
2012, the company entered into a strategic partnership with Tata Global Beverages Limited of India
on a 50/50 joint venture, named TATA Starbucks Limited. Through the joint venture, Tata Global
Beverages owns and operates Starbucks cafes in various cities across India that are branded
Starbucks Coffee A Tata Alliance. In 2012, Starbucks made its entry into the Indian coffee market
with the opening of its flagship store in Mumbai. Besides the companys signature offerings, in India,
Starbucks is also offering several local recipes, including Indian Espresso Roast and other locally
relevant flavors.The company also has a separate sourcing and roasting agreement with Tata Coffee
Limited, according to which Tata Coffee Limited roasts coffee to supply TATA Starbucks Limited,
and export to Starbucks Coffee Company. Several food chains and close competitors of Starbucks
intend to tap into the fast-growing Indian market, while restaurant chains like McDonald's and Yum!
Brands already have considerable coverage in India.
Starbucks is also aggressively expanding into other Asian markets. In April 2013, Starbucks
announced plans to open 100 new stores in Indonesia over the next three years and another 100
stores in the Philippines over the next four years. In June 2013, Starbucks announced plans to open
100 new stores in Malaysia over the next four years. By leveraging its strong brand name and

Starbucks Corporation
MarketLine

Page 9

Starbucks Corporation
SWOT Analysis

business alliances with local players, Starbucks can expand the companys presence in fast growing
Asian markets and lend stability to its topline growth.
Expanding presence in the growing single-serve coffee market in the US
Starbucks has been expanding its CPG business in the fast growing single-serve coffee market in
the US. According to industry estimates, the growth of coffee market in the US in 2012 was primarily
driven by sales of single-serve coffee which totaled nearly $2 billion, an increase of more than 80%
from 2011. During 201316, the single-serve market is expected to grow at a CAGR of nearly 30%.
Starbucks entered the single-serve segment in the US with the launch of VIA Ready Brew in 2009.
The product was subsequently launched in international markets, including Canada, the UK, Japan
and the Philippines. The company also introduced new variants under the Starbucks VIA Ready
Brew product line. The company has been pursuing opportunities to penetrate into the single-serve
coffee market in the US. In 2011, Starbucks entered into a strategic alliance with GMCR for
manufacturing, marketing, distributing and sale of Starbucks and Tazo Tea branded K-Cup portion
pack for use in GMCRs Keurig Single-Cup brewing system. Starbucks is the exclusive, licensed
super-premium coffee brand to be produced by GMCR for its Keurig single-cup brewing system.
Starbucks K-Cup portion packs were made available at food, drug, mass, club, specialty and
department store retailers in the US and Canada. Furthermore, in a forward integration initiative,
Starbucks introduced the Verismo single-serve brewer machine in 2012. Through its own product,
the company stated its intention to carve out a niche that GMCR and Nestle have successfully
occupied for the past few years in the US market. In FY2012, sales of Starbucks VIA Ready Brew
increased significantly and the company shipped nearly 500 million K-Cup packs, which helped it in
attaining approximately 16% of the premium single-cup market. With each of its product lines in the
premium single-serve coffee market, Starbucks aims to target customers with different choices; Via
Ready Brew is for those who don't want to buy a coffee machine; K-cups are for those who want a
basic brewed coffee; and Verismo for more sophisticated coffee drinkers. Furthermore, in May 2013,
Starbucks and GMCR entered into an expanded and long term strategic partnership for the
manufacturing, marketing, distribution, and sale of Starbucks and Tazo-branded single serve packs
for use in GMCRs Keurig single serve brewing systems globally. Under the new agreement, Starbucks
will add brands and varietals to the already robust Starbucks K-Cup and Vue pack portfolio of offerings
for Keurig single cup brewers, ultimately tripling the number of Starbucks products and adding brands
offered on the Keurig platform. New brands will include Seattles Best Coffee, Torrefazione Italia
coffee, Teavana Teas, and Starbucks Cocoa. The new agreement reinforces Starbucks position as
the exclusive licensed super premium coffee brand on the Keurig K-Cup and Vue platforms, and
further extends the Keurig systems position as the exclusive low-pressure single cup brewing system
for fresh-brewed Starbucks coffee, Tazo tea and the other Starbucks brands.
Through strategic alliances and its own product launches, Starbucks could tap into the growing
demand for single-serve coffee in the US and broaden its customer base.
The growing office coffee marketplace

Starbucks Corporation
MarketLine

Page 10

Starbucks Corporation
SWOT Analysis

Starbucks has a significant presence in the office coffee marketplace, where it offers a whole array
of products and solutions to corporate offices, commercial spaces and government buildings.Towards
the end of 2012, Starbucks started test marketing a new office coffee vending service for the first
time in Switzerland. The company entered into a partnership with Selecta, Europe's biggest vending
machine company, to provide its espressos, lattes and other products, including teas, for employees
in the office under the test project.
According to a recent market study conducted by an industry source, demand for single-cup brewers
in the workplace has been increasing in the past few years. The market study revealed that more
than one-fifth of the employees consume coffee that is individually brewed from pods or k-cups and
about 70% of these are supplied by their employers. Therefore, for most employees who find a
limited choice of either mediocre coffee or no coffee, a premium beverage like Seattles Best Coffee
represents an extra perk. Seattles Best Coffee currently has presence in nearly 50,000 locations
including cafes, college campuses, restaurants, hotels, airlines, cruise ships and movie theatres.
The company intends to expand its presence further in this space. The company reiterates that a
brand like Seattles Best Coffee could win in the workplace because the premium coffee brand is
an easy and affordable way for companies to deliver an extra perk to employees.

Threats

Intense competition
The specialty coffee market is intensely competitive. Competition in the global market is based on
a number of factors, including product quality, service, convenience and price. The company faces
significant competition in each of its channels and markets. In the US, Starbucks faces direct
competition from large competitors in the quick-service restaurant sector and ready-to-drink coffee
beverage market. For instance, it competes with Dunkin Brands in the US, which has strong presence
in the northeastern US. Dunkin Brands generates majority of its revenues from specialty coffee,
which commands high margins and has strong demand. Dunkin Brands sells franchises to
independent owners unlike Starbucks which builds and manages its own stores. This helps Dunkin
Brands to rapidly expand its store presence with minimal capital investment. The companys tea and
coffee products sold through its channel development segment compete directly with specialty
coffees and teas sold through supermarkets, club stores and specialty retailers. The company also
faces competition from well-established companies like McDonald's in many international markets.
McDonald's, which sells specialty coffee through McCafe, has global presence and strong brand
recognition in most countries. This acts as a threat to Starbucks which is yet to build its brand and
presence in these markets. Starbucks also competes with other companies such as Nestle, Peet's
Coffee & Tea, Caribou Coffee Company, Jamba, The J.M. Smucker Company, D.E Master Blenders
1753, Krispy Kreme Doughnut Corporation, and Panera Bread Company. Therefore, increasing
competition may lead to price wars, which, in turn, could affect the market share of the company.
Compliance costs associated with government regulations

Starbucks Corporation
MarketLine

Page 11

Starbucks Corporation
SWOT Analysis

Starbucks is subject to the regulations of the US Department of Agriculture, the Food and Drug
Administration and those of the Canadian equivalents. Similar regulations and requirements also
exist in the other countries in which the company operates. Future developments in the regulation
of labeling of foods could require the company to further modify the labeling of its products, which
could affect product sales. Additionally, new government laws and regulations could be introduced
in the future that could result in additional compliance costs. Thus, the company's inability to comply
with requirements could subject it to civil remedies, including fines, injunctions, recalls or seizures,
as well as potential criminal sanctions which may impact its business.

Starbucks Corporation
MarketLine

Page 12

Copyright of Starbucks Corporation SWOT Analysis is the property of MarketLine, a

Datamonitor business and its content may not be copied or emailed to multiple sites or posted
to a listserv without the copyright holder's express written permission. However, users may
print, download, or email articles for individual use.