Starbucks: Strategies and Objectives Recommendations Case Study

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Table of Contents

Introduction
Implementation Recommendations
Projected Financial Statements
Agenda
Annual Objectives
Procedures for Strategy Review and Evaluation
References

Introduction

There are different approaches to creating long-term strategies and objectives. These strategies are based on exploiting the strengths, utilizing opportunities, or addressing the weaknesses and threats. One of the major weaknesses of Starbucks is its dependence “on the financial performance of [their] Americas operating segment” (Starbucks, 2020, p. 13). Therefore, it is a viable option to address the acknowledged weakness by expanding the company to eastern countries, with China being a top priority. According to Statista (2018), the market size of the coffee shop industry in China was almost 21 billion yuan in 2017, and it is forecasted to grow to 47.9 billion yuan by 2023. Therefore, I recommend that the company invests in establishing a firm lead in the industry in China to take advantage of the growing market. The proposed objectives are as follows:

Increase brand awareness in China by 80% in three years.
Open 4,500 additional shops in Mainland China.

The associated costs will concentrate on two matters. First, the marketing budget of the China division is to be increased considerably. Second, more shops are to be open to improve its presence in China. The costs are estimated in Table 1 below:

	2020	2021	2022	Total
Cost of new shops	$315,000,000.00	$480,000,000.00	$650,000,000.00	$1,445,000,000.00
New shops opened	1,000	1,500	2,000	4,500
Cost per shop	$315,000.00	$320,000.00	$325,000.00	$960,000.00
Marketing	$90,000,000.00	$80,000,000.00	$70,000,000.00	$240,000,000.00
Total Per Year	$405,000,000.00	$560,000,000.00	$720,000,000.00	$1,685,000,000.00

Table 1. Estimated Cost of Expansion to China.

The promoted strategy is close to the actual strategy adopted by the company. Starbucks opened 629 new shops in China, acknowledging the market as potentially profitable (Starbucks, 2020). However, the current strategy does not seem to be aggressive enough to achieve relevant security from the instability of the US market.

Implementation Recommendations

There are two specific recommendations that can be made to implement the suggested changes. First, the company should utilize franchising to decrease the cost of establishing new coffee shops. Second, the company should create authentic product lines and invest in marketing those products. In particular, due to the snowballing consumption of milk in China, it is recommended to concentrate on marketing beverages with milk and sugar (Wenqian, 2018). Additionally, Starbucks should expand from East China to other regions of the country by establishing profitable partnerships.

Projected Financial Statements

Projected Income Statement	31.12.2020	31.12.2021	31.12.2022
Revenues	$29,159,460,000	$32,075,406,000	$35,282,946,600
Cost of Goods Sold	8,747,838,000	9,622,621,800	10,584,883,980
Gross Profit	20,411,622,000	22,452,784,200	24,698,062,620
Operating Expenses	11,663,784,000	12,830,162,400	14,113,178,640
EBIT	8,747,838,000	9,622,621,800	10,584,883,980
Interest Expense	-31,000,000	239,000,000	489,000,000
EBT	8,778,838,000	9,383,621,800	10,095,883,980
Tax	877,883,800	938,362,180	1,009,588,398
Non-Recurring Events	0	0	0
Net Income	7,900,954,200	8,445,259,620	9,086,295,582


Projected Balance Sheet	31.12.2020	31.12.2021	31.12.2022
Assets
Cash and Equivalents	$1,482,454,200	$2,447,713,820	$2,884,009,402
Accounts Receivable	879,200,000	879,200,000	879,200,000
Inventory	1,529,400,000	1,529,400,000	1,529,400,000
Other Current Assets	488,200,000	488,200,000	488,200,000
Total Current Assets	4,379,254,200	5,344,513,820	5,780,809,402
Property Plant & Equipment	6,746,700,000	7,226,700,000	7,876,700,000
Goodwill	3,490,800,000	3,490,800,000	3,490,800,000
Intangibles	781,800,000	781,800,000	781,800,000
Other Long-Term Assets	479,600,000	479,600,000	479,600,000
Total Assets	15,878,154,200	17,323,413,820	18,409,709,402

Liabilities
Accounts Payable	1,189,700,000	1,189,700,000	1,189,700,000
Other Current Liabilities	4,979,000,000	4,979,000,000	4,979,000,000
Total Current Liabilities	6,168,700,000	6,168,700,000	6,168,700,000
Long-Term Debt	11,167,000,000	11,167,000,000	11,167,000,000
Other Long-Term Liabilities	1,370,500,000	1,370,500,000	1,370,500,000
Total Liabilities	18,706,200,000	18,706,200,000	18,706,200,000

Equity
Common Stock	1,200,000	1,200,000	1,200,000
Retained Earnings	-2,870,245,800	-1,424,986,180	-338,690,598
Treasury Stock	0	0	0
Paid in Capital & Other	41,000,000	41,000,000	41,000,000
Total Equity	-2,828,045,800	-1,382,786,180	-296,490,598

Total Liabilities and Equity	15,878,154,200	17,323,413,820	18,409,709,402

Agenda

Assess the current possibilities for expansion in Mainland China;
Assess the current barriers for expansion in Mainland China;
Prepare a legal framework for expansion in Mainland China;
Create a comprehensive marketing strategy;
Open a total of 3,500 new coffee shops in Mainland China;
Assess the results and make the necessary corrections to the plan every three months.

Annual Objectives

Increase revenues by 10% every year;
Increase net income by 7%-9% every year;
Open 1000, 1500, and 2000 new shops in Mainland China in the years 2020, 2021, and 2022 respectively;
Explore other eastern markets, including Japan and South Korea.

Procedures for Strategy Review and Evaluation

Review vision and mission statement;
Conduct SWOT analyses every three months and estimate if the results and strategies are adherents to findings;
Investigate any strategic assumptions that might have changed and adjust the strategic plan.

References

Starbucks. (2020). Fiscal 2019: Annual report. Web.

Statista. (2018). Coffee shop industry market size in China 2013-2023.

Wenqian, Z. (2018). Dairy eyes big rise in consumption.China Daily. Web.

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