Transcript Starbucks - LoudOffice.com

Starbucks
Presented by:
Adam Berger, Justin Buchman,
Donald Chase & Suzana Hsu
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Presentation Outline
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Introduction to Starbucks
Industry Overview
Company Overview
Site Analysis
Recommendations for Improvement
Focused Recommendation for Improvement
Final Action Plan
Impact Analysis
Wrap Up
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Introduction to Starbucks
Company started in 1971 in Seattle,
Washington
 Grew from 55 stores in 1989 to over 2,200
stores today
 Products sold include:
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- beverages
- pastries
- whole coffee beans - coffee-related retail items
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Industry Overview
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Industry Definition
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Specialty Eatery Industry
– Fits within the largest segment of disposable
income spending -- food and beverages
– Steady growth in this segment in the 1990’s has
led to an abundant number of new companies
– As demand for convenience has made eating
out a normal routine, the demand for specialty
food services has increased in recent years
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Industry and Competitive
Analysis
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Market Structure
– Monopolistic Competition
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Competitive Activity
– Many companies are in the market and competition is fierce
– Competitors use location, product mix, and store atmosphere
differentiation to establish market niche
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Industry Costs and Capital Structure
– Low to moderate costs for each location
– Major start-up expenditures are property and equipment
– Major operating costs are labor and cost of sales
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Industry PEST Analysis
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Political Influences
– Relationships between coffee producing nations and US
– State & Local government controls
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Economic Influences
– Constant demand for food and beverages
– Changes in disposable income could influence purchase levels
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Social Influences
– Consumer preferences could shift from coffee to other beverages
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Technological Influences
– Use of technology can improve operational efficiencies
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Company Overview
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Starbucks Corporate Strategy
 Maximize
market penetration
 Provide a relaxing, attractive social
atmosphere
 Offer high-quality products
 Create a great working environment
 Achieve profitability
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Starbucks SWOT Analysis
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Strengths
– Largest market share in industry
– Differentiated atmosphere
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Weaknesses
– Aggressive expansion could lead to managerial / financial problems
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Opportunities
– Whole bean sales in supermarkets
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Threats
– Lack of ownership of coffee farms can lead to price fluctuations
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Company Financial
Performance (1998 FY)
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Revenues
$1,308.7 million
Gross Margin
195.7 million
Pre-tax Profit Margin
116.4 million
Net Income
68.4 million
Return-on-Assets
8.7%
Return-on-Equity
11.0%
Debt-to-Equity
0.04
12 mo. Revenue Growth 28.4%
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(% of Sales)
15%
8.9%
5.2%
Company Financial
Performance (1998 FY)
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
Net Profit
Margin
ROE
ROA
Industry
Starbucks
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Debt/Equ
12-Mo Rev
Growth
Site Analysis
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Site Characteristics
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Leased store located on Central Street in Wellesley
Store has over 1,000 square feet of retail space and
1,000 square feet of office and storage space in the
basement
Second most profitable store in the fourteen store
region
Located one block away from Commuter Rail train
station and in busy retail shopping area
Only one direct competitor (Au Bon Pain) in the area
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Site’s Operational Results
(1998 FYTD – 11 Months)
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Financial Operations
1998
Total Sales $760,576
COGS
242,593
C/M
517,983
Fixed Exp. 367,746
EBIT
$150,237
1997
$796,688
262, 945
533,743
431,923
$101,820
%
(4.5%)
(7.7%)
(3.0%)
(14.9%)
47.6%
– No money spent on independent advertisement
– Local entertainment budget underutilized
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Volume of Sales vs. Contribution Margin %
$300,000
100.0%
90.0%
$250,000
80.0%
70.0%
$200,000
60.0%
$150,000
50.0%
40.0%
$100,000
30.0%
20.0%
$50,000
10.0%
$0
0.0%
Espresso
Drinks
Whole
Beans
Drip Coffee
Pastries
Blended
Other
Serveware Packaged
Beverages Beverages
Food/Tea
Product Contribution Margin %
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Dollar Volume Sold
Media
Brewing
Equipment
Site 7-S Analysis
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Site 7-S Analysis
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Strategy
– Store’s strategy is to create a comfortable Third
Place environment
– Serve customer a customized high-quality product
– Achieve high level of profitability by focusing on
high-margin items while generating add-on sales
– Minimize overall expenses by focusing on
controllable expenses
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Site 7-S Analysis
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Structure
Store Manager
– Functional in structure
and relatively flat
Assistant Manager
– Corporate organization
is tall with four levels
of management above
store management
Shift Supervisors
Baristas
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Baristas
Baristas
Site 7-S Analysis
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Staffing
– Location has one manager, an assistant manager and
16 partners
– Benefits package includes health, dental, and vision
care, stock options, free shift drinks, and a free pound
of coffee each week
– Raises are based on semi-annual performance
evaluations with raises ranging from 0-5%
– Bonuses are not utilized, but the location has given
away non monetary rewards
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Site 7-S Analysis
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Systems
– Corporate headquarters exercises controls over
individual sites
– Total Quality Management is specifically built into
their processes
– Utilizes a large amount of information
technology (IT)
– Internal controls for the store are determined by
the manager based in part on information
provided by the IT system
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The use of IT at Starbucks
Sales,
Inventory,
Staffing
Individual
Stores
Sales,
Inventory,
Staffing
Individual
Stores
Individual
Stores
Corporate IT
System
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Vendors,
Distributors,
Mgmt.,
Channel
Members
Inventory,
Orders,
Transfers
Orders, Budgets,
Future Sales
Site 7-S Analysis
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Skills
– Most important skills include “people skills” and
drink preparation ability
– Partners receive training to learn about products,
brewing methods, and sales techniques
– Retraining mainly occurs during new product rollouts, although this site does not use regular
meetings, but instead one-to-one discourse
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Order Cycle Times
Yes
.53 Min
Yes
Pastry?
No
Take
Customer’s
Order
.53 Min
Bottleneck
Order?
Yes
.40 Min
No
Pastry?
No
Bottleneck Capacity 114 / Hr
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.27 Min
Site 7-S Analysis
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Style
– Basic management style is Laissez Faire
– Management motivates through reviews and
raises
– Work duties are assigned by shift supervisors
– Employees are allowed to use initiative and
empowered to make decisions
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Site 7-S Analysis
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Shared Values (from Mission Statement)
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Provide a great work environment
Treat each other with respect and dignity
Embrace diversity
Apply the highest quality standards for products
Develop enthusiastically satisfied customers
Contribute to the community and environment
Recognize that profitability is essential to future
success
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Alignment of Store with
Corporate Strategy
Contrary to the mission statement focus, the
reduction of staffing levels appears to be more
important than developing satisfied customers
 The relevance of the benefits package is
misaligned considering the average age of
employees
 The high turnover rate of partners and managers
is detrimental to customer environment
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Recommendations
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Recommendations For
Improvement
1. Revamp the employee reward system
2. Tighten focus on creating the “Third
Place” environment
3. Focus profitability measures on profitable
sales, not just reduction in staffing
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Revamp Employee Reward
System
Large percentage of the staff are under the
age of twenty
 Benefits package focuses on medical,
dental, and vision care, as well as the
employee stock options
 Outside of hourly wage, and semiannual
raises, there are few monetary rewards
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Improve “Third Place”
Environment
Site has a very high employee turnover rate
 Manager “promoted” to a another store in
hopes of improving their poor performance
 Site has very poor handicapped accessibility
 Condition of restroom in each of our visits
was poor and had no baby changing area
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Focus Profitability Measures
on More Than Just Staffing
Store is underperforming on some high
margin product segments
 Too high a focus on minimizing direct labor
as a key to achieve profitability
 Focus on high-margin items and profitable
add-on sales
 By increasing pastry sales by 33%, store
would realize a $16K increase in contribution
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Focused Recommendation
Improve “Third Place”
Environment
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Pros and Cons of Discounted
Opportunities
Revamp the Employee Reward System
Pros
Cons
– Employees are motivated
with more incentive to
perform
– Lower employee turnover
rates
– Positive reinforcement
which leads to higher
feelings of job satisfaction
– Pay and benefit structures
dictated by corporate HQ
– Cost of benefits would
additional benefits lower
site profitability
– New reward system requires
additional management
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Pros and Cons of Discounted
Opportunities (Cont.)
Focus Profitability Measures on More Than
Just Staffing
Pros
Cons
– Higher staffing levels
benefit other employees
– Better customer service
– Improved customer
focus could lead to
higher sales
– Staffing is a cost that will
decrease profitability
– Upper-level management
perception of low
employee productivity
– Employees may get in
each other’s way
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Three-Step Action Plan For
Improvement
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Decrease employee turnover rate
– Focus on hiring older employees where benefits
package is more appropriate
– Base raises on performance rather than
maximizing raises for economic reasons
– Develop and actively maintain a reward system
for employees (i.e. employee of the month)
– Develop a system of regular employee
communications / meetings
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Action Plan (cont.)
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Improve site accessibility and cleanliness
– Upgrade front door and restrooms for
handicapped accessibility
– Add a baby changing station
– Redesign restroom to separate cleaning supplies
from bathroom or move cleaning supplies to
another location
– Focus employee attention on restroom
cleanliness
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Action Plan (cont.)
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Enhance Starbuck’s differentiated
atmosphere
– Utilize entertainment budget to hire outside
entertainers, have book / poetry readings, etc.
– Display the store’s collection of games and
activities more prominently
– Make the location more of a “scene”
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Impact Analysis - Benefits
By focusing on the initial recruitment and
hiring stage, and by rewarding employees
based on merit current turnover rates will be
reduced.
 By focusing on site accessibility and
cleanliness, the physical facility will not
detract from atmosphere.
 By improving Starbucks’ atmosphere, it will
become a more attractive place to go.
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Potential Risks
Customers may not react positively to the
changes being made
 Not enough available employees to meet realigned hiring needs
 Claims of age discrimination and negative
affect on sales in youth demographic
 Costs associated with planned change
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Wrap-Up
Starbucks is the market leader in a growing
market segment
 Starbucks is known world-wide for its highquality food products and differentiated
“Third Place” atmosphere
 The Wellesley location embodies the ideals
of the corporate mission and has been very
profitable, but there are still opportunities
for improvement
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Conclusion / Questions
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