Starbucks International
Essay Preview: Starbucks International
Report this essay
Alls Not Well with Starbucks
IN MARCH 2003, FORTUNE CAME our WITH ITS ANNUAL LIST OF FORTUNE 500 COMPANIES.
For Howard Schultz, Chairman of Starbucks Corp., this list was special as Starbucks feaЬtured in the list. It was a dream come true for the Seattle-based entrepreneur.
Though the U.S. economy was reeling under recession and many major retailers were reporting losses and applying for bankruptcy, Starbucks announced a 31 % increase in its net earnings and a 23% increase in sales for the first quarter of 2003. Analysts felt that the success of Starbucks showed that a quality product speaks for itself. The fact that Starbucks spent less than 1 % of its sales on advertising and marketing strengthened this view. In addition to being a popular brand among customers, Starbucks was also considered the best place to work due to its employee-friendly policies.1 Exhibit 1 shows Starbucks income statement. See Starbucks 2002 Annual Report, at
This case was written by K. Subhadra, under the direction of Sanjib Dutta, ICFAI Center for Management Research (ICMR). It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffecЬtive handling of management situations. This case was compiled from published sources. Copyright Щ 2003, ICFAI Center for Management Research (ICMR), Hyderbad, India. This case cannot be reproduced in any form without the written permission of the copyright holder, ICFAI Center for Management Research (ICMR). Reprint permission is solely granted to the publisher, Prentice Hall, for the books, Strategic Management and Business Policy—10th Edition (and the International version of this book) and Cases in Strategic Management and Business Policy—10th Edition by the copyright holder, ICFAI Center for Management Research (ICMR). This case was edited for SMBP and Cases in SMBP-lOth Edition. The copyright holder is solely responsible for case content. Any other publication of the case (translation, any form of electronics or other media), or sold (any form of partnership) to another publisher will be in violation of copyright law, unless ICFAI Center for Management Research (ICMR) has granted an addiЬtional written reprint permission. Reprinted by permission of ICFAI Center for Management Research (ICMR), Hyderabad, India. Website: www.icmrindia.org
SECTION D International Issues in Strategic Management
Exhibit 1 Consolidated Statement of Earnings Starbucks Corporation (Dollar amounts in milЬlions, except per share data)
Year Ending
Sept. 29 2002
Sept. 30 2001
Oct. 1
2000
Net revenues:
Retail
$2,792,904
$2,229,594
$1,823,607
Specialty
496,004
419,386
354,007
Total net revenues
3,288,908
2,648,980
2,177,614
Cost of sales and related occupancy costs
1,350,011
1,112,785
961,885
Store operating expenses
1,121,108
875,473
704,898
Other operating expenses
127,178
93,326
78,445
Depreciation and amortization expenses
205,557
163,501
130,232
General and administrative expenses
202,161
151,416
1 10,202
Income from equity investees
35,832
28,615
20,300
Operating income
318,725
281,094
212,252
Interest and other income, net
9,300
10,768
7,110
Internet-related investment losses
2,940
58,792
Gain on sale of investment
13.361
Earnings before income taxes
341,386
288,922
160,570
Income taxes
126,313
107,712
66,006
Net earnings
$ 215,073
$ 181,210
$ 94,564
Net earnings per common share — basic
$ 0.56
$ 0.48
$ 0.25
Net earnings per common share — diluted
$ 0.54
$ 0.46
$ 0.24
Weighted average shares outstanding:
Basic
385,575
380,566
371,191
Diluted
397,526
394,349
385,999
Ratios (%)
Cost of sales (%)
44.2
Operating income margin (%)
Net profit margin (%)
Source: Starbucks Corporation “2002 Annual Report.”
However, analysts felt that the success of Starbucks was due to its profitable domestic operations. It was reported that most of Starbucks international operations were running into losses. In May 2003, Starbucks Japanese operations reported a loss of $3.9 million (Japan constituted the largest market for the company outside the United States), and the company also performed badly in Europe and the Middle East. Analysts pointed out that Starbucks international operations were not as well planned as its U.S. operations. They also observed that the volatile international business environment made it difficult for the company to effecЬtively manage its international operations.
Many analysts felt that it was important for the company to focus on its international operations. With the U.S. market getting saturated, Starbucks would be forced to look outside the United States for revenues and growth.
Background Note
The history of Starbucks dates to 1971, when Jerry Baldwin, Zev Siegl, and Gordon Bowker launched a coffee bean retailing store named Starbucks to sell specialty whole-bean coffee in Seattle. By 1981, the number of