Assignment on

Value Chain Analysis of

Starbucks Coffee Shop

Submitted To:

Mr. Mohammed Sohel Islam

Masters of Business Administration
Course: Marketing Management
Section 1
Group 1
Submitted By:

Mohin Hasin Rabbi -1510714

Sananda Nag -1510793
Salma Sultana -1510677
K M Sakib Ahmed -1530452
Mohammad Shakil Islam -1110007

Date of submission : 20.10.2015

Value chain analysis is a powerful tool for managers to identify the key activities within the firm
which form the value chain for that organization, and have the potential of a sustainable
competitive advantage for a company. Therein, competitive advantage of an organization lies in
its ability to perform crucial activities along the value chain better than its competitors.

Here we analyzed the value chain of Starbucks Coffee Shop which identifies nine
strategically relevant activities that create value and cost.

The primary activities represent the sequence of bringing materials into the business (Inbound
Logistics), converting them into final products (Operations), shipping out final products
(Outbound Logistics), marketing them (Marketing and Sales) and survicing them (Service).

The support activities consist of Firm Infrastructure, Human Resource Management, Technology
Development and Procurement.

Support Activities:
1. Firm Infrastructure:
Starbucks infrastructure includes a range of general support activities such as management,
planning, finance, accounting, legal support and government relations that are required to
support the work of the entire value-chain Starbucks well designed and pleasing stores are
complemented with good customer service provided by the dedicated team of employees in
green aprons.

Management:
Starbucks have a suit of wonderful controlling system for the employees and better to leading the
all of stores in the same standards. The good controlling mechanism could monitor progress
towards goal achievement and taking corrective action when progress isnt being made.

Starbucks sets up the high quality of products and services as the standard. Starbucks brand is
famous for the best baking coffee beans in the world. They have the professional procurement
system and always travel around Indonesia, East Africa and Latin America to communicate with
local farmers and traders. The all kinds of coffee beans undergo a vigorous process to become
the different tastes coffee, like latte, cappuccino.

In order to ensure quality, Starbucks try to hold the four principles: Refused to franchisee;
refused to sell the processed coffee beans; refused to enter the supermarket; do the most perfect
baking as the goal forever.
First, Starbucks doesnt use franchising. They want to control over the high quality and do not
affected by the new business operation of franchising buyers. It is reasonable to worry, because
some of franchising owners consider using the brand effect in the market and decrease the high
standard to get the huge profits suddenly. In addition, Starbucks doesnt sell the coffee beans
which add the artificial flavor or color. They cant stand to use the chemical flavoring to destroy
top-grade coffee. For the same reason, they refuse to enter the supermarket though the super
market is a bigger market to compare with the general store. However, they do not accept the
fresh coffee to fill into the plastic container cause to change the tastes.

Though Starbucks change some of principles for the market trend, they still do not give up the
high level controlling in quality. For example, more and more Starbucks stores join venture with
other companies to operate in China; however, Starbucks still hold the biggest share. In
Singapore, Starbucks try to limit the branded shops in 10%. The all of actions showed the high
controlling in the Starbucks. Sticking to the right principles and comparing with the actual effect
to make change. It is Starbucks high-grade controlling ability.

Planning:
Planning is the process of thinking about and organizing the activities required to achieve a
desired goal. It contains the tactical planning operational planning as well as the strategic
planning.

Its retail products, including a variety of the worlds top 30 coffee beans, handcrafted espresso
coffee and a variety of hot and cold drinks, delicious pastries, fresh food, and a rich variety of
coffee mugs and other merchandise. We have to say that Starbucks just in forty years time from
the beginning to now has made remarkable achievements. In addition to the driving force of
complete his fathers aspirations, another reason which we should know and learn is Starbucks
corporate planning.

Tactical planning is a systematic determination and scheduling of the immediate or short-term

activities required in achieving the objectives of strategic planning. Currently the company has
more than more than 12,000 coffee shops in North America, Latin America, Europe, the Middle
East and the Pacific Rim 37 countries, employs more than 117,000 people. From this we can
roughly know the tactical planning of Starbucks.

Strategic planning aims to give a business a competitive advantage over other business. A
competitive advantage is when a business is able to perform activities differently or better than
other business.

Starbucks also has plans on product diversity. Compared to the other competitive coffee brands
like Taiwan Island Coffee and Canada Baiyi Coffee. For enter into the vast Chinese market
Starbucks adds more suitable for Chinese tastes of tea drinks. For instance the special Starbucks
moon cakes. This perfect plan makes Starbucks successfully has 566 stores in China and the net
income of about $400 million a year. This fully reflected the operational planning as well as the
strategic planning.

Starbucks store design in China is generally divided into three areas: Chinese-style wooden
tables and chairs area, American style sofa area and a spacious modern bar stools style high table
area; Starbucks stores in China, which replaced the previous standardized design, in this style to
ease the American and Chinese traditional decorating confrontation and conflict and can also
adapt to Chinese market. This also shows us the strategic planning.

Motivation:

The management of Starbucks also covers different benefits for employees so that they could
satisfy their needs within the workforce. Medical care would also be provided to employees. And
their pay would have a certain increase as employees work for a period of time or when more
contributions are made to the business. Employees would receive training in how to make coffee
and how to deal with customers. In this case, employees in Starbucks could be motivated to work
in order to increase sales and being a profitable business.

Communication:

A successful organizational culture needs consistency. Starbucks use communcation to improve

their consistency so they point to communication is a main part in their culture. All the
employees in Starbucks stores are called partners to make sure all the workers can
communicate with others easily. The manager, store manager and assistant manager are making
up a management group which will have meetings twice a week, mainly direct to the operational
problems in communication.

Financial Analysis:

Sales and Income Record:

In Millions of U.S. Dollars 2003, 2004, 2005, 2006, 2007

Total Revenue 4,075.5 5, 294.2 6, 369.3 7, 786.9 9, 411.5

Percent change in Revenue 29.9% 20.3% 22.3% 20.9%

Net Income 265.4, 388.9, 494.4, 564.3, 672.6

Percent Change in Net Income 46.5%, 27.1%, 14.1% , 19.2%

Starbucks has increased in both total revenue and net income by averages of over 20% each year
in the past five years. There was a drop in increase of income in 2006.

Expense Distribution:
FY 2007
Cost of Revenue, Total 7,215.01
Selling/General/Admin. Expenses, Total 489.25
Depreciation/Amortization 467.16
Interest Expense(Income) - Net (108.01)
Other Operating Expenses, Total 294.14
Total Operating Expense 8,357.55
In Millions of U.S. Dollars (Reuters)

The cost of revenue, or goods sold, is 86.3% of the total expense distribution for Starbucks.

Assets and Capital Structure:

FY 2007
Assets:
Cash & Equivalents 281.26
Short Term Investments 157.43
Cash and Short Term Investments 438.69
Accounts Receivable - Trade, Net 287.93
Total Inventory 691.66
Prepaid Expenses 148.76
Other Current Assets, Total 129.45
Total Current Assets 1,696.49
Property/Plant/Equipment, Total - Net 2,890.43
Goodwill, Net 215.62
Intangibles, Net 42.04
Long Term Investments 279.87
Other Long Term Assets, Total 219.42
Total Assets 5,343.88

In Millions of U.S. Dollars (Reuters)

Total current assets make up 31.75% of total assets held by Starbucks Corporation. The
Property/Plant/Equipment totals add up to be 54.1% of the assets owned by the company.

FY 2007
Liabilities
Accounts Payable 390.84
Accrued Expenses 664.29
Notes Payable/Short Term Debt 710.25
Current Port. of LT Debt/Capital Leases 0.78
Other Current liabilities, Total 389.42
Total Current Liabilities 2,155.57
Long Term Debt 550.12
Total Long Term Debt 550.12
Total Debt 1,261.14
Minority Interest 17.25
Other Liabilities, Total 336.82
Total Liabilities 3,059.76
Common Stock, Total 0.74
Additional Paid-In Capital 39.39
Retained Earnings (Accumulated Deficit) 2,189.37
Other Equity, Total 54.62
Total Equity 2,284.12
Total Liabilities & Shareholders' Equity 5,343.88
Total Common Shares Outstanding 738.29

In Millions of U.S. Dollars (Reuters)

Current liabilities make up 70.5% OF Total Liabilities for Starbucks. Total Liabilities are 57.3%
of Total Liabilities & Shareholders Equity. Starbucks has never issues Preferred Stock.

Ratio Analysis,

(1) LIQUIDITY:
FY 2006 FY 2007
Current Ratio:
Starbucks .79 .76
Industry Avg 1.37 (Reuters)

Quick Ratio:

Starbucks .46 .47

Industry Avg 1.24 (Reuters)

Starbucks Current ratio is almost half of the industry average. This would suggest that they are
not as solvent as the rest of the restaurant industry to obtain short-term capital. The Quick Ratio
shows that Starbucks has a much lower ability than the industry average to convert assets to
cash, if the need arises.

(2) ASSET MANAGEMENT

FY 2006 FY 2007
Total Asset Turnover:

Starbucks 1.32 1.35

Industry Avg .19 (Reuters)

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue.
Starbucks much higher number than Industry average indicates the company is efficient in how
it utilizes its assets.

(3) DEBT MANAGEMENT:

FY 2006 FY 2007
Total Debt to Total Assets:

Starbucks 159 .236

A debt to asset ratio of no more than 50 percent has been considered prudent. A higher ratio
indicates a possible overuse of leverage, and it may indicate potential problems meeting the debt
payments. Starbucks is well below the 50 percent mark.

(4) PROFITABILITY:
FY 2005 FY 2006
Net profit Margin:

Starbucks .0725 .0715

Industry Avg 1.51 (Reuters)

Return on Assets:

Starbucks 1.94 1.94

Industry Avg 1.22 (Reuters)

Return on Equity:

Starbucks 28.62 27.24

Industry Avg 3.63 (Reuters)

Starbucks ratio analysis shows mostly positive numbers, but the downscaling of the stores
might be a sign of the future financial stability of the company. Most online financial analyst
have recommended Starbucks as a hold or a buy stock. With Howard Schultz back in control of
the company, one would hope that his vision of the future is a strong company moving forward. I
would recommend buying Starbucks at the current discounted price and holding it in the
portfolio for the future.

Government affairs:
The Agreement and any all disputes between Seller and Starbucks are governed by and must be
construed in accordance with the laws of the state of Washington, without reference to conflicts
of law principles. The parties agree to the exclusive jurisdiction and venue of the state and
federal courts. In the event of any dispute regarding the interpretation or enforcement of the
Agreement, the prevailing party will be entitled to recover its reasonable attorneys fees and cost
of litigation.

2. Human Resource Management:

The companys committed workforce is considered a key attribute in the companys success and
growth over the years. Starbucks employees are motivated through generous benefits and
incentives. The company is known for taking care of its workforce and this is perhaps the reason
for a low turnover of employees, which indicates great human resource management. There are
many training programs conducted for employees in a setting of a work culture which keeps its
staff motivated and efficient.
Starbucks hired people for qualities like adaptability, dependability and the ability to work in a
team. The company often stated the qualities that it looked for in employees upfront in its job
postings, which allowed prospective employees to self-select themselves to a certain extent.

The workforce is duly perceived to be the most valuable resource by Starbucks. Accordingly, a
wide range of training and development programs are available for them and they are motivated
by both, tangible and intangible incentives. Specifically, Starbucks staff is entitled to free drinks
during the shift.

3. Technology Development:

Starbucks is very well known for use of technology not only for coffee related processes (to
ensure consistency in taste and quality along with cost savings) but to connect to its customers.
Many customers use Starbucks stores as make a shift office or meeting place because of the free
and unlimited wifi availability. The company in the year 2008 also launched
mystarbucksidea.force.com as a platform where customers can ask questions, give suggestions
and openly express opinions and share experiences. Starbucks also uses Apples iBeacon System
wherein customers can order their drink through the Starbucks phone app and get a notification
when they walk in the store.

Starbucks relies on technology for cost-saving purposes, as well as, ensuring the consistency of
the quality of products and offering a high level of customer experience in general. For instance,
with the introduction of computerised coffee roasters the consistent taste of Starbucks coffee was
ensured and this has contributed to the level of customer retention for the company.
Starbucks Digital Network

Starbucks shipped a basic, 2-D barcode-scanning system, built into its iPhone and Android apps.
Essentially, it lets us carry your Starbucks card in our phone.

With the creation of the CDO role, all of Starbucks digital projects web, mobile, social
media, digital marketing, Starbucks Card and loyalty, e-commerce, Wi-Fi, Starbucks Digital
Network, and emerging in-store technologies.

Starbucks handles 7 million mobile payments each week. It has also seen 16 percent of all its
transactions coming from mobile devices, with almost 50 percent growth each year.

4. Procurement:
This involves procuring the raw material for the final product. The company agents travel to
Asia, Latin America and Africa for the procurement of high grade raw material to bring the
finest coffee to its customers. The agents establish strategic relationship and partnership with a
supplier which is built up after reconnaissance and communication about the company standards.
High quality standards are maintained with direct involvement of the company right from the
base level of selecting the finest raw material which is coffee beans in case of Starbucks
Procurement.
Primary Activities :

1. Inbound Logistics:
The inbound logistics for Starbucks refers to selecting the finest quality of coffee beans by the
company appointed coffee buyers from coffee producers in Latin America, Africa and Asia. In
the case of Starbucks, the green or unroasted beans are procured directly from the farms by the
Starbucks buyers. These are transported to the storage sites after which the beans are roasted and
packaged. These are now ready to be sent to the distribution centers few of which are company
owned and some are operated by other logistic companies. The company does not outsource its
procurement to ensure high quality standards right from the point of selection of coffee beans.
Sourcing coffee from diverse coffee beans producers with whom they have great relationships
and build up efficient supply chain management system.
 2. Operations:

Operational planning is the process of linking strategic goals and objectives to tactical goals.
Starbucks popularize new tastes cake and the other products in different seasons and different
holidays. Like currently the essential coffees for festive occasions. Such as Christmas and
holiday blonde roast. For Starbucks, the location is the key to successful selection of its rapid
development, and also its response to competition in expansion strategy, a good address is
excellent of competitive resources, the location where Starbucks decided to locate its stores are
generally in the center of crowded downtown areas, are mainly frequented by target customers:
including business center sections, transportation hubs, etc. It is in this way that they can to let
the customer can find Starbucks anywhere. The plan of Starbucks to expand sales market is to
capture the big cities of the region, create a good reputation as a center and then to the smaller
towns around the march. In the expansion process, Starbucks will make reference to the
countrys demographic information carefully analyzed to determine a suitable customer base
then they can enter into the area. We can also know the operational planning from this.
Starbucks operates in 67 countries either in the form of direct stores operated by two ways: direct
operation of the company or as licensed stores. Currently there are Starbucks has more than
25,000 retail stores which includes Starbucks Coffee, Seattles Best Coffee, Teavana, Tazo,
Evolution Fresh, La Boulange, Ethos Water and Torrefazione Italia Coffee.

3. Outbound Logistics:
There is very little or no presence of intermediaries in product selling. Majority of the products
are sold in their own or licensed stores only. As a new venture, the company has launched a new
range of single-origin coffees which will be sold through some leading retailers in the U.S.; these
are Guatemala Laguna de Ayarza, Rwanda Rift Valley and Timor Mount Ramelau.
 4. Marketing and Sales:
Starbucks invests in superior quality products and high level of customer services than
aggressive marketing. However, need based marketing activities are carried out by the company
during new products launches in the form of sampling in areas around the stores. Starbucks does
not heavily invest in marketing relying instead on the word-of-mouth achieved through the high
quality of products and high level of customer services.
The below figure shows us a pie chart of how the sales varies with proportion to the age limit
and the type of customers that visit to Starbucks Coffee shop.

5. Service:
Starbucks aims at building customer loyalty through high level of customer service at its stores.
The retail objective of Starbucks is, as it says in its annual report, to be the leading retailer and
brand of coffee in each of our target markets by selling the finest quality coffee and related
products, and by providing each customer a unique Starbucks Experience.

Conclusion:
The concept of value chain helps to understand and segregate the useful and wasteful activities
accompanying each step during the product development process. It also explains that if value is
added during each step, the overall value of the product gets enhanced thus helping in achieving
greater profit margins.