Bcg Praesentation 20070619
Transcript of Bcg Praesentation 20070619
The Boston Consulting Group
BCG VALUE CREATORS REPORT:
"SPOTLIGHT ON GROWTH"
Axel Roos, Partner, BCG Berlin
Berlin, 19 June 2007
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AGENDA
Introduction: BCG and BCG's Corporate Development Practice
Worldwide Value Creation: BCG Value Creators Report 2006
Managing Growth• Starbucks - A Case Example• Integrated Financial Strategy
Question? Comments? Discussion!
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AGENDA
Introduction: BCG and BCG's Corporate Development Practice
Worldwide Value Creation: BCG Value Creators Report 2006
Managing Growth• Starbucks - A Case Example• Integrated Financial Strategy
Question? Comments? Discussion!
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BCG – THE FIRST ADDRESS IN STRATEGY CONSULTING3,300 Strategists in 61 Offices and 36 Countries
(1) 2007Source(s): BCG analysis
UAE(1)
AmsterdamLondonBrüssel
Paris
LissabonMadrid
ZürichMailand
OsloKopenhagenStockholmHelsinki
Warschau
PragBudapest
Moskau
Mumbai
TokyoSeoulShanghai
HongkongBangkokKuala LumpurSingapurJakarta
SydneyMelbourne
Auckland
AtlantaWashington, D.C.
TorontoNew York
Boston
Chicago
Los AngelesDallas
MonterreyMexico City
San Francisco
Buenos Aires
São Paulo
Neu Delhi
Rom
Athen
Barcelona
Peking
HoustonMiami
Santiago
Taipei
NagoyaFrankfurtStuttgart
DüsseldorfKöln
Hamburg
Wien
Berlin
München
DetroitNew Jersey
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New clients
… 2 to 4 yearsBCG client since
… 5 years or longer
0
50
100
150
200
250
300
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
GrowthØ > 10 % p.a.
since 1974
GrowthØ > 10 % p.a.
since 1974
Mio. €
SUSTAINABLE GROWTH – SATISFIED CLIENTS 265 m€ Revenues – 620 Consultants in Germany in 2005
Source(s): BCG analysis
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Permanent entry: Associate / ConsultantPermanent entry: Associate / Consultant „Entry for a time": Visiting Associate„Entry for a time": Visiting Associate
210 Associates / Consultants in 2007Junior Associate: entry as BachelorAssociate: entry with diploma or PhDConsultant: possible with 3+ years of professional experience2 (+2) weeks entry trainingImmediate staffing on a project
Great opportunities for the best: 100 Visiting Associates for 2007Full integration as consultant in a BCG project teamFull responsibility for the assigned tasksPresence at the clientFlexible start and endDuration of 8 – 12 weeks
Application Application
Comprehensive written applicationTwo rounds of interviews
Application after pre-diplomaOne round of interviews
WE WANT TO HIRE 310 PROFESSIONALS IN GERMANY IN 2007
Source(s): BCG analysis
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Principal
Partner / Managing Director
Associate
Consultant
Project Leader
Project management
Focus
Client relationship
Module responsibility
23 %
Years
41 % 17 % 9 % 10 %
0 1 2 3 4 5 6 7 8
FAST CAREER DEVELOPMENT – FLAT HIERARCHIES
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Board MembersBoard Members Entrepreneurs/Private Equity Entrepreneurs/Private Equity Managing DirectorsManaging Directors
ManagementManagement Academic CareerAcademic Career Strategy/Planning Strategy/Planning
9 %
Prof. Walter Schertler, Strategisches Management
Assistant Professor Thomas Weber, Stanford Graduate School of Business
Prof. Jens HermsdorfSchool of International Business
Tihamér von Ghyczy, Darden School of Business
47 %
Ulrich Biffar
Tobias Bachmüller
Peter Dill
HannsOstmeier
Stefan Brand
Michael Hehn
Marcus Englert, MdVHanno Petersen, MdV
Marc Bitzer, Präsident Europeand Executive Vice PresidentWhirlpool Corporation
Johannes Züll, GF
TorstenEcke, CIO
Eric Strutz, MdV
Philipp Busch, GF
Guido Colsman, VdG Felix Hufeld,
VdGL
Carla Kriwet
Frieder Kuhn
Matthias GillnerJochen Olbert
Arndt RautenbergGernot Sauerborn
Alexis von Hoensbroech
Justus KlökerPeter LöfflerMarcus Nadenau
Thomas Volland
Annette Veltmar
Hubert StröbelHarald SchmidtStefan von Dobschütz
Heinz Hackl
14 %
4 %
9 %
17 %
Inga JürgensHelmut Meysenburg
Bernhard HeizmannAchim Schmitz-Mertens
Claudia Palme
John McNamara
Timmo Sturm
Akio Ito
Thomas Fischer
Susan Hennersdorf,GF
Jens Deerberg-Wittram, GFKlaus Sørensen, GF
Johannes Züll, GF
FURTHER DEVELOPMENT AFTER BCGSelected BCG Alumni in Germany
Source(s): BCG analysis
Total number of BCG Alumni in Germany: ca. 1,100Total number of BCG Alumni in Germany: ca. 1,100
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Consumer Goods
High TechTelco
Financial Services Energy
Industrial Goods
Health CarePharma
Corporate Development
Operations
Organization
Information Technology
Marketingand Sales
CORPORATE DEVELOPMENT AS ONE OF OUR WORLD-WIDE PRACTICE AREASBroad Industry and Functional Expertise
Strategy
Source(s): BCG analysis
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INTRODUCING BCG'S CORPORATE DEVELOPMENT PRACTICE—OUR TOPIC MAP
Corporate Strategy
Corporate vision
Industry landscaping
Portfolio strategy
Growth strategy
Corporate Finance
Partnering/alliances
M&A
IPO & divestitures
Private equity
Pre-PMI planning
PMI organization/setup
PMI execution
Value-based management
Strategic planning
Investor management
Capital structure
Risk management
Create Execute Integrate Deliver
Post-mergerIntegration
Integrated Financial Strategy
Source(s): BCG analysis
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AGENDA
Introduction: BCG and BCG's Corporate Development Practice
Worldwide Value Creation: BCG Value Creators Report 2006
Managing Growth• Starbucks - A Case Example• Integrated Financial Strategy
Question? Comments? Discussion!
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BCG WITH ONGOING RESEARCH ON VALUE CREATION
20021999 2000 2001
“The Value Creators"
"New Perspectives on Value Creation"
"Dealing with Investors'
Expectations"
"Succeed in Uncertain
Times"
2003
“Back to Fundamentals"
2004
“The Next Frontier"
2005
“Balancing Act"
Sources of value creation:• Cash flow
margin• Asset
productivity• Profitable
growth
Key value drivers from the capital, customer and employee view
External market expectations
Importance of expectation premiums
Drivers behind expectation premiums
Agenda for improved, sustainable value creation
Preventive crisis management necessary
Fundamentals drive TSR• Profitability
above cost of capital
• Profitable growth
• Dividends
Decomposition of TSR into fundamentals, cash flow and multiple
Relative multiple regression
Implementation:• TSR fact base• Appropriate
TSR aspiration• Redesigned
management processes
Note: Reports can be downloaded at http://www.bcg.com/corporatedevelopment/cfs_value.htmlSource(s): BCG analysis
2006
“Spotlight onGrowth"
Role of growth:• Achieving
superior value creation
• Managing critical tradeoffs
• Setting growth targets
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Content
The Role of Growth in Achieving Superior Value Creation
The Impact of Growth on Valuation Multiples• Growth, Margins, Multiple and the right kind of Growth
Evaluating Growth Investments Against Alternative Uses of Capital• Growth versus Dividend, Debt Repayment and Share Repurchases
Setting Growth Targets That Drive TSR• Initial TSR Target, Plan Assessment, Alternative TSR Scenarios
Ten Questions About Growth Every CEO Should Know How to Answer
Appendix: The 2006 Value Creators Rankings
Source(s): BCG Value Creators Report 2006
NOT ANOTHER "HOW TO GROW" STUDY, BUT HOW TO EVALUATE GROWTH IN AN INTEGRATED FINANCIAL STRATEGY
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SOME INITIAL DEFINITIONS
Valuecreation
(TSR: TotalShareholder
Return)
Valuation(P/E or EBITDA multiple)
Total shareholder return is often referred to as “TSR”
Change in share price plus dividend yield
TSR is presented on an annual basis—typically over 1, 3 and 5 year periods
Yardstick for all investors including hedge funds and mutual funds
Required reporting in proxy statements
Easily benchmarked on relative basis as shareholder’s true bottom line
Contains information about how investors value earnings
Change in relative valuation multiples is manageable
Calculated on a current or forward basis
Value based management
(VBM)
Alignment of key management processes• Target setting, performance metrics, budgeting, planning, resource
allocation, and incentives
Source(s): BCG analysis
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CREATING SUPERIOR SHAREHOLDER VALUEYEAR AFTER YEAR IS A DIFFICULT TASK
Number of companies(1)
Number of years in which they beat the local market(2)
Relative TSR Analysis 1996-2005
1
532
324
106
9 1
569
132
314
347
0
100
200
300
400
500
600
0 1 2 3 4 5 6 7 8 9 10
(1) Sample characteristics: 2,056 companies excl. financial service companies; continuously listed for at least 10 years; market cap above $1B as of end 2005(2) Relative TSR > 0 Source(s): Thomson Financial Datastream; Bloomberg; BCG analysis
Denmark
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-1%
-20%
-35%-26% -28%
-38%
-26%-19% -18%
-12%
-31%
-41%
-25%
19%12% 9% 9% 9% 8% 6% 5% 5% 5%
0% -2% -6% -6%
88%
61%
40%
53%
70%
83%
34%
50%
38%
57%
67%
-3%
91%
43%
74%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%TSR p.a.‘01 – '05
Low
High
Weighted Average
Total Sample
Mining& Mat.
Transp.& Log. Chem. Utilitity Travel&
Tourism Retail Cons.Goods
Pulp &Paper PharmaMach.
& Constr.Auto-
motiveMulti-
business Tech. Media &Entert.
Source(s): Thomson Financial Datastream; BCG analysis.
HOWEVER, HIGH TSR POSSIBLE IN EVERY INDUSTRYHigh, Low and Average TSR Per Industry 2001–2005
Question: What are the success factors of top performing companies in our client's industry?Question: What are the success factors of top performing companies in our client's industry?
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TSR DECOMPOSITION IS A PRACTICAL FRAMEWORK LINKING PERFORMANCE TO TSR
An Integrated Approach To Value Creation – Here: Based On EBITDA
TSR
Capital gain
+
Free cash flow yield
Growth variables, e.g. asset growth
Profitability variables, e.g. gross margin growth
Cost efficiency variables, e.g. inventory turnover
Leverage variables, e.g. debt/capital ratio
Other variables, e.g. dividend payout ratio
ƒ
Industry specific variables, e.g. average store size
Source(s): BCG analysis
Sales growth
EBITDA margin change
x%
%
EBITDA growth
EBITDA multiple
x
%
Share buybacks
Debt repayment
Dividendyield
ƒ
%
%
%Contribution to TSR can be calculated
%
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Total sample, n = 1056Source(s): Thomson Financial Datastream; Thomson Financial Worldscope; Bloomberg; Annual Reports; BCG analysis.Disclaimer: These financial analyses are based on data and assumptions that have not been verified by BCG and aresubject to uncertainty and change. Accordingly, results presented are intended only for relative comparison across alternatives.Actual future values are subject to future capital market conditions and other influences.
100
624
316
180152
445
866810895
88100
0
100
200
300
400
500
600
700
'00 '01 '02 '03 '04 '05
ƒ
13%
4%
9%6%
2%
-4%
1%4%
-10%
0%
10%
20%
Salesgrowth
Marginchange
Multiplechange
DY
100
100 103 106 114 123
177
128115
109
152
104
0
50
100
150
200
'00 '01 '02 '03 '04 '05
Sales growth
EBITDA multiple1
EBITDA margin1
Dividend yield3
Total shareholder return
Simplified five-year TSR decomposition2
6.0
9.09.1
7.07.9 8.3
9.99.0 9.59.4
11.111.8
0
2
4
6
8
10
12
14
'00 '01 '02 '03 '04 '05
14.2%
18.5%
14.7%14.7%
12.7%
17.7%
15.3%14.7%
15.8%15.8%14.5%15.3%
6%
8%
10%
12%
14%
16%
18%
20%
'00 '01 '02 '03 '04 '05
2.8%
3.7%
2.3%
4.9%
3.3%
1.3%
1.9%
2.1%2.5% 2.4%
1.7%
3.0%
0%
2%
4%
6%
'00 '01 '02 '03 '04 '05
TSR index (2000 = 100) Sales index (2000 = 100) EBITDA/revenue (%)
TSR contribution (%) Enterprise value/EBITDA (x) Dividend/stock price (%)
Dividendyield
1 Industry calculation based on aggregate of entire sample.2 Share change and net debt change not shown.3 Industry calculation based on sample average.
Top Decile, n = 106
WORLD TOP DECILE: SALES GROWTH AND MULTIPLE MOST IMPORTANT
TSR Decomposition Profile of Top Decile vs. Total Sample(1)
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TSR Decomposition Profile
Source(s): Thomson Financial Datastream; Thomson Financial Worldscope; Bloomberg; Annual Reports; BCG analysisDisclaimer: These financial analyses are based on data and assumptions that have not been verified by BCG and are subject to uncertainty and change. Accordingly,results presented are intended only for relative comparison across alternatives. Actual future values are subject to future capital market conditions and other influences.
Note: Bars show contribution of each factor in percentage points of five-year average annual TSR.
Valuation multiple (%)Fundamental value (%) Cash flow (%)
-4%
9%
4%
14%
-2%
0%
-2%
2%
Top decile, n = 106(TSR = 44% p.a.)
Total sample, n = 1056(TSR = 2% p.a.)
13%
6%
1%
4%
Dividend yield
Share changeEBITDA multiple changeSales growth EBITDA margin change Net debt change
BUT, TOP PERFORMERS IMPROVED ON ALL THREE DIMENSIONSGlobal Sample versus Top Decile, 2001-2005
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FOR TOP PERFORMERS, REVENUE GROWTH IS THE MAINSOURCE OF LONG-TERM SHAREHOLDER VALUE
Note: Sample excludes financial companies; rolling analysis covers one, three, five, and ten-year time frames from 1987 to 2005.Source(s): Compustat, BCG analysis.
Averageannual TSR (%)
Sources of TSR for Top-Quartile Performers,S&P500, 1987-2005
Dividendyield
Change inshares, cashand debt
Change inMultiple
MarginImprovement
Growth0%
5%
10%
15%
20%
25%
30%
35%
40%
1 year 3 years 5 years 10 years
31% 50% 58% 60%
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AGENDA
Introduction: BCG and BCG's Corporate Development Practice
Worldwide Value Creation: BCG Value Creators Report 2006
Managing Growth• Starbucks - A Case Example• Integrated Financial Strategy
Question? Comments? Discussion!
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EXCURSUS STARBUCKS: A RETAIL STAR MORE THAN QUINTUPLED SHAREHOLDERS' BUCKS
Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis
274%
183% 157%168%
515%
100%
'99 '00 '01 '02 '03 '04
• Vertically integrated brand: purchasing, roasting and selling
• High-quality coffee beans and handcrafted beverages
• First store in Seattle in 1971• In 1987 Starbucks acquired Giornale chain
of coffee bars (founded by a former employee)
• Today more than 6,600 stores in the US and significant international activities
• More and more trying to diversify product range and explore new distribution channels for coffee and related products
Company profile
Total Share-holder Return(indexed and cumu-lated)
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TSR DECOMPOSITION OVERVIEW: STARBUCKS SHOWS IMPRESSIVE GROWTH AND MULTIPLE ABOVE PEERS
ƒ
Retail sampleStarbucks
Extreme sales growth(1)
EBITDA multiple(2) growing far above peers
EBITDA margin clearly above peers(2)
Dividend yield(4)
Total shareholder return(1)
TSR decomposition(3) (five year)
8,2% 8,2% 7,9% 7,9% 8,1% 8,3%
15.8%15.3%16.2%
15.3% 16.1%15.7%
5%
10%
15%
20%
'99 '00 '01 '02 '03 '04
16,4
12,1 128,7 9,8 9,8
16.8
28.7
15.516.7
24.9
19.9
6
10
14
18
22
26
30
'99 '00 '01 '02 '03 '04
28%
1%
12%8%
0%
-10%
2%
-15%-10%-5%0%5%
10%15%20%25%30%
Salesgrowth
Marginchange
Multiplechange
DY
274
183 157 168
515
100
100 81 81 9385 650
100
200
300
400
500
600
'99 '00 '01 '02 '03 '04
243
130158
196
315
100
100 113136 146
124 130
0
50
100
150
200
250
300
350
'99 '00 '01 '02 '03 '04
(1) Indexed and cumulated (2) Calculation based on aggregated figures (3) Additional components: Share change, Net debt change (4) Sample averageNote: Analysis based on 63 companies; minimum market value 2004: $5bn Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Annual Reports; BCG analysis
1,1%1,5%
1,9%2,3%
1,4%1,1%
0%
1%
2%
3%
'99 '00 '01 '02 '03 '04
Starbucks: no dividend
Dividendyield
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100%
315%
196%
158%
130%
243%
'99 '00 '01 '02 '03 '04
STARBUCKS' GROWTH STORY: SALES MORE THAN TRIPLED IN FIVE YEARS
84%
11% 20%
Retail sales: Sales in company-operated stores
Sale of beans: JV with Kraft in the grocery channel
Licensing: Revenues from non-company-operated stores (royalties and sales from beans)
Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis
Salesdevelop-ment(indexed and cumu-lated)
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new value proposition1980s: Declining consumption and
market share warsSince 1990: Starbucks with steady sales growth
through new value proposition
1,0
2,0
3,0
1950 1960 1970 1980 1990
• Maxwell House brand established with "affordable luxury"
• Loyal customers(1)
• Folger's & Maxwell House highly profitable
• Maxwell House brand established with "affordable luxury"
• Loyal customers(1)
• Folger's & Maxwell House highly profitable
(1) 80% of Maxwell House consumers would not switch if another brand were on sale (2) Besides home and work (3) Indexed on 1999Source: U.S. Bureau of the Census; J.C. Bradford & Co.; Press Search; Starbucks annual reports; BCG-Analysis
• Price cuts• Reduced quality to
lower costs• Weakened brands/
consumer loyalty• Low gross margins• Losses on coffee in
the late 80s
• Price cuts• Reduced quality to
lower costs• Weakened brands/
consumer loyalty• Low gross margins• Losses on coffee in
the late 80s
1990 2000
• Gourmet coffee again as affordable luxury• Shops as "the third place"(2) as a non-alcohol-
serving bar with social interaction• Price premium for high quality and agreeable
atmosphere• Increased sales
• Gourmet coffee again as affordable luxury• Shops as "the third place"(2) as a non-alcohol-
serving bar with social interaction• Price premium for high quality and agreeable
atmosphere• Increased sales
•Starbucks sales(3)
1
2
•Coffee consumption•(cups per person per day)
STARBUCKS ENTERED INTO A FADING COFFEE MARKETAfter Folgers' & Maxwell's Market Share Wars, Starbucks with New Value Proposition
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STARBUCKS' GROWTH WAS ALMOST EXCLUSIVELY ORGANIC,BUT IN DIFFERENT GRADUATIONSDifferent Growth Dimensions—Overview
Explore new channels/products
Licensing stores• Domestically• Internationally
Expand sales per store Grow number of stores
Domestically
Internationally• Company
operated• Joint ventures
Distribution channels for coffee beans
• Grocery • Club and
wholesale marketMerchandising
Other non-food• "Hear Music"
New products in JV• Frappuccino
• Ice cream• DoubleShot
Product range• Coffee and related
products• Warm breakfast• Lunch
Extended hours, efficiency improvement in selling process
Source: Starbucks; analysts reports; press articles; BCG analysis
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SALES PER STORE EXPANDED BY INCREASING CUSTOMER BASE, CUSTOMER LOYALTY AND ADDING PRODUCTS
Concentrated inmetropolises
Customer base Expansion of customer base (Survey in 1999 and 2005)
• From customer average annual income of $81,000 to $55,000
• From 78% college grads to 56%
Top markets5 10 25 50
32%22%
54%73%
Top 50 markets have 73% of sales
Product range
Coffee and related productsWarm breakfastLunch, dessert
Loyal customers High customers frequency
• Best customers come 16.2 times per month
• Average is six times a month
Starbucks card already has 15% of sales
• Drives frequency
• Wins new customers when sold as a gift Survey: Sixth among US brands
Survey: Most attractive WiFihotspot
• More than hotel lobbies
• and airport lounges
Source: Starbucks; analysts reports; press articles; BCG analysis
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"HEAR MUSIC" IS ANOTHER NEW IDEA TO IMPROVE INTRA-STORE SALES
And Fits Starbucks' History of Selling Innovative CDs
(1) Prices: $7.99 for the first and $0.99 for each additional song (2) Without consuming coffee while listening calculated in Source: Starbucks; analysts reports; press articles; BCG analysis
1. Hear music
Customers pick their preferred music at a terminal while …
… having no interaction with sales-personnel
Customers spend more time in store and potentially buy more coffee
Idea and investment What customers can do and how to earn money on it
Investment: $20,000 per storeInvestment: $20,000 per store
2. Burn customized CD
Customers can choose from over 200,000 tracks and …
… assemble a personal collection of songs and burn them on a CD
At a price of about $10 per CD(1), break-even(2) is 11 CDs per store per day
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DOMESTIC EXPANSION: GOAL EXCEEDED MANY TIMES OVER …Analysts' Quotes
May 2005
"We think Starbucks' 15,000 store target is reasonable (from 6,600 today)."
November 2001
"Our analysis suggests that there is room for a total of between 5,000 and 7,000 company-owned Starbucks ultimately in the US."
September 1999
"Our analysis ... concludes that, on a very conservative basis, the company still has room to double the number of stores ... to well over 4,000."
Source: Starbucks; analysts reports; press articles; BCG analysis
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About 6,600 stores in the US …
... BUT WHERE IS THE LIMIT ?Possible Saturation of the Domestic Market
Situation today Historic growth Borders/constraints
Maximum of 7,000; premises• Metropolitan areas: average
Seattle(1), Portland, San Francisco, San Diego, Denver: 40,000 residents per store
• New regions: Median incomes 10% over national average and more than 175,000 residents in MSA(2)
… with highest concentration still on the West Coast where the
company has its roots(about 40 % of US stores)
From 961 stores in 1999 to present number today
(1) Seattle has average of 20,000 per store (2) MSA: metropolitan statistical areas. For details on methodology, see DB Report from Sept. 24, 1999; for recalculation Nov. 27, 2001Source: Starbucks; analysts reports; press articles; BCG analysis
McDonald's: 13,500 in the US• Starbucks with no clear no. 2
(such as Burger King, Wendy's, ...)
• But less accepted in rural areas
If Starbucks reaches the saturation point, deterioration in new-unit productivity will be seen; this has not yet been observed however
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EBITDA MARGIN REMAINS CONSTANT ...... And Clearly Above Peer Group
0%
5%
10%
15%
20%
'99 '00 '01 '02 '03 '04
Total retail sampleStarbucks
Interpretation
Majority of sales comes from branded, high margin lifestyle coffee products
Additional increase of margins by royalties from non-company-operated stores
Leverage of brand and margins by licensing coffee-related products
Transfer of proven high margin product and store concept by impressive sales growth (no erosion of margins)
Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis
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STARBUCKS' MULTIPLE FAR ABOVE PEERSBUT FIRST DOUBTS ARISE IF SUSTAINABILITY IS STILL GIVEN
Almost Doubled between 2002 and 2004
Total retail sample
Starbucks
(1) Goodwill can only be accounted for if acquired or costs could be activated in certain cases Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis
Interpretation
Stock price reflects future expectations, but EBITDA multiple reflects past (or its extrapolation)
future growth expected
No dividends distributed, thus earnings are distributed to shareholders via price—treasured
Brand has a high value, resulting in high immaterial assets (goodwill(1) or premium)
Although marketing investment remains reasonable (1.3% of sales in 2004)
16,412,1 12
8,7 9,8 9,8
16.8
28.7
15.516.7
24.919.9
'99 '00 '01 '02 '03 '04
November 2004:
"20% to 25% growth is not an issue ... what's 20% to 25% worth? ... We ... believe the current valuation either assumes at least 30%growth in FY'05 or the market's pricing SBUX off FY'06 EPS. ... Starbucks' multiple appears to have peaked."
EBITDA multiple
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SUMMARY - LESSONS LEARNED
Starbuck's performance is a clear growth story• No dividends distributed: retained to finance further growth• Mostly organic because the market is young and no serious competition
is in the market yet• Establishing a strong brand does not necessarily imply enormous
marketing investments
JV and licensing can be important alternatives to pure organic growth• Reducing capital investment, reduce risk and improve margins• Profiting from the partner's knowledge when entering new markets or
launch new products• But: they necessitate proper control and decision processes can take
longer
Chances in different regional markets can differ greatly according to regional circumstances – a success story cannot simply be rolled out
Source: Starbucks; Analysts Reports; Press Articles; BCG analysis
- 34 -HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt
AGENDA
Introduction: BCG and BCG's Corporate Development Practice
Worldwide Value Creation: BCG Value Creators Report 2006
Managing Growth• Starbucks - A Case Example• Integrated Financial Strategy
Question? Comments? Discussion!
- 35 -HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt
Metrics
Resource allocation
Compensation
Planning
Role of center
Training
Budgeting
Target setting
Reporting
This effort will focus on “TSR strategy” where we will integrate business strategy and competitive advantage concepts with TSR “facts” and principles to ensure success
This effort will focus on “TSR strategy” where we will integrate business strategy and competitive advantage concepts with TSR “facts” and principles to ensure success
“Diagnose issues, opportunities, constraints,
alternative TSR strategy scenarios”
“Ensure current facts, signals,
effective processes to enable
organization to deliver superior TSR
results”
“Integrated corporate and financial strategy”
“Value-based management capability”
TSR
Revenuegrowth Margin
(%)
FCF andROI
Portfoliostrategy
Investorstrategy Capital
structuretarget
M&Astrategy
RealEstate
strategy
Dividendpolicy
Sharerepurchase
P/Emultiple
DRIVING SUPERIOR TSR REQUIRES AN INTEGRATED CORPORATE AND FINANCIAL STRATEGY
Source(s): BCG analysis
- 36 -HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt
TSR
Revenuegrowth Margin
(%)
FCF andROI
Portfoliostrategy
Capitalstructure
target
M&Astrategy
RealEstate
strategy
Future prospects of CLIENT’s underlying
business?
Need to diagnose issues, tradeoffs, and options across all leversNeed to diagnose issues, tradeoffs, and options across all levers
Acquisition of segment-centric/ segment adjacent
players?
4
Impact of share repurchase?
1
6
Portfolio trimming potential?
3“What if scenarios” for spinoff options?
2
P/Emultiple Share
repurchase
Investorstrategy
Dividendpolicy
Impact of sale/ lease-back / reduction of key fixed
assets?
5
Impact of company sell/ LBO?
7
CLIENT’S STRATEGIC OPTIONS MAP TO DIFFERENT ELEMENTS OF THE “TSR STRATEGY”
Elements Are Highly Interdependent – Must Assess in an Integrated Fashion
Source(s): BCG analysis
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“It was critical to complement the ‘hard’ financial and valuation analysis with the investor perspective (the ‘soft’ side). All this time we had been listening to the analysts and not the investors. Boy, did we get it wrong!
The investor dialog and financial analysis gave us critical insight into how to refine our corporate and financial strategies into an overall “TSR strategy”. We are now heading down a path that we believe will significantly increase our valuation”
- Chief Financial Officer
“The investor insights enabled me to finally realize that we have been talking right past our investors. We are excited about growth, so we have been speaking mostly about growth with investors and analysts... When what matters to them as value investors are our true strengths–high ROIC and our great free cash flow generation. This is a critical insight for us”
- Chairman and CEO
“I was dead-set against doing this work because I felt there was little to learn from the investors that I did not already know. I am a full convert and recognize the great value and insights of the work.”
- Vice President of Investor Relations
Source(s): BCG client
A FEW COMMENTS FROM OUR CLIENTS REGARDING INSIGHTS FROM TSR STRATEGY DISCUSSIONS
- 38 -HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt
AGENDA
Introduction: BCG and BCG's Corporate Development Practice
Worldwide Value Creation: BCG Value Creators Report 2006
Managing Growth• Starbucks - A Case Example• Integrated Financial Strategy
Question? Comments? Discussion!
- 39 -HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt
QUESTIONS? COMMENTS? DISCUSSION!