FINAL DRAFT Starbucks Financial Analysis Term Paper

Starbucks Coffee Company, of 26

Starbucks Coffee Company Financial Analysis

Emma Scymanski, Jonathan Stewart, Matthew S. Urdan, Angelica Walker

MBA 640: Financial Decision Making

Professor Osman Kilic

Quinnipiac University

December 20, 2015


Starbucks Coffee Company Financial Analysis

“Starbucks is a performance driven organization through the lens of humanity. ‘That’s what I’ve imprinted on the entire organization over the last two years.’ Performance is the price of admission (Starbucks stock price in November 2008 was $7.17/share, compared with $80/share in December 2014. Company market cap is $60 Billion) and we have proven we are best in class, but it is about more than numbers. It’s about the body of work. The rules of engagement for a public company have changed. Companies now must do more for their people and the communities they serve.” (Starbucks Coffee Company, 2014, para 4).

Macroeconomic Review.

Starbucks Coffee Company (SBUX) is an American Corporation that began operations in

Seattle, Washington in 1985. The company operates as a roaster, marketer, and retailer of

specialty coffee worldwide and seller of packaged roasted whole bean and ground coffees,

packaged tea, single serve products, juices and bottled water. SBUX has recently expanded its

product offerings (Appendix A) to include fresh food products, pastries, breakfast and lunch

sandwiches, Paninis and other items as well as beverage-making equipment and accessories

(Starbucks Coffee Company, 2015). Product diversification and expansion increases sales across

all dayparts and attracts a broad range of consumers.

The coffeehouse industry in the United States is forecasted to generate more than $31

billion in 2015 (Statista, 2015). SBUX is the largest coffeehouse chain worldwide (Statista,

2015). SBUX now competes outside of its segment with the giants of the wider restaurant

industry, such as McDonald’s. SBUX and Dunkin’ Donuts (DNKN), its closest segment

competitor, commanded a combined U.S. market share of nearly 50 percent in 2014 (Statista,

2015).

The international coffee market is expected to grow 25% internationally in the next five

years, mainly in China, Latin America and India. While coffee demand is expected to jump to

175.8 million bags of beans by 2020, up from 141.6 million bags in 2015, climate change


induced drought in Brazil, which supplies 45% of the world’s coffee beans, is reducing supply

and leading to price increases (Bariyo, 2015). After the severity of the drought impact on the

Brazil coffee crop was discovered, the price of coffee increased 70% (Lingenheld, 2015).

Further affecting coffee supply, “Central American coffee farmers are battling a fungus

called ‘coffee rust’ or ‘roya,’ that’s caused more than $1 billion in crop damages already” by

infecting about 40% of Colombia’s crop (Lingeheld, 2015). Additionally, producing country

consumption “is growing twice as fast as importing countries” as Brazil, Vietnam and Columbia

are becoming their own top customers. Greater internal coffee consumption, resulting in

decreased coffee exports, is expected to reduce global coffee bean exports and exert increasingly

upward global price pressure, (Lengenheld, 2015).

Economies of scale and corporate commodity hedging (Banham, 2011) help SBUX

endure price fluctuations. Product diversification and doubling down on tea with the recent

purchase of Teavana provides an additional hedge against coffee price fluctuations while

strongly contributing to SBUX’s growth and profitability (Levine-Weinberg, 2014).

Premium coffee demand drivers are disposable income, per capita coffee consumption,

attitudes towards health, personal preferences, global pricing of coffee and demographics.

Demand is quite sensitive to the macroeconomic factors that affect disposable income. During a

recession, for example, household disposable incomes decline and the ability to purchase

commodities, such as coffee, also declines. However, the SBUX coffee-drinking experience

environment and marketing as a ‘lifestyle brand’ provides another hedge against price pressure,

especially in China where “Chinese customers have come to expect spacious branches with

ample comfortable seating…Starbucks to them is as cozy as their own home, and more

functional than their office” (Law, 2014, para 13).


SWOT Analysis.

In addition to SBUX’s exceptional executive leadership team detailed in Appendix C, the

greatest strength for SBUX may be its brand image and company perception. Through savvy

digital and social media marketing, its outstanding customer service and the ‘Starbucks

Experience,’ SBUX has created exceptionally loyal customers. Its best in class ‘Starbucks

Rewards’ program, spearheaded by Rothstein and Brotman, leverages customer loyalty while

driving same store sales and cash flow through prepaid sales of gift cards, Rewards Cards, and

the Starbucks Mobile App (Elgan, 2014).


Because SBUX offers premium products, it has premium prices. As a weakness, this is

magnified in times of economic recession. Taste is a weakness as well. “Consumer Reports

magazine…found …the SBUX brew ‘was strong, but burnt and bitter enough to make your eyes

water instead of open.’ The March, 2007 issue of the magazine, advises, ‘Try McDonald’s,

which was cheapest and best.’ Several other more recent blind taste tests have consistently rated

Dunkin’ Donuts and MacDonald’s as the best tasting and Starbucks as the worst tasting coffee

sampled” (Weinberg, 2011, para 5). Another substantial weakness is that SBUX is dependent on

the US operating segment for more than half of its total revenue. International markets are not as

profitable as domestic markets. Additionally, SBUX does not adapt to local cultures. It clones its

stores, regardless of location, without consideration of cultural preferences and price.

SBUX has two major areas for growth that fit into the company’s overall growth strategy

(Appendix B): international expansion and the expansion of daypart sales. EMEA (Europe,

Middle East, Africa) expansion would build on more than 6.4 million transactions weekly via

2,100 stores in 37 countries. 50% of global coffee consumption occurs in the EMEA region.

Additionally, the China and Asia Pacific region represents the single largest and fastest growing

retail opportunity. SBUX currently opens one new store daily in the region. (Starbucks Coffee

Company, 2015). Increasing afternoon and evening daypart sales is also a critical component of

increasing same store sales. Big Data analytics, the Starbucks Rewards program, the Mobile

App and online ordering are all driving targeted marketing efforts that increase conversion and

drive increased store traffic.


Lastly, SBUX faces four major threats to its continued growth and success: Economic

Sensitivity, Global Expansion Barriers, Coffee Price and Climate Change. As a seller of higher-

priced premium coffee and other products, the company is vulnerable to economic downturns.

SBUX “experienced a net loss after the recession of 2009. During this time, American

consumers turned toward cheaper alternatives, such as instant coffee and Starbucks‘ number-one

competitor: Dunkin’ Brands” (Krikorian, 2014, para 1). The price of coffee itself is also a major

concern. “Coffee price volatility is still a risk factor, even if Starbucks does hedge against price

increases. The price movement and direction would affect Starbucks’ operating costs and

margins. Coffee price could rise due to a number of factors. Much of Starbucks’ coffee is

sourced from South American and Asian nations such as Brazil and Vietnam. Instability in the

local political environment would definitely influence coffee prices. Likewise, poor crop yield

due to weather could cause the price per pound to skyrocket, depending on the extent of the

damage” (Krikorian, 2014, para 3). These threats became real in 2015 when Brazilian drought

and Costa Rican crop disease reduced bean production and supply. Coupled with increasing

demand, coffee prices began to increase (Bariyo, 2015). While SBUX’s international growth

plans are aggressive, growing market share has been difficult. For example, “Starbucks partnered

with TATA group, an Indian conglomerate, with the hopes of securing a stable supply chain in

the region. However, the middle class in India hasn’t grown quickly enough to accommodate $3

lattes” (Krikorian, 2014, para 2). Future growth depends on international expansion, but taste

differences, as well as economic troubles affecting certain regions, remain challenges.

Financial Analysis.


“We expect Starbucks will continue to deliver solid performance gains as it grows its store footprint, mainly in international markets, and remains focused on product innovation.” (Stone quoting Standard and Poor’s, 2015, para 4).

If a company is outperforming the S&P 500 along with all of its market segment and industry

competitors, it is likely a very strong company financially. The two graphs from YCharts below

emphatically demonstrate SBUX’s increasingly strong financial performance over the last five

years. In the first graph, SBUX is represented by the orange line, while direct competitor DNKN

is represented by the blue line, Krispy Kreme (KK) by the red line and the S&P 500 by the

purple line. In the second graph, SBUX is represented by the blue line, McDonald’s is

represented by the orange line, Chipolte Mexican Grill by the red line and the S&P 500 by the

green line. Clearly, all of these companies, with the exception of McDonald’s which has

struggled of late, are outperforming the S&P 500. However, during 2015, SBUX’s performance

has been exceptionally strong relative to the S&P 500 while its competitors have weakened

considerably and fallen more in line with the Index.

(YCharts, 2015)


(YCharts, 2015)

Liquidity. The Current Ratio, Quick Ratio and Cash Ratio are all measures of Liquidity. A

current ratio with a value of at least 1 indicates a company has current liquid assets that can

cover all of its current liabilities. SBUX has maintained an average current ratio of 1.46 over the

last five years (S&P Capital IQ, 2015). SBUX also enjoys a favorable five year average cash

ratio of 0.4586 (S&P Capital IQ, 2015). These two ratios indicate SBUX’s ability to fulfill its

short term financial obligations is strong. DNKN’s five year average current ratio of 1.38 and

five year average cash ratio average of 0.7645 also shows favorable short term solvency (S&P

Capital IQ, 2015). KK has maintained a five-year average current ratio of 2.42 and a five year

average cash ratio of 1.05 (S&P Capital IQ, 2015). Although the high current ratio of KK

supports financial strength, it may indicate that KK is becoming cash heavy and has

inefficiencies in investing surplus cash (S&P Capital IQ, 2015).

Current Ratio 2011 2012 2013 2014 2015Starbucks 1.8282 1.9004 1.0175 1.3719 1.1914Dunkin' Donuts 1.2841 1.1874 1.3412 1.245 1.8776Krispy Kreme 1.55 2.34 2.89 2.75 2.56

Starbucks, Dunkin’ Donuts and Krispy Kreme have maintained strong current ratios over the last five years (S&P Capital IQ, 2015).

Because inventory is not as liquid as cash and other short term financial instruments, we also

look at the Quick Ratio, which again is strong for all three companies.

Quick Ratio 2011 2012 2013 2014 2015Starbucks 1.3629 1.3386 0.8109 1.0129 0.8338Dunkin' Donuts 0.9 0.8 0.9 0.7 1.2Krispy Kreme 1.2 2.04 2.62 2.39 2.19

(S&P Capital IQ, 2015)

Very short term creditors may be interested in the Cash Ratio as well. All three companies

generate great amounts of cash on a daily basis due to the nature of the food service industry,

therefore this ratio may not be as important as it would be for a retail company like Walmart that

is inventory intensive, or a manufacturing company like General Motors. Even so, as the most


stringent measure of liquidity, it is rarely used. Companies will not keep excessive amounts of

cash on hand because it would be an indication of poor asset utilization (Investopedia, 2015).

Cash Ratio 2011 2012 2013 2014 2015Starbucks 0.5531 0.5379 0.221 0.5622 0.4188Dunkin' Donuts 0.7794 0.7146 0.7462 0.5853 0.9969Krispy Kreme 0.54 1.07 1.42 1.2 1.02


Asset Management. Asset management is a systematic process of operating, maintaining, and

upgrading assets to maximize revenue generation. Ratios vary by industry, and higher ratios are

better. SBUX outperforms DNKN and KK in every asset management metric, (except inventory

turnover which can be attributed to the sale of Coffee Mugs, Verismo machines and other

merchandise items that DNKN and KK don’t offer), meaning Starbucks is more efficient in

using its assets to generate sales and revenue than its competitors, which the ROA table below

clearly illustrates. Additionally, SBUX has been able to improve its performance ratios over the

past five years by its continuing focus on cash flow management, closing underperforming stores

(Banham, 2011) and using data analytics to optimize new store siting to maximize traffic and

profitability (Thau, 2014).

Return on Assets (ROA) 2011 2012 2013 2014 2015Starbucks 13.90% 14.30% 14.00% 15.70% 18.10%Dunkin' Donuts 4.10% 4.90% 5.40% 6.20% 6.90%Krispy Kreme 7.20% 6.50% 7.00% 8.80% 9.80%


Total Asset Turnover 2011 2012 2013 2014 2015Starbucks 1.7 1.7 1.5 1.5 1.7Dunkin' Donuts 0.2 0.2 0.2 0.2 0.2Krispy Kreme 2.2 1.6 1.3 1.4 1.4


Fixed Asset Turnover 2011 2012 2013 2014 2015Starbucks 4.9 5.3 5.1 4.9 5Dunkin' Donuts 2.9 3.3 3.6 3.9 4.1Krispy Kreme 5 5.5 5.7 5.4 4.7



Accounts Rec Turnover 2011 2012 2013 2014 2015Starbucks 34 30.4 28.4 27.6 28.4Dunkin' Donuts 16.2 16.7 18.2 17.3 13.9Krispy Kreme 20 18.3 17.6 18.7 19.1


Inventory Turnover 2011 2012 2013 2014 2015Starbucks 11.3 8.8 9.1 10.4 11Dunkin' Donuts n/a n/a n/a n/a n/aKrispy Kreme 21.7 25.4 29 25.8 22.9


Debt Management.

“Of the 11 consumer-discretionary companies in the S&P 500 with market values bigger than $50 billion, Starbucks has the least debt, trailing the borrowing levels of businesses including McDonald's and Nike. Those two have sold a combined $1.5 billion of dollar-denominated bonds this year, Bloomberg data shows Starbucks could add that amount of debt ‘and still have credit metrics and growth prospects that are better than McDonald's,’ which is ranked A by S&P, said Joel Levington, managing director of corporate credit research at Brookfield Investment Management in New York” (Mead, 2013, para 11).

DNKN and KK have market valuations far below $50 billion, however they also manage their

debt effectively with low Total Debt, Debt-Equity Ratios and Equity Multipliers. DNKN,

however, has been far more aggressive in its use of debt than either SBUX or KK—which also

have much greater cash flow than DNKN. Perhaps DNKN’s debt level and tax shield advantage

over financial distress costs is still advantageous. However, DNKN refinanced its debt in

January, 2015. According to DNKN, “The new debt structure leverages our business model's

ability to generate strong cash flow and increases our financial flexibility,” (Dunkin’ Brands,

2015, para 5) and further allows DNKN to repurchase stock and return earnings to its investors

(Dunkin’ Brands, 2015).

Total Debt Ratio 2011 2012 2013 2014 2015Starbucks 0.403932 0.377737 0.6108 0.509556 0.5324Dunkin' Donuts 0.768641 0.891228 0.872538 0.881979 n/aKrispy Kreme 0.550324 0.256196 0.279321 0.216839 0.240714



Debt-Equity Ratio 2011 2012 2013 2014 2015Starbucks 0.125316 0.107575 0.274407 0.388524 0.40966Dunkin' Donuts 3.322295 8.192857 6.845501 7.473067 n/aKrispy Kreme 1.223822 0.34444 0.387581 0.277254 0.317028


Of particular note is SBUX’s Equity Multiplier (EM), which links ROA and ROE, and which

also increased in 2013 as SBUX refinanced its previous bond issue. This indicates that SBUX

may be more willing to issue long term debt to support its growing asset base. Still, the EM

remains very low, especially in comparison to DNKN. One possible explanation is SBUX’s great

profitability, high net income and retained earnings. This source of internally generated funds

means SBUX does not need to pursue heavy debt financing (Hevert, 2013). Similarly, KK,

generates enormous amounts of cash. KK’s EM is approaching the level of SBUX prior to the

2013 debt issue. But with lower debt, KK has exceeded SBUX’s Cash Coverage and Times

Interest Earned levels in 2015.

Equity Multiplier (EM) 2011 2012 2013 2014 2015Starbucks 1.677661 1.607039 2.569373 2.038967 2.138579Dunkin' Donuts 4.322295 9.192857 7.845501 8.473067 n/aKrispy Kreme 2.223822 1.34444 1.387581 1.277254 1.317028


Times Interest Earned 2011 2012 2013 2014 2015Starbucks 45.84985 54.77676 78.82562 43.70203 48.41135Dunkin' Donuts 2.019157 3.429131 3.492481 4.690265 n/aKrispy Kreme 2.704225 15.52941 23.75 31.93333 55.11111


Cash Coverage 2011 2012 2013 2014 2015Starbucks 108.1502 127.1713 180.7082 98.94384 109.3589Dunkin' Donuts 4.542146 7.561905 7.602757 10.0531 n/aKrispy Kreme 6.450704 35.88235 53.6875 71.33333 124.5556


Profitability. In terms of profitability, all three companies really stand out as they all outperform

their competitors and far exceed industry averages. 2013 was an uncharacteristic year for SBUX

due to its negative operating margin, tiny net margin of 0.1% and 0.2% ROE. Fortunately SBUX


rebounded stronger than ever in all three categories in 2014 and trails only DNKN in terms of

profitability.

Operating Margin is one of the most important margin ratios for Starbucks. “It provides

more comparability against competitors whose reliance on borrowing to finance operations

varies. Also, operating margin is indicative of the company's effectiveness from the standpoint of

creditors and equity shareholders. As of June 28, 2015, Starbucks' operating margin stands at

18.9%, which is much higher when compared to the operating margin of 5% for the restaurant

and bars industry” (Blokhin, 2015, para 5).

Operating Margin 2011 2012 2013 2014 2015Starbucks 14.8% 15.0% -2.2% 18.7% 18.8%Dunkin' Donuts 31.68% 33.56% 38.29% 39.04% 53.83%Krispy Kreme 5.30% 6.55% 8.72% 10.30% 10.18%


“Net margin is another crucial metric for Starbucks, as it shows the company's effectiveness in

covering operating costs, financing and tax expenses. Unlike the operating margin, the net

margin shows Starbucks' financial effectiveness from the perspective of its common equity

shareholders only. As of June 28, 2015, Starbucks' net margin was 14.6%, which is significantly

higher than the industry's average of 3.2%” (Blokhin, 2015, para 6).

Net Margin 2011 2012 2013 2014 2015Starbucks 10.6% 10.4% 0.1% 12.6% 14.4%Dunkin' Donuts 5.50% 16.50% 20.60% 23.60% 20.80%Krispy Kreme 2.10% 41.20% 4.80% 7.40% 6.10%


ROE “reveals how much income the company has generated with funds provided by its equity

shareholders. Firms with strong economic moats typically have higher ROE compared to rivals.

As of June 28, 2015, Starbucks' ROE stands at 49.3%, which is significantly higher than its

competitors' average return of 10.7% (Blokhin, 2015, para 7).


Return on Equity (ROE) 2011 2012 2013 2014 2015Starbucks 30.9% 29.1% 0.2% 42.4% 49.7%Dunkin' Donuts 6.50% 19.60% 38.40% 44.60% 115.30%Krispy Kreme 10.90% 102.10% 8.40% 13.40% 11.30%


Market. “Wall Street is clearly excited about the financial implications of Starbucks'

growth strategy. Besides the optimistic signal being sent by a record stock price, the retailer also

just received glowing praise from Moody's, the debt-rating agency. While upgrading its bond

rating, Moody's highlighted Starbucks' ‘strong and consistent operating trends driven by new

product offerings, greater day part diversity, well accepted loyalty program and e-commerce

initiatives that have resulted in strong credit metrics and excellent liquidity.’ The research service

said its confidence was boosted by the retailer's ‘global brand strength, dominant position in the

U.S. specialty coffee segment, global diversification, significant scale, and balanced financial

policy’ (Kalogeropolous, 2015, para 7). Of the three companies over the last five years, only

SBUX has outperformed the S&P 500 without any dips below the index while both DNKN and

KK have gone up and down. Especially in the second half of 2015, DNKN and KK have dipped

below the index while SBUX’s growth has greatly increased. This is reflected in Starbucks’

greater Enterprise Value growth and EV Multiple.

Market Capitalization 2011 2012 2013 2014 2015Starbucks 31296.5 37210.24 60662.73 59364.36 90695.06Dunkin' Donuts 3491.79 3937.371 5384.366 4884.82 4004.8Krispy Kreme 475.2 497.13 916.908 1135.75 1298.649


Enterprise Value (EV) 2011 2012 2013 2014 2015Starbucks 32218.9 38277.94 64463.33 62999.76 95709.96Dunkin' Donuts 5723.19 6552.271 7949.866 7477.42 6176.9Krispy Kreme 488.6 480.43 876.308 1082.05 1257.349


Enterprise Value Multiples 2011 2012 2013 2014 2015Starbucks 15.53017 16.16945 22.51679 17.79152 22.27471Dunkin' Donuts 21.72813 21.56771 24.2374 20.56496 14.76


Krispy Kreme 18.36842 13.88526 18.29453 18.3088 20.11758(S&P Capital IQ, 2015)

Starbucks and DNKN are also providing excellent Earnings Per Share (EPS), but DNKN

is doing it with far less equity than Starbucks, hence DNKN is comparatively better than SBUX

at creating earnings from equity.

Earnings Per Share (EPS) 2011 2012 2013 2014 2015Starbucks 0.836265 0.923395 0.00551 1.379561 1.85671Dunkin' Donuts 0.287866 1.020735 1.378049 1.686424 1.66Krispy Kreme 0.112593 2.441997 0.318043 0.528505 0.46379


However, Starbucks has increased its EPS with a rising stock price while DNKN’s stock price

has fallen considerably from a mid-2015 peak. KK, on the other hand, is far less adept at

generating earnings than either DKN or SBUX.

Price-Earnings Ratio (PE) 2011 2012 2013 2014 2015Starbucks 25.31325 26.98913 4027 28.90511 32.89151Dunkin' Donuts 101.5055 36.35615 36.65327 27.69172 25.90361446Krispy Kreme 64 3.041667 45.22581 34.31373 44.46667


Market to Book Ratio 2011 2012 2013 2014 2015Starbucks 7.146259 7.281525 13.55892 11.25 15.57908Dunkin' Donuts 4.682692 11.34862 13.22251 13.26705 n/aKrispy Kreme 6.230088 1.994536 3.718833 4.289216 4.856796



Buy Sell Decision.

“Starbucks, which generates more free cash relative to its debt than any U.S. restaurant chain, may more than double borrowings to reward shareholders without hurting its credit. The company is "in the early innings of a global expansion that may last for decades" and is poised to benefit from lower coffee costs and higher-margin food offerings, Goldman Sachs equity analysts led by Michael Kelter said in a July 26 report.” (Mead, 2013, par 1, 14).

“Wall Street is clearly excited about the financial implications of Starbucks' growth

strategy. Besides the optimistic signal being sent by a record stock price, the retailer also just

received glowing praise from Moody's. While upgrading its bond rating, Moody's highlighted

Starbucks' "strong and consistent operating trends driven by new product offerings, greater day

part diversity, well accepted loyalty program and e-commerce initiatives that have resulted in

strong credit metrics and excellent liquidity." [Moody’s] said its confidence was boosted by the

retailer's "global brand strength, dominant position in the U.S. specialty coffee segment, global

diversification, significant scale, and balanced financial policy" (Kalogeropolous, 2015, para 7).

SBUX isn’t just an industry or market leader, SBUX is a cash generating machine. Every

aspect of this analysis should ultimately lead to a buy decision. In addition to the

macroeconomic analysis, SWOT analysis and ratio analysis, SBUX is also a great addition to

any portfolio for diversification and as a hedge against higher risk stocks with its five year beta

average of .75 (S&P Capital IQ, 2015). One major consideration though is that SBUX does not

pay dividends. So if earning dividends is important, one may not want to buy SBUX. However,

SBUX does return cash to shareholders through stock repurchases—which have helped fuel the

stock price increases in 2015 while its competitors’ stock values have declined. A second major

consideration is valuation. As SBUX stock has greatly increased in value in 2015, one must

consider if the stock is overvalued, as Kalogeropolous concurs:


“The biggest risk for investors looking to buy a piece of such a high-performing business is in paying too much. And Starbucks has grown more expensive lately -- no matter which way you look at the stock. It's valued at 33 times trailing earnings, up from 25 times at the beginning of this year. Investors are also paying nearly five times sales to own shares. That figure was as low as 0.5 times sales at the bottom of the financial crisis, and hasn't been this high in more than a decade (Kalogeropolous, 2015, paras 9-10).

If dividends are not paid by Starbucks and earnings come from price increase and stock

repurchases, concern about the stock price being valued too high is a legitimate concern.

However, other important metrics and ratios are also at record highs.

“Operating income soared 22% higher last quarter as profit margin expanded by almost a full percentage point to hit 19.2% of sales. While the beverage giant is expensive right now, it’s not absurdly so. And in light of the market-thumping business trends and broadly improving finances, I think investors have a decent chance of getting a good long-term return even from today’s prices. There’s no telling which direction the stock will go during the next year. But Starbucks is one of the world’s most valuable brands, and its operations are growing more diverse even as they improve on the core coffee experience. In my view, that all adds up to a stock that’s worth the spicy premium” (Kalogeropolous, 2015, paras 11-13).

That sums up why SBUX is a must BUY: as the Chinese are discovering, it’s the experience that

everyone values so highly. That is why Starbucks commands premium prices for its products,

and why its continued growth and profitability prospects are bright.

Appendix A: Starbucks Products(1) Starbucks Products

a. Starbucks offers a range of exceptional products that customers enjoy in our stores, at home, and on the go.

b. Coffee: More than 30 blends and single-origin premium coffees.c. Handcrafted Beverages: Fresh-brewed coffee, hot and iced espresso beverages,

Frappuccino® coffee and non-coffee blended beverages, Starbucks Refreshers® beverages, smoothies and teas.

d. Merchandise: Coffee- and tea-brewing equipment, Verismo® System by Starbucks, mugs and accessories, packaged goods, books and gifts.

e. Fresh Food: Baked pastries, sandwiches, salads, salad and grain bowls, oatmeal, yogurt parfaits and fruit cups.


(2) Consumer Productsa. Coffee and Tea: Whole bean and ground coffee (Starbucks and Seattle’s Best

Coffee brands), Starbucks VIA® Instant, Starbucks® Coffee K-Cup® pods, Starbucks® and Teavana® Verismo® pods, Tazo® tea filterbags, and Tazo ® tea latte concentrates.

b. Ready-to-Drink (RTD): Starbucks® bottled Frappuccino® coffee drinks, Starbucks Discoveries® chilled cup coffees, Starbucks Discoveries Iced Café Favorites®, Starbucks Iced Coffee, Starbucks Doubleshot® espresso drinks, Starbucks Doubleshot® Energy Coffee drinks; Starbucks Refreshers® beverages, Evolution Fresh™ bottled juices, Tazo® bottled iced and juiced teas.

(3) Brand Portfolioa. Starbucks Coffee, Seattle’s Best Coffee, Teavana, Tazo, Evolution Fresh, La

Boulange, Ethos Water and Torrefazione Italia Coffee.

Appendix B: Starbucks Seven Strategies for Growth

Matt Ryan – Starbucks Global Chief Strategy Officer outlines the company’s seven growth strategies as follows:

1. Be the Employer of Choice – Invest in partners capable of delivering a superior customer experience.

2. Lead in Coffee – Continue to build our leadership position around coffee agronomy, sourcing, roasting, brewing and serving handcrafted beverages.

3. Grow the Store Portfolio – Increase the scale of the Starbucks store footprint with disciplined expansion. (Different formats, licensing opportunities and international expansion)


4. Create New Occasions to Visit Stores – Grow store usage across day parts with new product offers. In addition to breakfast, create new food offerings for lunch, afternoon refreshment and snacks, and evenings.

5. CPG Brand Growth – Focus on the Starbucks brand to unlock profitable growth rarely seen in consumer packaged goods internationally.

6. Build Teavana – Create a second major business in tea. The global tea market is about a $109 billion dollar industry. (Emphasis on Tea Bars, relevant tea products and formats, Teavana in Starbucks, and Teavana in the grocery aisle)

7. Extend Digital Engagement – Drive convenience and brand engagement through mobile commerce platforms. This includes expanding the number of customers participating in My Starbucks Rewards, and launching Mobile Order & Pay and Delivery. (1 in 8 Americans received a Starbucks gift card for Christmas) ("Starbucks Details Five-Year Plan to Accelerate Profitable Growth at Investor Conference | Starbucks Newsroom," 2014)

Appendix C: Starbucks Executive Leadership

Howard Schultz, Chief Executive Officer

Howard Schultz has been the chief executive officer and president of the company since its inception in 1985. Schultz, Howard D., the Founder, Chairman and Chief Executive Officer, has not just made a name for his brand, but also himself. He embodies the values of Starbucks and its pledge to create a third place (i.e., home, work, Starbucks) for patrons to sit, sip, socialize, etc. He has earned the respect of his peers, his employees, his customers, etc., through his strict adherence to corporate ethics to produce a genial and productive corporate culture. He has had the advantage of learning the coffee shop market first hand, that his company has popularized in the United States, operates. He has had the financial information surrounding business


operations for almost 3 decades, including seeing first hand which stores close, underperform or shine. He is probably the best educated coffee shop business analyst in the country. Although the rest of the top management team are made up of newcomers, Schultz appears to run the show - exercising strategic control in all areas of Starbucks operations. This is evident from the mission statement to the decisions he makes about finance, store openings, advertising, personnel policies etc (S&P Capital IQ, 2015).

Scott Harlan Maw, Chief Financial Officer and Executive Vice President

Scott Harlan Maw is a strength. Having been promoted from within the company, Maw’s understanding of the company, its operations and its finances has led to outstanding stock performance. “The Company shares has received a rating of Buy from 11 Wall Street Analysts. 4 analysts have rated Hold.1 analyst have also rated it as a Underperform. Starbucks Corporation (NASDAQ:SBUX): The mean short term price target for Starbucks Corporation (NASDAQ:SBUX) has been established at $63.45 per share. The higher price target estimate is at $98 and the lower price target estimate is expected at $52 according to 20 Analyst. The stock price is expected to vary based on the estimate which is suggested by the standard deviation value of $9.52” (Smith, 2015, para 2).

Sharon L. Rothstein, Global Chief Marketing Officer

Sharon Rothstein is Starbucks global chief marketing officer, and she is also a great strength. In this role, Sharon leads the creation of the brand narrative for Starbucks retail and channel development, marketing initiatives, creative expressions, advertising, and key business partnerships. She also has direct responsibility for leading Starbucks global creative studio, global digital marketing team and global category brand management. Additionally, Sharon co-chairs the Starbucks global brand leadership team and is responsible for amplifying and integrating the Starbucks brand and customer experience through the company’s rapidly expanding digital and loyalty platforms. It’s the loyalty platforms, such as the gold card and mobile app that have generated 35% of the company’s sales and provide the company with cash upfront as gift card, gold card, and app generated sales are from front-loaded payment vehicles (Matherson, 2013).

Curtis Evander Garner III, Chief Information Officer and Executive Vice President

Mr. Garner, known as Curt, began his career at Starbucks March 9, 2012. Curt currently heads Starbucks global technology and engineering services inclusive of all businesses and operating organizations across all Starbucks channels and geographies (https://www.linkedin.com/in/curt-garner-6894764). He also functions as Senior Vice President of Business Technology and supports retail and international technology at Starbucks. Curt is a graduate of the Ohio State University; B.A. Economics (S&P Capital IQ, 2015)

Scott Pitasky, Executive Vice President and Chief Partner (human) resources Officer.


Scott began his career at Starbucks in October of 2014. In addition to his current role, Scott has had many years of Executive level experience is some of America’s most profitable, well known corporations (most notably Microsoft and Amazon. Scott is a graduate from the Wharton School of the University of Pennsylvania; B.S. Finance and Management (S&P Capital IQ, 2015)

The presence of Curtis E. Garner III and Scott Pitasky in executive leadership roles can be seen as strengths to the Starbucks organization. Both bring very strong technical skills and expertise to the company. Curtis currently also serves as a director of Aerohive Networks, Inc and has more than 20 years of IT experience. His resume also includes various technology related leadership roles when he was employed by Wendy’s International. Scott has held high level management positions with two of the most well know, fastest growing technology firms in America; Amazon and Microsoft. (S&P Capital IQ, 2015). Brotman, Adam B., the Chief Digital Officer, is responsible for the Starbucks mobile application and digital strategies. The Starbucks’ mobile application has revolutionized payments and made the Starbucks experience more accessible, at the touch of a button. Because mobile app purchases are prepaid through gift card or loyalty card reloads, Brotman’s technological expertise and his collaboration with Sharon Rothstein have created a full third of Starbuck’s exceptional cash flow (Elgan, 2014).

Ms. Gerri Martin-Flickinger is Chief Technology Officer of Starbucks. She has been in position since November 2nd, 2015. Although new to the leadership team at Starbucks, she has a wealth of experience to offer. Previously she had been the Chief Information Officer and Senior Vice President of Adobe Systems Incorporated since May 15, 2007 until October 12th 2015, a very reputatble company. Her expertise has been said to include a leading transformational change, aligning IT costs, and brokering business and IT relations (S&P Capital IQ, 2015).

Jinlong Wang has been the Vice President of Business Development in Starbucks China for the past 2 years. He has had a long running career within the Starbucks corporation as he has been here since 2005 (S&P Capital IQ, 2015).

Helm, Lucy Lee, the Executive Vice President, General Counsel and Secretary, handles legal and corporate affairs (S&P Capital IQ, 2015).

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