For this segment of the analysis Team A will explain the strategic planning Starbucks has implemented to fulfill their initiative of expanding their “food portfolio” by expanding into the self-serve market, such as Keuring or K-Cup. To do this the team analyzed the financial records of Starbuck for the two previous years. This examination will help individuals new to finance understand how the strategically placement, handling, and discernments of finances provides the stability to move forward with this particular initiative.
* The issues of concern within company for the purpose of understanding the strategic planning the initiative of expanding their product base. After careful evaluation of the financial records and information on the new initiatives, Starbucks provided, it is clear that this particular initiative is important to the company. The review and evaluation of this strategic plan will provide an idea of the direction the company is heading and how the implementation of this new plan facilitates the goal of the company and where they are headed. We will explain how this initiative will affect the company in the areas of cost and sales and just as importance is how this will affect the future success of the company.
* Following this will be a recommendation, if one is necessary, for an alternate strategic plan. Finally, Team A will describe the types of risks that are associated with the expansion of Starbucks food portfolio. Through an evaluation of the risks, Team A will base the possibility of financial issues upon the financial effects that the future may deal with as a cost of this decision. This will lead to recommendations and to the conclusion. * Strategic Plan Initiative:
* Starbucks has been toying with the idea of expanding what they call their “Food Portfolio” to include self-serve or home brewed coffee that meets the rigorous standards of the Starbucks Corporation. Part of the plan is to join the market by producing portioned coffee and tea cups to fit into the existing coffee and tea brewing machines. Another option would be to rework the basic process so that the Starbucks brands are only compatible with Starbucks brand machines. This would be a downfall as many other companies are creating machines which are multi-brand compatible. Starbucks has already begun the process of implementation by discussing possible contract with companies such as Ready Brew and the Seattle’s Best Coffee brands.
This also allows the Starbucks Corporation to discover what competition is out there and what they must do to continue to be successful. How the initiative affects the organization’s financial planning? After a full evaluation of the Starbucks Corporation Strategic Initiatives, there is no guarantee that the Starbucks Organization will implement strategic initiatives in line with consumer expectations which can impact negatively the finances and the business results of the organization. The United States economic conditions could also affect the finances and business of the organization. Altogether, if the Starbucks organization does not come up with a plan to successfully implement important strategic initiatives, this would greatly affect the organizations financial and business results. How will the initiative affect costs and sales?
The financial conditions and results of operations may be greatly affected by several risk factors, most are outside of the organizations control. Below are some factors that could affect cost and sales of the organization. • Implementing home based products will lower consumer traffic throughout stores, which would negatively impact store sales, net revenues, operating income, operating margins and earnings per share
• Lowering the price would cause customers to trade down to lower priced products within Starbucks, or ultimately shift to their competitors • Customer acceptance is an important factor of new products or price increases •If the economic conditions of the markets where Starbucks operate are unfavorable that can greatly affect consumer spending • Cost increases within the organization that are beyond the control of the organization, such as; commodity, cost for commodity, fluid milk, and high quality Arabica coffee. • This can also affect labor costs like increased health care costs, and compensation of insurance costs • Construction costs that can be associated with opening new stores • Ultimately the deterioration in the organizations credit ratings, which would limit the availability of more financing to the Starbucks Corporation.
Alternatively, because most risk that the organization face are in the hands of the consumer, The Starbucks Corporation needs to continue building on the reputation of the excellent brand Starbucks has built over time. The Starbucks brand is known globally for the quality of products that are produced by the organization and continue to deliver positive and excellent consumer experiences. Also, to ensure future successes, continued leveraging of the value of the brand the organization has built and ensure that other brands are less well-known to the public.
* Faced with the constant increase in commodities, shortage of jobs, and a troubled economy, the momentum of the company had to chance and this strategic move has paid off. After a thorough review of the market, there is no question that the new initiative is well worth the risk to expand the company’s product line, and the market indicates that the company would benefit from the growth and diversity of allowing some of Starbucks products to be used with other company’s coffee products.
* Coffee continues to be the main core of business for the company and what the consumer identifies with. The evolving of the brand is important to its continued growth and competing in various markets. By offering products online and expanding into stores (other than Starbucks) the company will reach consumers that do not live near a coffee house or have never tried the product. Consumers are brewing at home and enjoy the convenience of a pre-package product that they would normally have to drive to a store to obtain.
* This opens the door to building relationships between online stores, grocery stores and any other establishment that could carry the product. The new product lines held to generate a surge in gross sales to the tune of $250 million in fiscal sales in 2011 (Starbucks, 2011). The new product lines are on schedule to match the profitability of the current retail market. * Risk Associated with the Proposed Initiative and the Financial Effect * Anytime a company steps outside of its original product it runs the risk of some failure. However, for Starbucks they took a risk and it paid off for the company in the way of revenue and continued growth.
* The main goal of the company is maintain their reputation in the marketplace, grow the business, earn a profit, and continue to provide the world with great Arabica coffee. By continuing to follow the strategic plan for growth, were they are leveraging several channels of distributions. Starbucks revenues reached an all time record of $13.3 billion, which was a 14 percent increase over the previous years. By mastering the ease of setup of the store, Starbucks can fit into any market. This balance of expertise of products and respect for customs and cultures has ensured the business continued success. Included in the new face of Starbucks coffee products are juices and Teavana which is a high-end drink allowed the company to expand its market into the retail stores.
By adding the Starbucks logo to media programs such as Twitter and Facebook, and smart phone has lead to an increase in consumer loyalty to the tune of about 75 million followers. * Keeping an eye on the bottom-line, careful strategic planning, thoughtful execution, and disciplined in their desire to remain number one in the coffee market by staying on top of what the consumer wants, should give Starbucks the advantage over its competitors and a continued growth well into the future.