Financial Analysis and Projection of Starbucks

The provided assignment content is an analysis of Starbucks' financial positions and projections for three years (Year 1, Year 2, and Year 3). The content includes a profit and loss statement, balance sheet, and break-even analysis. The analysis reveals that Starbucks has a strong cash flow with a net cash balance increasing from $160974 in Year 1 to $317745 in Year 3. The company's net profit also increases over the three-year period, with a percentage growth rate of 6.68%. The break-even analysis shows that the company's monthly break-even revenue is $19170, assuming an average variable cost of 34% and projected fixed costs of $12845 per month.

Business plan
Starbucks
Executive Summary
In 1981, Howard Schultz (Starbucks chairman, president and chief executive officer)
had first walked into a Starbucks store. From his first cup of Sumatra, Howard was
drawn into Starbucks and joined a year later.
A year later, in 1983, Howard traveled to Italy and became captivated with Italian
coffee bars and the romance of the coffee experience. He had a vision to bring the

Italian coffeehouse tradition back to the United States. A place for conversation and a
sense of community. A third place between work and home. He left Starbucks for a
short period of time to start his own Il Giornale coffeehouses and returned in August
1987 to purchase Starbucks with the help of local investors.
From the beginning, Starbucks set out to be a different kind of company. One that not
only celebrated coffee and the rich tradition, but that also brought a feeling of
connection.
Background and History
In 1981, Howard Schultz (Starbucks chairman, president and chief executive officer)
had first walked into a Starbucks store. From his first cup of Sumatra, Howard was
drawn into Starbucks and joined a year later.In 1983, Howard traveled to Italy and
became captivated with Italian coffee bars and the romance of the coffee
experience.He left Starbucks for a short period of time to start his own Il Giornale
coffeehouses and returned in August 1987 to purchase Starbucks with the help of
local investors.
Description of Products
Starbucks Corporation (together with its subsidiaries, “Starbucks” or the “Company”)
purchases and roasts high-quality whole bean coffees and sells them, along with fresh,
rich-brewed coffees, Italian-style espresso beverages, cold blended beverages, a
variety of complementary food items, a selection of premium teas, and beverage-
related accessories and equipment, primarily through its Company-operated retail
stores. Starbucks also sells coffee and tea products and licenses its trademark through
other channels such as licensed stores, and through certain of its licensees and equity
investors, Starbucks produces and sells a variety of ready-to-drink beverages
("Description of Business for Starbucks (SBUX)", 2017). All channels outside the
Company-operated retail stores are collectively known as specialty operations.
SWOT Analysis of Starbucks
SWOT analysis of the company gives us a significant information about the strengths,
weaknesses, opportunities, and threats of the company. With the help of below-
mentioned table one can easily get information about SWOT of Starbucks:
Strengths Weaknesses
 Strong Financial Performance
 Strong Brand Image
 High Expertise
 Depends on the Americas
Segment
 Slow Expansion in Europe
Opportunities Threats

 Consumer Packaged Goods
 International Expansion
 Intense Competition
 Volatility in Coffee prices

Market Description
It is crucial to be aware and understand the environment in which a company is
operating in order to implement their strategies successfully. The Micro environment
can be analyzed using a SWOT analysis and further completed with a Macro
environment study by doing a PEST analysis.
While coffee sales are acquired and are at a maturity stage (could be considered as
tuxedos products), Starbucks must still make an effort on the brand management for
tea and discover a way to develop the evening alcohol sales. Starbucks product
management can further determine two product categories: durable (mugs and
souvenir objects) and non-durable (beverages sold). Trademarks play an important
role in the protection of the "Starbucks culture", due to the copyrights and registered
trademarks all the beverage names, images, logos, slogans, or websites common to the
company cannot be copied by anyone else (Starbucks, 2014). This protects the
environment and culture the company has and allows them to maintain their
competitive advantage.
The products are the starting point to creating value for customers; if they are high
quality products that are differentiated from other companies, the customer will
remember this and forge his or her idea of the brand. Once these product attributes are
determined, brand equity comes into place to communicate and confirm the
company's values.
Target Market Profile
Starbucks’ primary target market is men and women aged 25 to 40. They account for
almost half (49 percent) of its total business. Starbucks’ appeal to this consumer age
group through hip, contemporary design that is consistent in its advertising and decor,
and working to keep its products current as status symbols. Customers tend to be
urbanites with relatively high income, professional careers and a focus on social
welfare. This target audience grows at a rate of 3 percent annually.
Young adults, aged 18 to 24, total 40 percent of Starbucks’ sales. Starbucks positions
itself as a place college students can hang out, study, write term papers and meet
people. Starbucks appeals to this consumer directly through introducing technology as
soon as it comes available, focusing on social networking and actively cultivating a
“cool” image. The young adult audience grows 4.6 percent each year.
Kids and teens are also a large part of Starbucks’ target audience. Together, customers
age 13 to 17 account for just 2 percent of Starbucks’ sales, but most items for kids are
purchased by the parents. Whether the focus is on the steamed milk that Starbucks’
baristas refer to as “babyccinos” or the sugary, caffeinated, whipped cream topped
coffee drinks that are so popular with teenagers, kids and teens form a large part of
Starbucks business. Kids go there with their parents; both mother and child leave with

cup in hand. Teens meanwhile use Starbucks as a place to hang out with friends or
study. Starbucks may not cater directly to kids (and risk criticism about the high
calorie and caffeine content of some of its drinks) but it does make its products kid-
friendly, offering special child sizes for instance.
Competition
Starbucks biggest competition isn't another coffee chain.
Instead of worrying about the impact of Dunkin' Donuts or Tim Hortons, the coffee
giant is keeping an eye out on trendy independent shops, according to CFO Scott
Maw.
"We're still not seeing any one competitor or even a smaller number of group of
competitors being an influence on our business at any time," Maw said at the UBS
Global Consumer and Retail Conference on Thursday. "But what we have
acknowledged ... is the collective group of independent coffee shops out there, they
are doing a lot of what Starbucks has been so good at for so long."
In other words, Dunkin' Donuts running a promotion isn't going to hurt Starbucks'
sales. However, the rise of trendy neighborhood shops has the potential to draw
customers away from Starbucks in the long term, especially if Starbucks can't
compete when it comes to service and environment.
"It's that third-place environment, it's a comfortable place to be, it's an up-leveled
coffee experience," Maw said. "They're not taking share from us but what we know is
if we don't have our service levels right and customers aren't engaged in the right way,
they now have options."
The concern that independent coffee shops will win over Starbucks' customers is
amplified by the chain's growing ubiquity, Maw said.
Widespread popularity can kill a trendy brand's image. As Starbucks opens more
locations, maintaining its coffee-snob-approved reputation becomes more difficult,
especially in relation to independent chains.

Marketing Strategy and Sales Plan
Starbucks must address the wants and needs of their Italian customer base as its
services are meant to include more than just a coffee experience. Starbucks fulfills the
customers’ need who desire for an inviting, warm and friendly environment. It gives
every component of comfort be it the office or home as people can look out of the
window, talk over their phones, sit on chair and even surf internet. Starbucks provides
good conversation and attitude. It also gets curious and cares for the needs and wants
of customers. They perform every action which they can for understanding the wants
and needs of customers along with delivering the services and products at interactive
and human level (Aiello and Dickinson, 2014). The so many excellent features like
exceptional employees, great coffee, cozy chairs and Wi-Fi will attract a large
customer base in Italy. The company will offer and provide unique and high quality
customer services by training the employees to be willing to listen to their customers
and embrace the feedback. The environment of Starbucks is actually worth an extra
dollar along with further crow and drive. All these features will drive the Starbucks to
a superior level in comparison to its competitors. Starbucks strives to become the
finest retailers in coffee segment all across the globe by maintain the originality of
their services.

Marketing Mix
Product
Core focus and product of Starbucks is coffee. However, it has introduced various
new products like Tazo tea which has led to expansion of its portfolio of products.
Average shops of coffee provide nearly 20 to 30 types of the coffee beverages.
However, products of Starbucks stand out differently as they provide nearly 50
products (Tuan, 2014). The products of company include cold and hot drinks,
accessories such as CDs, tumblers and mugs, salads, pastries, Paninis and sandwiches.
Price
The main determinants of price of Starbucks’ products are authority value,
differentiation and quality. The high price of their products presents excellence in
customer services and high quality for the customers. In order to be unique in their
services, the company adds new services like Starbucks mobile app, which adds a
community for social networking and an attractive interior design. All these features
generate extra customer value which makes them comfortable to pay high price for
the product.
Place
As per its mission, the Starbucks is present in almost every neighborhood. The
organization often provides the retailers in Canada, USA and UK. Starbucks executes
in nearly 70 nations and also has more than 20,000 stores (Warren, 2015).
Promotion
The E-mail Marketing, television advertisements and web platforms are considered as
the main medium for promotion of products in Starbucks. It provides the social media

tests for promoting the channels like Groupon, Twitter and Instagram (Warren, 2015).
Starbucks is quite famous among its social media fans and its new mobile based
applications along with few gift cards that are given over the beverages may help in
increasing the sales.
Brand loyalty
The Brand loyalty of Starbucks keeps them ahead and maintain the competitive edge.
The everlasting brand loyalty is all about the significant offerings which is more than
just coffee. It involves the experience an individual gets on visiting the Starbucks. The
Seasonal promotions and offerings of company have helped in keeping the brand
afresh.

Recommendations for Marketing Mix
Product Recommendations
If Starbucks desires to increase its target audience in Italy, then it must sell more
variety of products like Beer and Wine which is famous in Italy. Starbucks must do
research in developing new blends and flavors which are less costly as compared to
the average $4 coffee for the customers which are concerned for the prices. It will
help in attracting more customer base and will also increase the target audience
(Grant, 2016). Starbucks must plan for developing a product and adopting the
economic downturns in Italy.
Promotion Recommendations
Starbucks must become aggressive over their strategies of advertising. There are
many Coffee brands in Italy who are tough competition for Starbucks. Thus there is a
high need to convince the customers regarding superiority of their coffee (Tuan,
2014). Starbucks has already maintained a snobby reputation which causes the
company to inform public effectively about the characteristics which makes it worth
expensive as compared to its competitors.
Original Ideas to Promote and Open New Business for Starbucks in Italy
There are many ideas available online and offline to promote the new business in
Italy.
Visit the companies situated in neighborhood and make necessary contacts with the
potential customers. The Starbucks must introduce itself with the directors and

managers to make an offer which is stimulating for them when they come to
Starbucks or order the coffee for delivery. The leaflets must be distribute everywhere.
The offers which are provided must last for 30 days and all the conversations with the
potential customers should be open and friendly. The customers must be treated like
partners and not like strangers. The leaflets having the exciting offer should be
designed professionally and must be small in size so that it easily fit in wallet. There
should be enough discounts offered to the customers to attract targeted customers
groups and make profit. The Starbucks may offer two coffee for the price of one. The
delivery of coffee at the doorstep can be an innovative step in Italy for Starbucks
along with 10% discount on five consecutive orders. The Starbucks must build its new
customer base in Italy which are morning based ad may be prior to noon. Starbucks
must put water mouth pictures and descriptions of tasty food and offered drinks and
food. The Starbucks must celebrate happy hours in the restaurants as this kind of
promotion intends to boost and drive upwards the business at the time of slow hours
in the day.

Sources and Uses of Funds Statement for
Starbucks
Year 1 ($) Year 2 ($) Year 3 ($)
Cash received
Cash from
receivables
Operational cash 20600 78201 88864
Cash sale 43327 182957 257034
Aggregate
operational cash
63927 261160 345894
Additional cash
received
HST/GST, VAT,
Sales Tax received
0 0 0
New borrowing 0 0 0
New liabilities 0 0 0
Sales of current
assets
0 0 0
Sales of Assets
(Long Term)
0 0 0
New Investment
(Received)
0 0 0

Cash Received
(Aggregate)
0 20001 0
Expenditure 63927 281160 345894
Operational
Expenditure
Year 1 ($) Year 2 ($) Year 3 ($)
Bill payments
Cash Spending 83941 112081 124081
Operational
expense
(Aggregate)
77037 178465 193665
Extra Cash Spent 160974 290181 317745
GST/HST, VAT,
Sales Tax Paid Out
Principal
repayment (Current
borrowing)
0 0 0
Liabilities principal
repayment
0 0 0
Purchase Current
assets
0 0 0
Purchase all long
term Assets
0 0 0
Dividends 0 0 0
Cash spent
(Aggregate)
0 0 0
Cash Flow (Net) 0 0 0

Cash Balance 160974 29054 317745
(97051) (9384) 28147
18850 9568 37714
Financial Positions and Projections
Profit And Loss Statement of Starbucks
Year 1 ($) Year 2 ($) Year 3 ($)
Sales 82395 312810 355453
Cost of Sales
(Direct)
27189 103228 117300
Other cost 0 0 0
Cost of sales
(Total)
27189 103228 117229
Gross Margin 55204 209581 238153
Percentage of
Gross Margin
68% 68% 68%
Expenses 83941 112081 124081
Payroll 8394 11207 12407
Marketing and
sales expenses
15601 15601 15601
Depreciation 14401 14401 14401
Payroll taxes 7801 7801 7801
Insurance 9001 9001 9001
Utilities 12592 16813 18613

Rent 2401 2401 2401
Other Expenses 154125 189300 204301
Operating Expenses
(Total)
(98920) 20192 33855
PBIT (83320) 35882 49456
Earnings before
Interest Taxes
0 0 0
Interest 0 6084 10154
Taxes (98930) 14197 23697
Net Profit (120.06)% 4.53% 6.68%
Net Sales/Profit
Opening Day Balance Sheet of Starbucks
Current Assets Year 1 ($) Year 2 ($) Year 3 ($)
Assets
Inventory 18951 9568 37714
Accounts
Receivable
188657 70110 79678
Cash 4721 17921 20243
Other Current
Assets
0 0 0
Current Assets
(Aggregate)
42134 97614 136567

Long Term Assets
Long Term Assets 78001 78001 78001
Aggregate
Deprecation
15467 32145 65473
Long Term Assets
(Aggregate)
64352 46574 31267
Total Assets 104657 14412 156789
Capital and
Liabilities
Year 1 ($) Year 2 ($) Year 3 ($)
Current borrowings
Other current
labilities
9456 15432 15988
Accounts payable 0 0 0
Current liabilities 0 0 0
Current Liabilities
(Aggregate)
9456 15432 15988
Long term
Liabilities
0 0 0
Total Liabilities 9456 15432 15988
Earnings 205001
Retained earnings (11000)
Paid In Capital (98920)
Total Capital 95090 128976 152976
Total Capital and
Liabilities
106453 144413 168956
Net Worth 95090 128976 152976

Break Even Analysis of Starbucks
Particulars Amount ($)
Monthly Break Even Revenue 19170
Assumptions
Percent Variable Cost (Average) 34%
Monthly Fixed Cost (Projected) 12845