Starbucks: Overcoming Financial Meltdown of 2008

This report discusses the issue faced by Starbucks in 2008 and the strategies implemented to overcome it. It focuses on the changes made in customer services and products, the impact of the financial crisis, and the approach used to solve the problem. The report also includes a critical appraisal of the approach, stock market analysis, and recommendations.

Table of Contents
Table of Contents.............................................................................................................................1
1. INTRODUCTION.......................................................................................................................2
1.1 Objective is missing...............................................................................................................2
1.2 Structure of the assignment....................................................................................................2
2. History of the company...............................................................................................................3
2.1 The problem...........................................................................................................................3
2.2 Data collection.......................................................................................................................4
2.3 Quantitative data....................................................................................................................5
2.4 Qualitative data- didn’t meet the requirement as per sample. You can use table form. This
is too brief.Please see sample......................................................................................................6
2.5 Impact and duration of the problem.......................................................................................6
2.6 Approach to solve the problem- please see sample. Too brief. You may use table form. Or
any other graphical form to save word count.please give citation...............................................7
3 Analysis and discussion................................................................................................................7
3.0 Critical appraisal of the approach used..................................................................................7
3.1 Strength and weakness of the approach...............................................................................11
3.2 Outcome of the approach used.............................................................................................11
3.3 Other approach:....................................................................................................................12
3.4 Suggestion for Starbucks to use other approaches...............................................................12
3.5 Casual factors of the problem..............................................................................................12
3.6 Root cause of the problem...................................................................................................12
3. Stock Market analysis................................................................................................................13
4. CONCLUSION..........................................................................................................................15
5. RECOMMENDATION.............................................................................................................15
6. REFERENCES..........................................................................................................................17

1. INTRODUCTION
Main focus of the report is to discuss the issue that were faced by Starbucks in the year
2008. Further, it consists of the ways that were implemented in order to overcome the issues in
effective manner (Cramer, 2017). There were alternative strategies that were applied by the firm.
In this context, CEO was changed from Jim Donald to Howard D. Schultz. In the year 1987 to
2000, Schultz was CEO, then again he was appointed as the CEO in 2008.
The type of perception that was carried out Schultz was different, he focused on develop
strong relationship customers (George, Johnson and Smith, 2016). There were feedback taken
from customers and more than 100 changes were made in the type of services and products that
were delivered by the firm.
Main problem that were faced by the firm was related with the losses that they were
facing fur to crisis of 2008. It is important to take up appropriate step so that the rate of
performance can be improved and the issue faced can be solved.
1.1 Objective is missing
Objectives of this assignment is to focus on the problem that has affected the business
that already been solved. It consists of critical analysis of the solutions that were made by
Starbucks with the help of strategies and theories to take up appropriate decision making. Below
given are the objectives that will be covered:
1. Managing customers complaints and attaining the targets
2. Approaches of management to solve problems.
3. Decisions taken by management for better solution.
4. Making use of suggested approach.
5. Recommendation of solution.
1.2 Structure of the assignment
There are different aspects that will be covered in the research. In this context, main
focus of the assignment is to determine the decisions that are taken by the business so that
problems faced can be solved in appropriate manner. Below given is the flow of report that is
followed:
 Analysing the issue faced by Starbuck in the year 2008.
 Approaches applied by the firm to solve the issue.
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 Analysing whether the approach applied was effective enough to solve the problem.
 Proposing alternative approach for the issue.
 Providing recommendations
2. History of the company
Starbucks was founded in the year 1971 and was founded by Jerry Balswin, Gordon
Bowker and Zev Siegl in the year 1971 and it is headquartered at America. Currently they have
their businesses at 26696 locations. It is a leading coffee chain and conduct their operations
across the various nations. Main focus of cited firm is to deliver high quality services and the
price that is taken from them is also high (Finch, 2016 ). They understand the requirement of
customers and make changes in their products and services. In other words, they are well known
for their taste and quality. Further, the products they deliver include whole bean coffee, espresso
coffee, tea products, fresh juices and beverages including snacks, chips, etc. (Fuchigami and
et,al., 2016). Cited firm had about 50 stores in US and operates in 43 other countries. Further, it
has attained different type of rewards like “Most Admired Company”, “Best Business”, etc. to
give more information on the company and their structure, employees.
2.1 The problem
The world's largest coffee retailer, Starbucks, pulled itself out of the financial meltdown
of 2008 by aligning its operations with customer demands through social media. The company
closes 600 stores in the US but with the help of social media platforms they have create their
brand value and improving their functions and raises its productivity and also tries to add value
by using innovation techniques such as Wi-Fi service so that certain thing directly improve their
quality.
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Figure 1: Starbucks Financial performance
(Source: Starbucks, 2015)
In accordance with the above figure, it can be stated that the rate of performance relate
with profit made is too low in the year 2008 and 2009. The sales got negatively affected and they
were facing huge losses. However, it is identified that there are improvement in sales since 2009
and this was possible with the efforts made by CEO.
The rate of competition that are faced by Starbucks is high. There are many other firms
that delivered customers with similar set of products and services (Schönsleben, 2016 ). There
are different type of issues that were faced by the business with the crises that occurred in the
year 2008. As per the researchers, it was stated that due to the high price that are charged by the
firm for their services is the main reason for their losses that were faced. At the time of crisis,
customers preferred to make use of the services that are delivered to them at low cost. In the year
2008, there were 600 shops of Starbucks that were not making much profit and they faced about
28% of fall in profits when compared with the profit that were made in the year 2007 (Heizer,
2016). Then in the year 2009, 300 stores were closed down and 67000 employees were laid off.
Please see sample
2.2 Data collection
Both qualitative and quantitative data were gathered so that day to day operations that are
performed by the business can be undertaken in effective manner. This way, it is favourable
enough to raise in depth understanding for that strategies that are applied by the firm. The areas
in which they need to improve are also considered so as to overcome problem effectively and
efficiently.
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2.3 Quantitative data
There are many fluctuations that are faced by the Starbucks but they were able to
maintain their operations in effective manner. Below given are the stock markets of the firm
from the year 2000 to 2009.
Figure 1: Revenue and Operating income
(Source: Starbucks in Expanding by taking on Debt. 2015)
In accordance with the above given figure, it can be stated that the rate of revenue that
were made by the firm is increasing at an increasing rate. This shows that people prefer to make
sure that services that are delivered by the firm. However, from the year 2008 the revenue has
fallen. Further, the operating income of the firm has also fallen from 2008. When CEO changed,
then there were strategies implemented in which price of the products were raised and this was
also a negative impact over the business (Starbucks in Expanding by taking on Debt, 2015).
Further, main emphasis was made on understanding the issues or problems that were faced by
customers. This was helpful to understand the areas in which customers prefer to have
improvement. Main focus of any firm is to gain maximum profit. This is can be done when
requirement of service users are satisfied. When Starbucks focused on solving the problems
faced by customers, then they were able to develop strong relationship with them. As a result, the
rate of market share slowly improved.
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2.4 Qualitative data
By consideration the sales that are made by cited firm, it can be stated that they are not
perform with their full efficiency. It is the responsibility of the management to take up proper
steps so that they can overcome the problems. The rate of visitors reduced and the main reason
identified for this was high price that are taken from firm for their products and services. There
are about 300 stores that were closed down and 6700 employees were sent off from their job.
More specifically, below given are the issue or problems that were faced by the firm:
Staff skill  Fail to have strong interaction with customers.
 Poor understanding of customers’ requirements
Equipment’s  Lack of understanding among employees
 Outdated technology
Quality  Failure in maintaining quality by employees
Positioning  Requires to have effective positioning of food
dishes
Handling methods  No proper inventory control
 No wastage control system
Monitor
Equipment’s
 Monitoring system to be implemented
 Accountability of equipment
Staff willingness  Lack of team work
 Lack of training
2.5 Impact and duration of the problem
Huge losses were faced by the Starbucks in which many stores were closed down as they
were not able to meet their minimum targets. The problems were lasted for two years in which
they were not able to overcome the problem (Li and Coates, 2016). However, new CEO was
appointed who understand the main cause of the problem and appropriate steps were taken so
that rate of performance can be improved in positive manner. From the year 2010 they were able
to improve their sales and profitability in positive manner.
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2.6 Approach to solve the problem
In order to overcome the problem, management as per the strategy applied by new CEO,
they focused on improving the relationship with customers. Feedbacks were taken from
customers so that they can convey about the problems that were faced by them. Then appropriate
steps were taken so that strong customer’s relation can be developed. Further, they develop
mobile application so that all the customers are able to determine the offers that are delivered by
the firm. Below given are the strategies for reducing the rate of problem within the organization:
 Providing workers with appropriate training so that skills and
capabilities can be developed.
 Rewarding employees based on their performance.
 Taking feedback from workers and customers
3 Analysis and discussion
3.0 Critical appraisal of the approach used
It is need to critically analyse that how world's largest coffee retailer, Starbucks, pulled
itself out of the financial meltdown of 2008 by aligning its operations with customer demands
through social media. The analysis can be done with the help of Constructive controversy
approach which consist of different stages that are to find the statement of the problem, different
conclusion, uncertainty of the statement and finally result of the problem. Constructive
controversy approaches have been used in order to solve the problem and make effective
decision making. Constructive controversy involves deliberative discussions aimed at creative
problem solving (Esampally and Kumar, 2017). It can be contrasted to debate (a competitive
process where one view wins over the other), concurrence seeking (which suppresses
disagreement and consideration of alternatives ), or various individualistic processes. Most of the
people solve their problems on by own and take their decisions and any new problem are arising
the individual decision is depended as per that manner only. It is very useful for the management
and organisation to take down decision by using different approaches on that regard and which
helps them to solve down the problems and decision making will also be done (Li and Coates,
2016). It is important for the management and organisation to follow the appropriate guidelines
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so which helps them to take decision. There are five steps that are involved in this model are as
follows:
Step 1 Statement of the problem
The world's largest coffee retailer, Starbucks, pulled itself out of the financial meltdown
of 2008 by aligning its operations with customer demands through social media. The company
have to closes 600 stores in the US due to financial crises in the year 2008. The Starbucks suffers
from different problems from couple of years whether it would be technology, service and
various complaints have been received from their customers in that regard and for various
problems the company prepares a list and take certain approaches in regard to that context and
the problem related to its also affect its quality and also decreasing their standards ( Fuchigami
and et,al., 2016). The laboratory testing is also been done and various samples are been collected
to check their quality and standards and ineffective results are come out in that favour. The
certain problems are faced by the company and these certain factors affected the company
quality and standards and also decrease their market value In the market and the company uses
such material in their form of lead and other materials which used by the company in producing
coffee that directly affects its quality and also customers and their faith and loyalty towards it is
also affected (Kapur and Kumar, 2016 ). The basic problem faced by the venture that their prices
of their products and services. In the year 2008, when the economy was facing financial crises,
people were not having enough money to spend on premium coffee. This is the reason By March
30, 2008, their profit had fallen 28 per cent compared to the same period in 2007. In 2009, it
closed another 300 stores and laid off 6,700 employees.
Problem to approach Approach to solution
Find the basic problem: that is economic crises Constructive controversy approach
implementation
Find the different causes that arise the
problem: income of people that they not able
to afford premium coffee (Ballis, Karapetis
and Ballis, 2017 ).
Gather data and community discussion
Finding the solution: Social media platforms to
find the different ideas given by customers
Idea from CEO
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Implementation of 100 ideas given by the
customers
Step by step implementation
Permanent solution: their Profit again starts
rising up (Heizer, 2016).
Decide Solution(Two type of solution:
Temporary solution and permanent)
Step 2 Different conclusions
Conclusion 1 Founded in 1971 in Seattle, Starbucks is present in 50 states in the US and 43
countries. It is one of the most respected brands, winning awards such as Best
Business, Most Admired Company , 100 Best Corporate Citizens etc. While its
quality is unquestionable, its price has always been higher than those offered by
the domestic coffee houses in various countries.
Conclusion 2 The biggest issues faced by the venture as the economy crises in the US in year
2008. So the ventures have rapid expansion of their products, but they face the
biggest competition from the McDonald.
Conclusion 3 The previous leadership had blamed the economy and the higher cost of dairy
products for the slump in business.
Conclusion 4 They have change their strategies that is redone of the store layout, they have use
technology oriented strategy.
Conclusion 5 They have started taking ideas from the customers with the help of different
social media platforms
Step 3 Feels uncertain
In this stage the organisation start finding the uncertainty, that whether they will able to
implement the solution, their solution will be accepted by stakeholders or weather their solution
will go for the long run, the uncertainties are as follows:
Uncertainty 1 Uncertainty 2 Uncertainty 2
They try to expand their
business, by serving different
products and services to the
With that they have
implemented social media
platforms, but uncertainty was
100 ideas of the customers
have been implemented by the
customers, they need to find
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customers but they face huge
competition from the
McDonald.
there, weather the customers
will serve ideas or not on
social media platforms
that weather these ideas will
help them to solve the issues
(Schönsleben, 2016 ).
Step 4 Search for better understandings
Scenario In this scenario, social media platforms plays very significant role. Venture have
started communication and connecting with the customer. They try to take different
ideas from the customers in order to create much better understanding about the
environment and market place where customers and competitors exist.
Step 5 Draw conclusion
The conclusion was drawn in three ways, which are in term of customers and expansion,
the conclusion are as follows:
Conclusion 1 They have started expanding their business where they face huge competition
from the McDonald
Conclusion 2 They have started using social media platforms and mobile app where they
used to collect different ideas from the customers by communicating with
them.
Conclusion 3 They venture have implemented 100 ideas given by the customers in order to
create connection with the customers and solve the different issues faced by
Starbucks related to the economic crises.
3.1 Strength and weakness of the approach
Strength: It helps the organisation to find the different causes of the problem and how that they
can conclude that problem and solution in different ways. The organisation have focused on
reducing the different issues faced by them related to the different aspects of economy, this
method helps them to find that what are the different causes of the problems and also helps to
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find the different strategies which helps them reduce the root cause of the problems. So they
have taken different ideas from the customers and try to implement it to the organisation.
Weakness: As there are different conclusion is being drawn in this method, implementer get
confuse that which need to be executed. Other than that weakness can be when the data is not
collected than it is not possible for the venture to solve the problem.
3.2 Outcome of the approach used.
They venture have implemented 100 ideas given by the customers in order to create
connection with the customers and solve the different issues faced by Starbucks related to the
economic crises.
3.3 Other approach:
The other approach which can be used by the venture in order to solve the problem is
cause and effect approach. Root cause analysis have been used by the organisation in order to
find that what are the different cause of the problem, how information is being collected and how
does solution can be implemented.
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Illustration 1: Inpact on the company after using the approach
(Source: S and P Global market intelligence, starbucks, 2016)

Root cause Information collection Strategies implantation
The root cause of the problem
is that there was economic
recession in the US in year
2008 which have reduces the
sales and profit margin of the
venture
The information is being
collected from the different
social platforms and
application
The venture have collected the
different ideas from the
customers and then trying to
implement it in order to have
large customers base again.
3.4 Suggestion for Starbucks to use other approaches
Focus Model
The venture can use another model which helps them to find the different issues as well
as helps them to identify the different strategies by which they can able to solve the different
issues. There are five stages involves in this model that are
1. Find the problem
2. Organize the team
3. Clarify the problem.
4. Understand the problem
5. Select the problem
3.5 Casual factors of the problem
The factors which cause the problem for the organisation is income level of the US
citizen is decreasing and Premium price of their products which can be afford by the people.
3.6 Root cause of the problem
The root cause of the problem is Economy situation of the US which was decreasing in
the year 2008 and due to that income level of the people have been decreasing.
3. Stock Market analysis
There are different fluctuations that are taken place in relation with the price share of
Starbuck. There are huge losses that they have to face. Below given are the price shares of cited
firm since 1995 to 2015:
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Figure 1: Share price of Starbucks
(Source: 3 Terrible Reasons to Sell Starbucks Stock, 2014)
In accordance with the above figure, it can be stated that there are high negative impact
that can be seen in the year 2008 and 2009. Main reason for this was considered to be the price
and targets that were set by the business were not attained.
Below given are the market shares of Starbucks from the year 2010 to 2014:
Figure 1: Profit make by Starbuck's
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(Source: The HBR interview, 2016)
In accordance with the above, given figure, it can be stated that since the year 2010,
Starbucks is able to raise their profitability in positive manner. Use of social media is an
important aspects that has used by the firm. The rates of internet users are increasing drastically.
It is a helpful source that helps to interact with people and to know their preference (The HBR
interview, 2016). Further, Starbucks also introduced their own application and this was a
beneficial attempt to raise the sales and profitability. Customers were able to place their order
and were also able to make it available to their door steps. Further, it also updated them with the
offers that were provided by the firm.
Further, below given are the profits that are made by Starbucks from the year 2015 to 2017:
Cash Flow (mil) 2017 2016 2015
Cash at the beginning of the year $2,128.8 $1,530.1 $1,708.4
Net Operating Cash $4,174.2998 $4,575.1001 $3,749.1001
Net Investing Cash $(850) $(2,222.8999) $(1,520.3)
Net Financing Cash $(3,001.6001) $(1,750) $(2,256.5)
Net Change in Cash $333.5 $598.7 $(178.3)
Cash at end of the year $2,462.3 $2,128.8 $1,530.1
Capital Expenditure $(1,519.4) $(1,440.3) $(1,303.7)
In accordance with the above given table, it can be stated that the rate of performance in
recent years have also raised in positive manner. The rate of growth that the firm has is positive
enough and they are able to attain their goals and objectives in effective manner (Finch, 2016).
The strategies that are applied by the business have helped in developing trust and confidence
within the mind of customers. Further, the issues that are faced by each of the customers are
properly considered and this way, it is favourable enough to make sure that they raise the sales
and profitability.
4. CONCLUSION
From the report, it can be stated that Starbucks were facing different type of issue in
order to operate their functions. The type of perception that was carried out Howard D. Schultz
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was helpful enough to stabilize the performance. Further, it can be stated that taking feedback
from customers is helpful enough to know the issues that are faced by them. Through appropriate
steps taken help the business to improve their performance level and sales. Further, employees
are the one who present the products and services to customers (Schönsleben, 2016). It is
important for the firm to have appropriate support from the side of workers so that they are able
to put on their full efforts in attaining the goals and objectives.
Cited firm identified that there are different type of issues that were faced by customers.
Feedback from services users were gathered so that they are able to determine the issues that are
faced by them. This way, there were more than 1000 changes that were made. Among the
changes made, one of the effective strategy was introducing mobile application that helped in
connecting with customers and delivering them services as per their need and requirements.
5. RECOMMENDATION
It can be recommend from the case or report that the venture should use and implement
different strategies which helps them to enhance their sales and customer market segment, the
strategies may include:
 Use of different social media tool where they promote their brand by serving different
sales promotion such as discount, vouchers, offers etc. this can helps them to attract large
customers.
 They can create an app where they can take orders from the different customers and serve
different goods and services at customer's door.
 They can create large active online community that influences the company's product
strategy, and gathers suggestions on every aspect of its operations.
 They should reduce the waste which is being created by the disposable cups, this will
create publicity for the organisation.
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6. REFERENCES
Books and Journals
Ballis, A., Karapetis, F. and Ballis, T., 2017. Towards the Implementation of Optimal Train
Loading Plan in the Athens-Thessaloniki Freight Services. International Journal of
Operations Research and Information Systems (IJORIS), 8(2). pp.78-92.
Cramer, J., 2017. Corporate Social Responsibility and Globalisation: an action plan for
business. Routledge.
Esampally, C. and Kumar, G.P., 2017. Adoption Levels of Sales and Operations Planning
(S&OP) Framework by Indian Auto Component Manufacturers' for Balancing Supply
with Demand. Journal of Marketing Vistas, 7(1). pp.1-11.
Finch, B., 2016. How to write a business plan. Kogan Page Publishers.
Fuchigami, Y and et,al., 2016. Analysis of the mechanism hindering sustainable forestry
operations: A case study of Japanese forest management. Forests, 7(8). p.182.
George, D.L., Johnson, E.J. and Smith, M.J., 2016. Student preferences regarding didactic
content and practical experiences of influenza vaccination clinic business operations in a
pharmacy business and entrepreneurship elective. Currents in Pharmacy Teaching and
Learning, 8(2). pp.207-212.
Heizer, J., 2016. Operations Management, 11/e. Pearson Education India.
Kapur, P.K. and Kumar, U., 2016. Special issue on reliability, infocomm technology and
business operations. International Journal of System Assurance Engineering and
Management, 7(4). pp.399-399.
Li, C. and Coates, G., 2016. Design and development of an agent-based model for business
operations faced with flood disruption. Complex Syst.: Fundam. Appl, 90. p.275.
Schell, J.M., 2016. Private equity funds: Business structure and operations. Law Journal Press.
Schönsleben, P., 2016. Integral logistics management: operations and supply chain management
within and across companies. CRC Press.
Online
Brewing innovation: The world's largest coffee retailer, Starbucks, 2008. [Online] Available
through:<https://www.businesstoday.in/magazine/lbs-case-study/how-starbucks-
survived-the-financial-meltdown-of-2008/story/210059.html>
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Starbucks in Expanding by taking on Debt. 2015. [Online] Available through:<
https://beta.marketrealist.com/2014/12/starbucks-getting-tea-business>
The HBR interview, 2016. [Online] Available through:< https://hbr.org/2010/07/the-hbr-
interview-we-had-to-own-the-mistakes>
3 Terrible Reasons to Sell Starbucks Stock. 2014. [Online] Available through:<
https://www.fool.com/investing/2017/03/18/3-terrible-reasons-to-sell-starbucks-
stock.aspx>
Starbucks. 2015. [Online] Available through:<
https://www.slideshare.net/AngelWong9/starbucks-updated-updated>
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