Starbucks Economic Analysis

Analysis of the Macroeconomic Context Starbucks was established in 1971 and since, has become the largest retailer and rosters of coffee. It has its stores in 76 countries and operates more than 28, 000 stores. Recently, the company started to sell more perishable goods through their retail outlets but before, they only handled high quality roasted coffee which they sold with their handcrafted signature. In combination with this, they also issue a license through their retail stores. The company also does marketing of its products through other brand names that it has in the same portfolio. For example in the first quarter of 2018 fiscal year, the net revenue was up 6 percent equivalent of 6 billion dollars where the United States and global stores sold up 2 percent while China's revenue was up 30 percent.

The corporation has excellent fundamentals and the advantage of having an iconic brand, large growth in China, assured value return to its shareholders and diversifying their product line are some of the factors and sources that are making Starbuck rise so fast (Lewis & Olivia 55). Starbuck in the past few decades has been the most successful when it comes to coffee chain. This has been mainly through its expansion to Asian countries and the opening of new stores in other parts of the world and also being able to sell coffee at premium prices that have seen the remarkable improvement of its profits. Since it was funded up to 2007, the initial price that was offered when it was being launched has increased by 6000 percent.

8 percent. This can be attributed to inflation that has been a major problem in the word so Starbucks are increasing their prices to cover for the inflations. There have been problems with coffee farmers in South America with lead to decrease in coffee and thus affected coffee prices by raising it. There was also a period when coffee flood the market and it lead to decrease in prices of the same (Mankiw np). Starbucks Corporation (NASDAQ: SBUX) has an ROE of 76. According to data from Starbucks Corporation, annual reports, the total debts of the company has been on an increase since 2015. Starbucks has been flat on the market for some time and with the weakening of the dollar and its other initiatives, there are some improvements.

When the dollar was strong, Starbucks was at risk because of the fact that it is an international company. But them exploiting chines market, it has changed their revenue story. The problem with being an international company is that, after being paid by the customers, Starbucks has to convert this money to the American dollar which then affects the profitability (Andrea et al. This show how good the management of Starbucks is (Benson & Philippa 393). The short-term outlook of Starbucks is quite uncertain because of the rise in interest rates and potential recession of restaurants. Its long-term future, on the other hand, is bright because of growth in international and united states markets. In North America alone, Starbucks has about 2400 coffee stores with no signs of falling off the popularity of the coffee.

This might make investors feel as if the company is stagnant with no potential to grow especial with the planned recession of restaurants. Starbucks is focusing on making technology to be the heart of its operations. Since 2015, they introduced mobile ordering and payment feature thus customers pay without queuing for hours. Since the launch of these features, most of the payments are done by the use of a phone. The brand can invest more in this app by looking for partners to monetize the digital platform. They should also add delivery and music features to the mobile application. 4 percent of their total revenue on sales, marketing, and general administration as compared to 32 percent of other beverage companies. Starbucks also spent lesson intangibles share of revenues, inventory share of revenues, property, plants and equipment share of revenues, accounts receivable share of revenues and accounts payable share of revenues than any other beverage company in the market.

All these have improved the productivity of the company (Pettinger & Richard 20). On March 22, 2017, when the company was holding a shareholders meeting, they stated the growth of the company since it was started 25 years ago. The company has reported 18,000% in shareholder returns since it was started with more than 10 billion dollars in cash in the last five years to the shareholders. All this shows how far the corporation has developed and grown since it was initiated for public use. Starbucks Company is one of the fastest growing companies in the world but it also faced some challenges. The company has been leveraging consumers who are on the loyalty membership and it also lacks elasticity since it imposes new increased prices frequently. Between 2014 and 2016, the corporation hiked coffee prices four times and half of them was in the year 2016.

This rise in process of coffee is to help in maintaining the smooth operation of the company (Thompson np). This will ensure that customers remain in the stores even when there are not enough supply of raw coffee materials. The main raw material for coffee beans is coffee which Starbucks is ensuring that is ethically sourced. Currently, according to Starbucks, all the coffee that they have sourced have been ethically sourced. Farmers produce coffee on their farms which are then bought by Starbucks through responsible coffee purchasing practices to improve the quality of coffee cups and lives of farmers. There has been a fluctuation in the production of coffee from the farmers. This has affected the corporation in that the demand for coffee has become so high.

When the supply is higher than the demand, then the prices are lowered but when the demand is higher than the supply, the prices of the commodity goes up. This affects the equilibrium of the quantity of demand and the price of the commodity. The demand curve can be affected by various factors such as the price of commodities, taxation, geographical position, income level, expectations and market equilibrium. In the case of Starbucks, income elasticity is the main factor. They are working with their brewers and growers to ensure only the best coffee is cultivated and brewed at all times thus enforcing the standards of their company. Starbucks has dedicated time to train partners to ensure quality production of coffee. Each and every partner is trained in creating a coffee technically and in connecting and maintaining the connection with the customers.

The former CEO of Starbucks belied that when the employees are happy then the quality of their work also improves. All these factors have contributed to customer satisfaction at Starbucks over the years. There exist a strong relationship community and the company and thus the success of the company depends on its relationship with the community where it is located. Community investments can be done through in-kind donations, corporate cash contributions, and Starbucks foundations. Starbucks cooperation has invested in the community in a number of ways (Andrew et al. , np). They have developed partnerships with other organizations, places, and people that farm the coffee and tea that they buy to help improve the communities. " the guardian December 2015 (2015). Lewis, Olivia. "Starbucks (HK) Case Note: The Ambiguous Limb of Goodwill and the Tort of Passing off.