Question

Construct a one page memo on Starbucks Coffee Co. Answer all questions below and insert any references used for research. The memo needs to be constructed by answering these questions:

A top level analysis of the company.

Are they a job order or a process system company? What type of company are they? How are they organized relative to centralized or decentralized? What are the major drivers of their costs? How do they capture and measure their cost? Your analysis should include research using the web into publicly available articles, analyst reports, and blog sites. You will note these sources on your reference page.

Answer 1

Introduction

With 30,626 stores around the world, Starbucks is the world's largest coffee company. The coffee giant reported revenue of $ 26.5 Billion with a net income of $ 3.5 Billion. Starbucks's core competencies are scale, quality, consistency, exceptional service, experience, ethically sourced premium coffee and their unique menu and offerings. The estimated size of the US coffee market is around $86.2 Billion, which means Starbucks's market share in the US Coffee Market is around 30.74 %.

Analysis

Job order or a process system company: Both of these systems are methods of determining or forecasting the costs of the project. A job order system determines the cost of a specific type of product or an individual line of products while a process system determines the cost of a large shipment of products. Starbucks uses a Process System to determine or forecast the cost of a large batch of coffee beans or products. While they source a variety of beans from a wide range of local as well as global suppliers, they calculate the average price of coffee beans at a specific quantity. This makes it easier for them to forecast or measure their COGS or Cost Of Goods Sold.

Centralized or Decentralized: Starbucks is a centralized organization, at least at a national level. Here's why, unlike McDonalds & Dunkin Donuts, Starbucks doesn't use a franchise model when it comes to their stores. They own and operate the store independently. In countries outside the United States, they may undertake a joint venture with another hospitality or beverage brand, but they do not issue franchise licenses. This centralized approach gives them a greater degree of control over their brand image, quality, service, and consistency.

Major drivers of costs & Capturing and Measuring Costs

: Starbucks has three major drivers of cost, namely, real estate, coffee beans and labor. Of the three drivers of cost, the price of coffee beans is the most volatile and unpredictable cost, followed by the cost of real estate and labour. Since Starbucks's business model largely relies on brick and mortar stores, real estate and labour are also major drivers of cost. As of 2019, Starbucks's annual revenue was $ 26.5 billion while it's COGS or its Cost Of Goods Sold was around $ 19 billion dollar, while its operating expenses were only $2.8 Billion dollars. Thus 71.69% of Starbucks's COGS or Cost Of Goods Sold arise from its three major cost drivers

Sources: Statista, FinBox, Starbucks Investor Relations & annual filings  

Starbucks Financials in $ Billions 13% Operating Expenses 87%

Starbucks 2019 Financials In S Billions Revenue Cost of Goods Sold Operating Expenses Net Income