The company known as Starbucks is a coffeehouse chain that was developed in the 1970s within Seattle, Washington. Today, there are over 25,000 locations worldwide and it has grown tremendously throughout the years. While the financial health of Starbucks has already been determined, it is important to assess other factors such as risks and success implications. Moreover, there is a need to forecast future projections in terms of finance. The purpose of this paper is to analyze the priorities of the organization with regard to procedures and business decisions. Additionally, there will be a discussion regarding the potential performance mechanisms over the next three years.
Success Factors and Risks
Currently, Starbucks is known to have a variety of financial and strategic priorities which has determined the success of the company. One major strategy to take into consideration is the idea of expanding the products for consumers so that there are foodservice channels and well as licensed stores that sell a plethora of products. For example, Starbucks recently entered the industry of instant coffee which is said to be worth approximately $20 billion. The company was able to launch their own brand of instant coffee. As a whole, the expansion of their product lines are always prioritized because there is an allowance to increase revenue and to promote a sense of versatility which is not typically found in many coffeehouses (Barro, 2016).
In terms of the business decisions of the company, it should be known that Starbucks is looked at as growth oriented since management is constantly finding ways to expand the nature of the entire organization. While there are many mechanisms of efficiency, the leadership that can be found within Starbucks seem to be one step ahead of many other competing brands. The CEO of the company has noted that most consumers appreciate the changes that have been made because there is an effort to collaborate with other brands and individuals. As a whole, the health of the company is being monitored on a daily basis and the board of directors are continuing to make positive business strategies come to life. With regard to non-financial factors such as reputation and physical facilities, Starbucks can take the time to promote the fact that they are a quality brand by managing their locations accordingly. For example, most facilities are kept up to date and there is a certain aura that drives consumers to want to drink a cup of coffee there. The company should take this into consideration and develop additional environments with larger room so that people are able to utilize the space accordingly (Stein, 2012). By capitalizing on their facility, there is an ability to expand the company even more.
While Starbucks can take the time to capitalize on a plethora of implications for expansion, there is also a need to monitor the risks with regard to the overall financial performance. One major factor is the idea of production disruption. The board of directors expressed concerns that there has been an increase of Starbucks within retail malls. Even though there is a possibility to drive revenue, this can also deter the way that production is handled since mall locations tend to fluctuate a great deal. Additionally, there is a concern that high-traffic areas such as most malls may have a difficult time drawing “foot-traffic” since there has been an explosion of online shopping. As a whole, the board of directors claimed that Internet shopping has increased tremendously, therefore that has put a disruption on production among the Starbucks’ locations that are located in shopping malls. There is a chance that sales can decrease as time progresses. This is why there is a need for constant capitalization pertaining to new ideas so that revenue does not decrease in an expansive manner (Abel, 2015).
Based on the projections that have been seen for the past several years, there is an allowance to determine the financial performance for the next three years. It should be known that sales have progressively increased due to an increase in programs and different strategies which has assisted with growth levels. In 2016 to 2018 (fiscal year- September), there is a projected sales growth that can potentially increase to $25 million. Net income and pre-tax profit will likely expand as well as long as there are recurring ideas that can drive revenue (Barro, 2016).
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The best case scenario will indicate a progressive growth of approximately $2 million per year. If there are issues, the worst case scenario will show a decrease in sales of $2 million per year (Yao, 2014). Unless there are bankruptcy issues, the sales level should not decrease tremendously. These projections are appropriate because of the growth levels that Starbucks has seen in the past several years. With new ideas and strategies, they are bound to allow for success as time progresses.
As a whole, Starbucks has generated a great deal of revenue since the implementation of the company. While there have been financial risks to take into consideration, there have also been a plethora of beneficial expansion strategies as well. With the overseas locations as well as the new locations that are bound to open in additional areas, there is plenty of room for growth. While this is the case, the company should monitor the risk factors so that there is positive growth.
Abel, R. (2015). Starbucks Corporation. The Economist, 45(4), 3-8.
Barro, J. (2016). Starbucks loyalty. New York Times, 23(3), 12-15.
Stein, A. (2012). Starbucks. Business Today, 34(4), 2-4.
Yao, R. (2014). Starbucks. The Economist, 56(4), 3-9.