It is important to understand the relationship between strategic and financial planning when preparing for the future of a company and forecasting the success. Starbucks has developed two strategic initiatives for 2013 to help grow the company and increases success. Starbucks decided to try to expand the drive thru chains and develop a home brewing system. In developing this strategic plan, Starbucks needed to take into account the increase in employees, increasing capital, and increased expenses when developing the 2013 financial plan. When developing the 2013 financial plan, it is most important to understand how these two initiatives will affect sales within the company.
To understand better how these initiatives will affect Starbucks financial planning, it is important to get an understanding of the development of these initiatives.
A strategic planning initiative discussed in Starbucks annual report Starbucks has two strategic planning initiatives for 2013 that will help them grow and become an even better business. Developing a home brewing machine and expanding their drive-through expansion chains are two strategic plans that Starbucks wants to implement.
These two strategic plans were discussed in Starbucks 2013 annual report. Starbucks want to develop a home brewing machine because many customers have a financial hardship in this economy, and so they are deciding to drink their coffee at home. So this will be the solution for those coffee drinkers who still need their morning “fix,” and still enjoy the same Starbucks coffee flavor.
The second strategic planning initiative is expanding on Starbucks drive-through stores. Starbucks plans on adding about 900 more drive-through coffee shops in the United States over the next five years.
The reason for this is that drive-through stores historically have better margins which result in higher profits and more cash flow. Ultimately, drive-through stores and home brewing systems offer more convenience for customers, which allow Starbucks to compete with burger food chains and donut food chains (Novinson, 2013). Starbucks’ brand serves as its main competitor and these two growth strategies will provide a very good brand extension without distracting the coffee shop for what they are known for, which is their quality product, and customer service. How the initiative affects Starbucks financial planning? How will the initiative affect costs?
The plan to open 900 drive-thru coffee shops and home brewing machines will affect Starbucks’ financial planning. The costs associated with launching these new initiatives go hand-in-hand with the financial plan. Starbucks’ will have to determine if they will purchase existing buildings and remodel them for their needs or build new buildings. Additional employees will be needed to operate each store. Launching 900 new stores will increase the costs to purchase the goods needed for each store to operate. Coffee, flavored syrups, cups, plates, silverware, and the food sold will require additional inventory to be purchased. The additional costs for the store and brewing machines inventory could require additional employees to maintain the increased workload in the warehouses. These costs will affect the financial plan because each factor must be taken into consideration when creating the budget and setting profit goals.
Right now, the name every household knows for single cup home brewing is Keurig. They first entered the market 15 years ago and have built an empire around that one concept. Although Starbucks has a very prominent name in coffee, entering into the at-home brewing sector will still be a challenge. Currently, Keurig’s stock price is trading higher than Starbucks:
The profit is not in selling the machine itself, but the individual cups (The Coffee Brewers, 2007). Starbucks would almost have to take a loss on the selling the machine, just to enter the market. Then very quickly establish their brand name into the single-cup coffee world. Due to high margins, lower prices here would be a must as well as heavily advertising deals, specials, and free trial offers. This industry is well established by a company that almost seems to hold a monopoly. In comparison, the iPod holds most of the weight in the mp3 player market as Keurig holds the majority of the weight in the at-home brewing industry. Starbucks would need to prepare to take a loss in the beginning while establishing their place in the market.
Convenience and availability are two areas that drive customers into repeat business. Developing a drive-thru can capitalize on both of those rather successfully. There are risks; however with adding a drive-thru expansion. Is the building set up for it? The café will need to have ample room for the additional flow of traffic around its building. Can the café handle the increase in business and still providing accuracy and speed? The idea behind having a drive-thru is the convenience and speed of service. Accuracy should be expected regardless (Killifer, 2010). The risks will be expensive, but the rewards if done successfully could boost revenue by up to 40% per café. How will the initiative affect sales?
Increasing drive thru locations and offering an at home brewing system can boost revenue by increasing sales. There are two different scenarios that Starbucks strategically planned for when determining what initiatives were going to be the focus in 2013. The first scenario is success with both initiatives in increasing the success of the company. Increasing the drive thru locations will give more customers in a hurry the ability to have Starbucks coffee. One thing that increased the success of the drive thru at Starbucks was reevaluating and redesigning the drive thru menu.
By making a more user-friendly menu, sales increased in the drive thru. Starbucks offers espresso brewing systems, coffee for home use, coffee mugs, CD’s, bakery items, and the feeling of ambiance. It was decided to continue with the perception of the brand by offering a home brewing system, in the thoughts that the preference of the brand alone would assist Starbucks in becoming a true competitor of Keurig. The other scenario is the risks of decreasing or not improving sales. Increasing the number of drive thru locations available, does not guarantee and increase in revenue.
Something that needs to be considered when increasing the number of drive thru locations is that McDonald’s, Dunkin Donuts, Sonic, Burger King, and many other fast food locations offer cappuccino, flavored coffee, and Frappuccino’s. Just because the number of locations is increased does not stop the customer from going through a faster line for a cheaper alternative of coffee. Also, the downside to offering a home brewing system is that Starbucks already offers K-cups for the Keurig so customers can get Starbucks coffee without purchasing the Starbucks home brewing system. There are many other competitors that have started offering their own version of the Keurig. When management is determining which initiatives to push within a company, it is important to evaluate the strategic and financial planning that goes along with the initiatives to increase success.
2013 initiatives for Starbucks of increasing the number of drive thru locations and offering a home brewing system were decided upon to increase revenue and sales. When determining what initiatives were going to be focused upon in 2013, Starbucks determined a strong financial plan and a strategic marketing plan to increase the success of the new initiatives. It is important in business to understand, evaluate, and prepare for financial success or hardship when developing and offering new products and services.
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