Chace, Crow 2

Starbucks Financial Analysis

Part I

Accounting 202

Stephanie Chace & Katherine Crow

2/7/2011
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Starbucks Financial Analysis

Company Background

Three partners, Jerry Baldwin, Zev Siegl, and Gorbon Bowker in

Seattle, Washington founded Starbucks in 1971. The company began

to be publically traded in 1992 within the U.S., and expanded

internationally in the mid 1990’s. Their stock is traded on the NASDAQ

GS under the ticker symbol of SBUX. Starbucks auditor, Delliotte &

Touche LLP, offered an opinion of the financial statements, and

purposed that they were, “in conformity with accounting principles

generally accepted in the United States of America.”(Annual Report,

pg. 71)

Starbuck’s goal is to offer its costumers premier roasted coffee,

tea, and a variety of fresh food items as well as ready to drink

beverages. Their portfolio brands include but are not limited to “Tazo

Tea,” “Seattle’s Best Coffee,” and “Starbucks VIA Ready Brew.”

(Annual Report pg. 2) Their major competitors include quick service

restaurants and specialty coffee shops, other whole bean coffee sellers

as well as coffee producers, and well established ready-to-drink

companies. (Annual Report pg. 7)

Developments Relating to Company and Industry

Starbucks has recently changed its logo “to remain relevant and

poised to future growth…set the stage for the next chapter” (Howard

Shultz, President and CEO). Their logo is now understandable and

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recognizable in any language in any part of the world. They are

looking to build more stores globally and are celebrating its 40th year

since building and opening their first store. (CNN p. 4-5)

Kraft Inc. is in a legal dispute with Starbucks for breaking a

distribution contract. They are a distributer for Starbucks, but

Starbucks found their work unacceptable and is in the process of

withdrawing from that contract. However, Kraft stated that that would

be a violation of the originally drawn contract and are suing for a

untimely void of that contract.(Starbucks Newsroom pg.4)

Coffee shop demand is increasing slowly, though there has been

negative publicity due to ethically choices made by the company

and/or health issues. (Annual Report pg. 11) According to an article in

The Wall Street Journal, the coffee industry faces a crisis of a crop

shortage. There is a fear that global supply will fall short of global

demand, as prices of Arabica coffee have jumped over a third in the

past few months. Starbucks commented, that they have no plans to

implement a system wide price increase and have recently advertised

their new roast, Pikes Place Blend coffee, at a lower rate come October

of 2010. Though, if there was a slight increase of price, it would be for

the entire industry and not this sole company. (Wall Street Journal p.

28-21)

Ethical Issues

Since 2008, Starbucks has been striving to improve their ethical

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image by buying and promoting fair trade goods, and now in the UK

and Ireland, all the espresso beans and beverages sold are from small

coffee farm, and Starbucks has a fair trade line which is sold at all

United States locations. (Fairtrade Foundation p 1-2)

Starbucks has recently engaged in a joint venture with Tata

Coffee Limited, and signed a non- binding memorandum of

understanding to begin opening locations in India, starting in Mumbai.

McKensey Global Institute stated “India and China alone will account

for more than 62 percent of Asian urban population growth and 40

percent of global urban population growth from 2005 to 2025.” Thus

this venture would enhance the profitability, public image, and overall

growth of these companies. In striving to promote ethical behavior,

both companies will work with the community to enhance their coffee

growing and milling skills, as well as educated farmers on positive

agronomy practices. (Starbucks News p.1-7)

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Works Cited

www.fairtrade.org.uk. Starbucks UK and Fairtrade Foundation

Announce Industry
Leading Support for Small Scale Coffee Farmers. 11/6/2008;
1/6/2011.

www.finance.yahoo.com/banking-budgeting/article. The Wall Street

Journal. Is It
Time to Start Hoarding Coffee Beans? Brett Arends: 9/8/2010;
1/5/2011.

www.money.cnn.com/2011/01/05/news/companies/starbucks_new_logo
/index.ht
m. Starbucks Unveils a New Logo. Parija Kavilanz: 1/5/11;
1/6/2011.

www.news.starbucks.com/article_display.cfm. Starbucks Comments on

District
Conference with Kraft. JoAnne DeGrande: 12/23/2010; 1/5/2011.

Starbucks Corporation. Annual Report. Fiscal 2010.

Writer’s Note:
p = paragraph
pg= page