Starbucks: Is It Just a Trend?

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The net profit margin is known as the profitability of the firm. To have an increase in profit margin is a financial indicator more than just an increase in earnings. An increase in profitability shows there are improvements being made within the company. Between 2013 and 2014 it shows a tremendous increase in Starbucks net profit margin. Therefore, they are improving over time. For example, to better understand this ration; say Starbucks has a 6% profit margin, it will have a net income of $0.06 for every dollar sold. The company has a decent net profit margin compared to Folgers coffee who had a ratio of two percent in the past five years.

To calculate the return on assets better known as return on investments; which measures the profitability of the amount of assets a company has; this helps when comparing companies of various sizes. Return on assets is basically calculated by taking the net income and diving it by the total amount of its assets. This calculation shows how the net income is openly related to the amount of assets or investments placed into the company. Meaning, this shows how well management is turning the company’s investments into profit. With such a high increase between 2013 and 2014 shows a substantial improvement to increase in profitability even with other external factors.

After reviewing the Income Statement for research and development it shows zero dollars, meaning Starbucks does not focus on advertising for their marketing approach. They seem to emphasis on word of mouth from satisfied customers and their image related to promoting an environmental friendly operation. Also, they strongly believe that focusing on employee satisfaction will promote a positive image. Meaning, a happy employee increases customer service. Starbucks has a verity of perks for employees such as stock options, employees can purchase up to 14% of their gross pay, 401k plan which they match up to 4%, free drinks, and health benefits (Starbucks.com). Starbucks motto is employee satisfaction leads to better performance, greater customer service, and lower turnover rates which affects work performance (Starbucks.com).

Starbucks offers a clearly diversified product and brand offering in the Target marketplace; including coffeemakers, travel products, mugs, and gift cards just to name a few. Their drink line that includes Frappuccino drinks, VIA ready brew instant coffee, and Doubleshot espresso drinks, some locations sell liqueur to add to coffee. Even though Starbucks has increased their coffee prices by 20 cents consumers continue to buy their products. Starbucks portfolio include Seattle’s Best Coffee, Tazo teas, and Torrefazione coffee. For them to appeal to a larger customer base and increase their revenue they must continue to be innovative by offering new diversified products and brands that are appealing to consumers. Their coffeehouses offer free wireless Wi-Fi, music, couches and comfortable seating which make customers feel like they are home.

Starbucks has built a very strong brand image, buy offering a variety of coffee drinks from light flavored Blonde roast to the boldest Sumatara blend. They have given consumers the feel of chic Italian coffee shop with a neighborhood touch. Starbucks has conquered the specialty coffee marketplace while building a loyal consumer base. With the company being forced to change with the times and the economy up and down they must ensure fresh and quality products. Starbuck must also decide if it is more important to have a lot of stores that provide decent business or fewer that provide exceptional business. However, it starts with the employees, as they continue to feel like they are part of the store making it their own; this will lead them to take pride in it which in return makes happy customers. Starbucks continues to innovative and offer unique products and amenities this will allow the company to grow financially.

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