Starbucks Financial Analysis free essay sample

Starbucks Corporation (â€Å"Starbucks†) is one of the leading American global coffee brewers. They are a coffeehouse chain that has over 20,000 brick and mortar stores located throughout the world. They are known for their high end coffee houses that serve a wide array of coffee flavors and types. They also serve various food items that complement their coffee selection. Part of the Starbucks strategy is to welcome their customers with a relaxing environment, rather than the quick take-out style that most of its competitors prefer. The Starbucks environment is generally warm and inviting, whether it is outside on a patio or inside on a comfortable couch. The Starbucks experience also includes the availability of free Wi-Fi so customers may take advantage of wireless computing while they relax and enjoy Starbucks coffee. We will examine the financial statements for Starbucks Corporation over the four most recent years and assess performance. Our primary focus will be on profitability; however we will also explore other key metrics such as liquidity, solvency, and turnovers among other financial statistics. Also, we will compare Starbucks against a major competitor to contrast various metrics and draw conclusions. Through this comparison, we expect to find differing areas of strength and weakness within the financial material. We believe this company would be interesting to analyze due to the overreaching popularity of the product. Most Americans cannot make it through the day without a cup of coffee in the morning. What is also interesting is to compare how two major players in the coffee marketplace operate financially and which entity demonstrates greater financial strength. Industry Overview1 Starbucks operates in the â€Å"Coffee and Snack Shops† industry. According to an October 2013 IBISWorld Industry Report, the Coffee and Snack Shops industry experienced a major slowdown in 2009 due to a struggling economy and, to a lesser extent, changing consumer tastes. Before the recession hit, the industry enjoyed over a decade of strong, consistent growth due to increased consumer spending fueled by rising incomes. However, in 2009, industry revenue declined 6. 6% to $25. 9 billion after consumer confidence tanked and spending dried up. The industry resumed its upward climb from 2010, however, the large decline in 2009 means the industry will record a modest average annual growth rate of 0. 9% over the five years to 2013. In 2013, industry revenue is expected to continue its rebound with an increase of 2. 6%, making the industry worth $29. 0 billion. The Coffee and Snack Shops industry’s recent growth is expected to continue over the five years to 2018. Coffee and snack shops will benefit from the improving economy, the declining unemployment rate and the increasing rate in which consumers spend money on luxuries like eating out. Furthermore, during the five years to 2018, consumer spending is expected to increase. As a result, industry revenue is projected to rise at an average annual rate of 3. 9%, to $35. 1 billion during the period. The industry consists of two major players Starbucks Corporation (36. 7% market share) and Dunkin’ Brands Inc. (24. 6% market share). Other remaining market share is comprised of various smaller brands such as Krispy Kreme Doughnut Corporation and Einstein Noah Restaurant Group. The industry’s high level of competition is expected to intensify in the next five years. This factor will involve significant price-based competition and an increased emphasis on the regular introduction of new products. Most chains will introduce new, healthy alternatives as well as expand their current product lines. Major operators will also attempt to expand revenue and profit by providing a variety of other menu options, including premium coffees and breakfast items. Starbucks has recently announced plans to open 1,000 Teavana Tea bars, a chain it purchased in 2012. Starbuck’s strategy involves selling tea alongside gourmet food such as mushroom and kale flatbread and lemongrass ginger chicken rice balls for premium prices. Many domestic operators will continue to expand internationally. Although it does not have an impact on the domestic industry, international expansion is anticipated to be the largest source of revenue and profit growth for major players during the five years to 2018. Snack-food brands have not yet saturated the markets of Asia and the Middle East; however, certain industry giants like Starbucks and Dunkin’ Brands are already experiencing strong growth in those regions. The success of these operators is enticing others to try to garner a share of the growing market. Starbucks is the industry leader and plans to keep growing as indicated by its Teavana Tea acquisition. Competition is still stiff and in order for Starbucks to maintain its position in the industry it will need to make key strategic decisions that encourage growth. For that Starbucks will require a strong financial position. In the next section we will conduct a financial analysis of Starbucks. Financial Analysis: Profitability and Productivity A company’s performance can be measured by assessing its profitability with respect to the size of its investment. Return of Asset (â€Å"ROA†) is a good indicator of the return a Company generates for each dollar invested in its assets. The following table shows Starbucks ROA for 2009 to 2012. ROA increased overall from 6. 9% in 2009 to 17. 8% in 2012. The SP 500 gained 13. 4%2 in 2012; as a result Starbucks outperformed the SP 500 by 4. 4 points. We further break down the ROA into profit margin (net income over sales) and asset turnover (sales over average assets) to indicate the profitability and productivity of Starbucks, respectively. Profit margin increased overall from 4.  0% in 2009 to 10. 4% in 2012, whereas, asset turnover decreased overall from 1. 74 in 2009 to 1. 71 in 2012. This indicates that while Starbucks continued to be profitable, its productivity decreased slightly during the observed period. To further analyze the productivity we calculated some efficiency or turnover ratios for Starbucks from 2009 to 2012. The following tables show accounts receivable turnover (â€Å"ART†), inventory turnover (â€Å"INVT†), long term operating assets turnover (â€Å"LTOAT†), accounts payable turnover (â€Å"APT†), and net operating working capital turnover (â€Å"NOWCT†). Typically turnover refers to how many times an asset can be replaced during a financial period. ART has declined from a peak of 37. 3 in 2010 to 30. 5 in 2012. This indicates that Starbucks’ ability to cover accounts receivable has weakened in recent years. INVT indicates a similar trend such that it declined from a peak of 13. 1 in 2010 to 8. 8 in 2012. Starbucks has become less efficient in recent years as it has declined from generating a $13. 1 of cost of goods sold (â€Å"COGS†) for each dollar of inventory to $8. 8 in COGS. Although the short term asset turnover ratios have declined the LTOAT has increased from 2. 9 to 4. 1 during the observed period. This shows that Starbucks has more efficiently managed its longer term operating assets. On the liability side we have the APT, which has declined from a peak of 26. 7 in 2009 to 20. 7 in the latest year. This indicates that Starbucks’ is taking longer to pay its suppliers. Lastly, the NOWCT is negative during the entire period as the operating current liabilities are greater than the operating current assets. This may be an indication that Starbucks may not be able to cover its current liabilities, however, Starbucks has a significant amount of cash and equivalents ($1. 2 billion in 2012) on hand that it can access if need be. Financial Analysis: Operating Return and ROE Disaggregation As we begin to critically examine the financial performance of Starbucks Corporation, we will analyze overall profitability. Return on Equity (â€Å"ROE†) is a broad measure of performance that is ubiquitous. The following table shows the ROE, Net Non-Operating Return, and the Return on Net Operating Assets (â€Å"RNOA†) for Starbucks for 2009-2012. Starbucks’ has managed an increasing ROE from 14. 1% in 2009 to 30. 9% in 2011. ROE decreased slightly in 2012 to 29. 2%. The growth trend indicates that the business is generating increasing returns (net income) on its average equity. As we subdivide ROE into its operating and nonoperating components, we can see that the mix is not uniform. The returns on net operating assets dominate and are moderated by the negative effects of the nonoperating returns. First, as we look at operating return, we see extremely strong results that improve over time – RNOA increased from 14.  1% in 2009 to 49. 2% in 2012. As we look at the RNOA components we can trace and disaggregate this performance. Diving deeper into RNOA, we can examine if this favorable trend is more a function of an increasing numerator in the RNOA calculation (Net Operating Profit After Tax or â€Å"NOPAT†) or more significantly driven by a decreasing change in the denominator (Average Net Operating Assets or â€Å"NOA†). NOPAT has shown strong growth as it has grown by $152M or 12. 8% in the latest year. This is impressive growth by any measure. Over the past four reporting years, NOPAT has grown by $950M or 242% over 2009 performance. As we look at the denominator of the RNOA measure, we can see NOA have increased 26. 8% over the prior reporting year or by $644. 4M. Over the past four reporting years, we can see that overall NOA has grown by $534M or 21. 2%. So in examining the components of RNOA, we see that both elements are changing in similar proportions, however we can see that NOPAT is positively driving this metric by generating increasing operating profit from operating assets. As we further disaggregate RNOA, we can more specifically examine its sub-components, which are Net Operating Profit Margin (â€Å"NOPM†) and Net Operating Asset Turnover (â€Å"NOAT†). The table below shows the NOPM and NOAT for Starbucks from 2009-2012. As we examine NOPM, we can see that this increases significantly in 2009 and 2010, and stabilizes in later years at approximately 10%. Additionally, when we look at NOAT, we see a similar trend where it increases from 3. 5 to 4. 5 between 2009 and 2010, however stabilizes at approximately 5% in recent years. We observe that the positive trend taken by RNOA is a byproduct of both the NOPM and the NOAT but more so of improving profit margins rather than by radical changes in asset turnover. This is especially true as profit margins increased dramatically between 2009 and 2011. As we recognize that the growth trend change in RNOA is more a byproduct of improving operating profit margins over time, we must also recognize that although NOAT has not dramatically changed, it is definitely very high comparative to industry averages. As a comparative, publically traded companies over the past 10 years have shown a median NOAT of 1.40. Since we have isolated one performance driver as NOPM above, we can now look at its components and examine their movement. Since NOPM is defined as NOPAT / Sales, we can look further at those elements of the equation. If we look at the sales trend as well as the changes in NOPAT, we see revenue growth at a rate of roughly $1B per year, and less linear but more dramatic changes in NOPAT. We can clearly see a dramatic increase in NOPAT between the 2009 and 2010 reporting years that is driving the historic performance trend. Looking deeper into the NOPM, we can also examine the Gross Profit Margin (â€Å"GPM†) and Operating Expense Margin (â€Å"OEM†) to determine if the overall profit margin growth is driven by superior expense management or improving gross margins. As we examine the GPM and OEM trend, we can see both growth of gross profit margin as well as a reduction of expenses relative to sales revenue. Both dynamics are improving overall operating profit margin, although the improved expense management appears more significant. Looking over the past four years, we can see that gross profit margin has increased by 6. 1%, however expenses have been reduced by 9. 3%. Both factors in tandem benefit the NOPM. To summarize the operating returns, we can conclude that the favorable growth is driven by strong revenue growth across all years and consistent control over the cost of goods sold, which results in strong gross profit margins. Additionally, it is evident that Starbucks has placed considerable effort into the effective management and control of operating expenses. Financial Analysis: Nonoperating Return As we diagram the components of ROE (see Exhibit 2), we must also examine the impact of nonoperating return and its primary sub-components of financial leverage as well as the spread between RNOA and the after tax cost of debt. The following table shows the net nonoperating return, net nonoperating expense percent (â€Å"NNEP†), Spread , and the financial leverage (â€Å"FLEV†) for Starbucks for 2009 to 2012. Nonoperating return is calculated by multiplying FLEV against spread, so each component works equally to influence the calculation of nonoperating return. As we look at the nonoperating return trend, we can see that this negative return partially negates the favorable ratio generated by operating returns. Historically, we can see that the adverse effects on ROE have increased in the most recent reporting years and Net Nonoperating Return has decreased 6 points from 2009 to 2012. In other words, Starbucks nonoperating return is placing an increasing burden on overall ROE. First, we can look at FLEV and its dependents, Net Nonoperating Obligations (â€Å"NNO†) and Average Equity. FLEV can be seen in the above table as an increasing negative ratio that changes by 30 points from 2009 to 2012. Driving this trend, Net Nonoperating Obligations have shown increasing prominence each year as a negative force. This is due to the greater significance of nonoperating assets versus nonoperating liabilities. Generally, the nonoperating liabilities have remained stable showing a 4 year increase of only $5. 8M, which is primarily a change in minority interest liability. Conversely, nonoperating assets have grown by $1. 5B, driven mostly by increases in short-term investments, but also by cash cash equivalents. The high levels of cash and marketable securities relative to long term debt drives the NNO into a negative territory, which is the numerator of FLEV. As we look at the FLEV denominator, we can examine average stockholder equity. We can see this value increasing through the preceding four years with a net change over this period of $2. 1B that has been steadily increasing each year by roughly $500M. This increasing positive denominator has had the effect of moderating the growing negative numerator that was driven by higher cash and marketable securities relative to debt. Next we can examine the characteristics of the spread as it factors into nonoperating return. The spread is simply the RNOA less the Net Nonoperating Expense Percent. We have previously explored the RNOA dynamics, so we can now investigate NNEP, which is Net Nonoperating Expense divided by Average NNO. As we look at the grid above, we can see that the NNEP varies, however has not exceeded 3. 2% over the past four years. This factor has resulted in correspondingly minor pressure to offset the overall spread which has increased almost 33 points from 14. 7% in 2009 to 47. 2% in 2012. This is clearly driven by the dominant influence of RNOA. Considering the dynamics of nonoperating return, we can see the variable having the greatest significance is the effect of negative NNO, which is driven mostly by high nonoperating assets such as cash equivalents relative to nonoperating liabilities. The nonoperating balance sheet nature of cash equivalents as well as short term investments allows these elements to dominate the adverse effects of nonoperating return on overall ROE. Credit Risk Analysis Analyzing a company’s credit risk is important because companies require credit for their operating, investing and financing activities. An important step in assessing credit risk is performing financial analysis, which requires a coverage analysis and a liquidity analysis. Coverage analysis determines a company’s ability to cover its fixed charges from debt (interest and principal) in the short and long term. Related to that is the liquidity analysis which measures how much cash a company has and how much it can generate on short notice. The following table shows the four ratios used for the coverage analysis of Starbucks. The times interest earned ratio increased significantly from 14. 4 in 2009 to 43. 4 in 2010. It has steadily increased thereafter to 61. 1 in 2012. This trend indicates that Starbucks has been able to cover its interest payments for the past four years and every year its ability to cover the interest payment has gotten stronger. The EBITDA coverage ratio indicates a very similar trend to the interest coverage ratio, as it increased from 28. 0 in 2009 to 77. 9 in 2012. Overall it is clear that Starbucks can easily cover its interest payments, but it is also important to analyze whether Starbucks can cover its principal payments. The cash from operations to total debt ratio measured the company’s ability to repay principal in the short and longer term. As indicated on the table Starbucks’ cash from operations to total debt ranged from 2. 5 to 3. 2 during the observed period with ratio at 3. 2 in the latest year. This indicates that Starbucks has consistently had more than twice the amount of cash from operations to cover total debt. A slightly different take on this ratio is to subtract capital expenditures (â€Å"capex†) from cash, which determines free operating cash flow to total debt. This ratio ranged from 1. 6 to 2. 3 during the observed period, which indicates that even after making capex Starbucks was able to maintain enough cash to cover short and long term principal every year. Liquidity refers to cash availability. The current ratio is a proportional measurement of working capital. As shown in the chart below, the historic current ratio illustrates that cash inflows exceed outflows by an increasing degree from 2009 through 2012. The quick ratio is a variation of the current ratio, however emphasizes assets likely to be converted into cash over a short window of time. As shown above, this metric emulates the trend line of the current ratio and shows an increasing trend that demonstrates an improving ability to meet its current liabilities through the usage of quick assets such as cash and accounts receivable. As the chart above indicates, current assets relative to current liabilities are on the rise and this is driven by relatively high levels of cash and equivalents from approximately 2010 and forward. Solvency refers to the ability of a company to meet its debt obligations. The liabilities to equity ratio will reveal a business’s reliance on creditor financing versus equity financing. The declining trend lines shown above indicate a decreasing reliance on debt financing. The total debt to equity ratio is also declining to a lesser degree and indicates a lower reliance on debt in recent years. In fact Starbucks uses significantly less amount of debt compared to publicly traded companies, which had a liabilities-to-equity ratio of slightly less than 1. 0. Moreover the food industry has a liabilities-to-equity ratio of between 3. 0 and 3. 5. 4 Starbucks’ does not have short-term debt and has its long term debt includes $550M of senior notes issued in 2007 and due in 2017. Overall Starbucks has a strong credit profile as it has the ability to meet its short and long term liabilities. It has significantly low credit risk as indicated by its low debt to equity ratio. Additionally, the presence of large cash reserves alone gives Starbucks’ the flexibility to cover short term liquidity needs. Further, it may ease Starbucks operating, financing and investment decision making. Competition: Starbucks vs. Dunkin In our analysis, we have determined that Dunkin’ Brands Group, Inc. (â€Å"Dunkin†) is Starbucks’ main competitor. Dunkin is a franchisor of quick service restaurants (QSRs) serving hot and cold coffee and baked goods, as well as hard serve ice cream. The Company franchises restaurants under its Dunkin Donuts and Baskin-Robbins brands. The Company has over 17,400 points of distribution in 55 countries. The Company operates in four segments: Dunkin Donuts U. S. , Dunkin Donuts International, Baskin-Robbins International and Baskin-Robbins United States. As of December 29, 2012, there were 10,479 Dunkin Donuts points of distribution, of which 7,306 were in the United States and 3,173 were international, and 6,980 Baskin-Robbins points of distribution, of which 4,517 were international and 2,463 were in the United States. In July 2013, the Companys Dunkin Donuts announced the opening of its 500th restaurant in New York City, which will be a combination restaurant with Baskin-Robbins. Dunkin takes a different approach to its business strategy such that it does not create the same atmosphere Starbucks does, rather Dunkin focuses on a quicker customer turnover. They strive to get the customer in and out of the store as quickly as possible. The table on the following page shows various ratios, comparing Starbucks and Dunkin for 2011-2012. Dunkin has a high profit margin. Typically, companies with higher profit margins have lower asset turnover. This is the case with Dunkin. Starbucks, on the other hand, has a much lower profit margin and higher asset turnover. Revenues for Dunkin are much lower than Starbucks. Starbucks revenues are at $13. 3 billion dollars for 2012, whereas, Dunkin is only at $658 million. This could because of all that Starbucks offers a more high-end product. Dunkin Cost of Goods Sold is 18% of Sales, whereas, Starbucks Costs are around 73%. Again, high end products tend to cost and generate more expenses, which is prevalent in Starbucks. ROE between the two companies and our analysis has shown that Starbucks has a 10% better return. This is primarily driven by return on net operating assets (RNOA). Starbucks and Dunkin both had similar net operating assets; however, Starbucks’ net operating profit after taxes was much higher. This is the reason behind the big difference in RNOA. Another big difference between the two companies is their financial leverage. Starbucks has a negative financial leverage (FLEV), whereas, Dunkin is extremely high. Dunkin’s FLEV is high due to their high long-term debt stance. This causes a high net non-operating obligation and drives the FLEV to be 224. 5%. Starbucks’ negative FLEV is due to high amounts of cash and cash equivalents they list in their Balance Sheet. Usually companies with high amounts in this part of the statement, means they are saving up to make a significant acquisition, or have in case of low sales in the future. According to the industry report, both companies are are expected to grow in the future. In the five years to 2013, Dunkin’ Brands’ US-specific sales are expected to grow at an average annual rate of 5. 1% per year to $7. 2 billion. The company’s high-growth franchise model is expected to lead to higher than average growth in the fiv e years to 2018. A similar trend is also expected for Starbucks. Starbucks’ US industry-specific sales are expected to grow at an average rate of 4. 3% per year to $10. 7 billion. Starbucks has continued to grow their product, as well. Known primarily as just a coffee shop, Starbucks has acquired: Evolution Fresh, a natural fruit and vegetable juice maker; Teavana, a tea bar; and La Boulange with the aim of integrating the company’s baked goods into its menu. This is will help compete with the competition in growth strategies. Dunkin Donuts’ is already partnered with Baskin Robbins, a global ice cream parlor. After comparing the two companies it seems that Starbucks is in a better financial position. Dunkin has a high amount of long-term debt and lower revenues than Starbucks. Also, Starbucks has a large amount of money stored up. I am curious as to why, or what they have in store as an acquisition. The return on equity, also, is much better for Starbucks. These numbers show why Starbucks stock position is higher at 81. 35 and Dunkin is 47. 99. Another factor that should be included is the market share between the two companies. According to the US Industry report for Coffee and Snack Shops, Starbucks owns 36. 7% of the market, whereas, Dunkin Brands, owns 24. 6%. Starbucks is also more available nationwide, while Dunkin is primarily in the Northeast region of the United States. Both companies’ stocks are preforming admirably, and both are getting a cautionary optimistic outlook based on analyst’s research. Based off of the numbers we have developed in our paper, I would prefer to invest in Starbucks. I feel that the ROE difference between the two companies cannot be overlooked. I, also, do not like how much long-term debt Dunkin Donuts has on the statements. Though, Starbucks has a negative NOAT, this is because of cash and cash equivalence on the Balance sheet. This is money that they have readily available, and I do not think that it is a major concern. Starbucks 2013 Performance Starbucks’ fiscal year ends at the end of September therefore Starbucks’ 2013 financial statements were available as of the third week of November 2013. Although we had not anticipated including 2013 financial results in our analysis we decided to include a brief discussion to see how Starbucks had performed. The following chart indicates trends in Starbucks ROA, ROE, OEM, and GPM for 2009-2013. The chart clearly indicates decline in performance in 2013. Both ROA and ROE declined significantly in 2013 to 0.1% and 0. 2%, respectively. The decline is a result of a drop in net income to $8. 3 million in 2013 from $1. 4 billion in 2012. The reason for the sharp decline is a payment of a $2. 8 billion litigation charge. This includes approximately $2. 2 billion paid to Kraft Foods Group, Inc. as settlement of litigation for breach of agreement. Exhibit 4 includes a summary of the litigation. We note that this litigation charge was recorded as an operating expense as a result OPM has increased to 102. 2% in 2013. However, GPM indicates a consistent trend with historical results as it increased to 28. 4% in 2013 from 26.8% in 2012. We note that if we add back the litigation charge to the income statement Starbucks had a good 2013 year. The litigation charge is a one-time expense that dents Starbucks’ performance; otherwise Starbucks has performed, as well as, it has been doing in the past years. Conclusion As mentioned earlier, our objective is to analyze the financial performance of Starbucks and evaluate areas where it can improve or maintain its current performance. We analyzed Starbucks’ productivity, profitability and creditworthiness by analyzing its financial performance for the 2009-2012 fiscal years. We observed that productivity was down slightly as indicated by lower sales turnover. Further analysis of productivity indicated that accounts receivable turnover and inventory turnover have also declined in recent years, whereas long term asset turnover has increased. Starbucks is also taking longer to pay back its suppliers as indicated by the lower accounts payable turnover. Additionally net operating working capital is in the negative territory, which may be cause disruption in daily operations; however, high amounts of cash reserves held by Starbucks give it cushion to operate smoothly. Overall, lower productivity and longer time to pay its suppliers has had a slight impact of profitability as ROE declined from 30. 9% in 2011 to 29. 2% in 2012. This decline will not be considered a significant drop in profitability but Starbucks should focus on its operating activities in order to maintain the healthy ROE. Disaggregation of the ROE into operating and non-operating components helped us identify Starbucks’ strong and weak performance areas. On the operating side, we observed that Starbucks has maintained an exceptional RNOA of 51. 2% and 49. 2% in 2011 and 2012, respectively. Starbucks has outperformed its closest competitor, Dunkin (RNOA of 8. 4% and 5. 4% in 2011 and 2012), by over 40 points in each year. Further, Starbucks has maintained healthy margins as indicated by a NOPM of 10. 1%, GPM of 26. 8% and an OEM of 85. 0% in 2012. However, one of our most important observations is that Starbucks’s non-operating performance has dragged down its overall ROE. Non-operating return was negative 20. 1% in 2012. This was largely due to a negative FLEV of -42. 5%, which was driven by negative NNO. The NNO is negative due a large amount of cash and equivalents on hand. Starbucks’ cash and equivalents account of approximately 14% of its total assets whereas Dunkin’s accounts for only 7% of its total assets in 2012. Although, a large amount of cash further strengthens an already strong credit profile and thus reduces credit risk, it also seems that holding high amounts of cash and equivalents is hurting Starbucks’ ROE. Cash and equivalents produce a low rate of return, and by holding a large amount of such assets Starbucks is foregoing its ability to generate higher returns by investing in more productive assets. Starbucks has the option to invest a portion of its cash and equivalents into its business (operating assets) or into non-operating assets such as stocks of other public companies. Investing back into its business is a good option but it is probably something that Starbucks has already done. Investing in stocks of other public companies will generate higher returns but also increase investment risk. Another option for Starbucks is to use the cash to acquire a competitor or make a similar strategic acquisition. This would also increase the investment risk for Starbucks. Lastly, Starbucks can just keep the cash as is and use it as a buffer for future liquidity needs. This may be a good strategy because, even with the high amount of cash on hand, Starbucks’ ROE is still much higher than its closest competitor. Starbuck will have to continue to grow the business in order to maintain the continued growth, they have seen in recent years. The company has continued to add healthy items to the menu, to attract the health conscience consumer, as well as, added free WiFi, to attract more traffic to their stores. Innovation like this must be continued. Also, growing the brand globally to emerging markets, would also help increase the brand equity. I think financially one aspect Starbucks can work on is their high COGS. Competition’s COGS/Revenue rate was 55% lower than Starbucks. One way to help with this would be to partner with the suppliers to negotiate a better price of goods. Another idea to lower the cost would be to either reduce waste or provide more storage warehousing to minimize costs by purchasing larger volumes.