Starbucks’ Revenue and Economic Changes

Introduction

Starbucks is a well-known company that focuses not only on providing delicious coffee and snacks but underlines the significance of customer services, design, and atmosphere of its coffee shops (Smallman & Brown, 2015). Combining these features helped the company become one of the market leaders and ensure its outstanding financial performance. Nonetheless, due to the firm’s operations in different countries, Starbucks’s success and revenues are highly dependent on different changes in global economics, governmental regulations, and consumer preferences. In this case, despite having a well-developed brand image, worldwide recognition, long-term operations, and outstanding financial performance, multinational corporations like Starbucks are vulnerable to any fluctuations in the global economy such as volatility of currency exchange rates, actions of different economic players, and the financial crisis.

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Based on the factors depicted above, it could be said that the purpose of the paper is to understand how different economic changes mentioned above affect Starbucks’ revenue and its strategies. To unveil the important aspects, in the first place, the influence of currency exchange rate and actions of different economic agents will be discovered. Alternatively, a critical role of the financial crisis will be discussed and used as a basis for the development of effective reforms. In the end, the conclusions are drawn to summarize the critical findings of the paper and describe lessons learned and recommendations.

Case analysis

Influence of Currency Exchange

In the first place, it is evident that all multinational corporations are vulnerable to any changes in currency exchange rates, and Starbucks can be discovered as one of the companies with this dependency. Its worldwide presence requires the company to work with currencies such as the Dollar, Euro, Rubles, and many others (Smallman & Brown, 2015). As for the effects of the currency exchange rate, in the case of Starbucks, substantial currency volatility negatively affected corporations’ financial stability by causing a 2% downward shift in revenues and sales (Reuters, 2015). At the same time, it is believed that the currency exchange rate not only affects financial performance but also defines a company’s position in the market and its competitive edge. In this instance, apart from a well-established customer base of this brand associated with a specific lifestyle, not being able to address this issue promptly may cause an increase in prices for Starbucks’ coffee specialties while creating favorable economic conditions for local coffee shops and competitors such as McDonald’s. Nonetheless, a combination of the unique strategic initiatives of the company and its ability to respond to the changes in the market rapidly allows the corporation to survive intensified rivalry while adapting its strategy and budgeting approaches to these changes (Reuters, 2015).

Based on the analysis conducted above, it could be said that Starbucks is highly vulnerable to these changes, and this matter has a vital impact on the company’s revenue. It could not be viewed as a central problem, and the associated issues pertain to changes in prices and consumer demand. Nonetheless, the corporation reviews its strategic approaches constantly and promptly to comply with various economic factors such as volatility of currency exchange rates to decrease the loss of the market share.

Importance of Different Economic Agents

Apart from the critical impact of currency exchange on the financial performance and demand for the company’s products, various economic players affect the actions of the company while driving the improvement of its competitive edge. Households are the critical players that define demand and price elasticity, as any rises in prices decrease the level of consumption of different products and services including coffee and entertainment, and drive the development of new trends and tendencies (Green et al., 2013). At the same time, the actions of businesses operating in a similar segment such as coffee chains and restaurants may create difficulties for Starbucks, as they intensify rivalry in the market by representing the supply side. Thus, these changes are caused by domestic and foreign firms simultaneously since the continuously rising number of competing firms is one of the triggers for Starbucks’ need to modify its strategy regularly. To avoid the adverse consequences of any changes in the behavior of economic agents, Starbucks focuses on the development of the loyal consumer base while complying with their demands and preferences and cultivating an associated lifestyle (Smallman & Brown, 2015). Overall, it could be said that these measures attempt to reduce the influence of price elasticity and exchange rates volatility on Starbucks’ performance.

As for foreigners, their actions not only pertain to intensified rivalry but also the potential changes in prices due to their substantial connection with the currency exchange rates (Gerber, 2011). This matter may create favorable conditions for the local firms and difficulties for importers and vice versa. Concerning regulations, the role of government cannot be underrated since it controls taxes, tariffs, quotas, and other policies (Gerber, 2011). A combination of these factors may affect Starbucks’ operations in particular geographical areas and require introducing changes to pricing and budgeting strategies.

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Impact of Financial Crisis and Required Reforms

Apart from various factors such as currency exchange rates and changes in the behavior of different agents, one cannot underestimate the significance of different economic stages including the recession and their impact on organizational performance. Starbucks was not an exemption, and the operations of the company were negatively affected by the financial crisis in 2009 (Husain, Khan, & Mirza, 2014). Economic recession along with the company’s focus on expansion and rising popularity of McDonald’s required the enterprise to pursue technology-driven innovation to ensure cost-effectiveness and exceptional value proposition (Husain et al., 2014). In this instance, the potential consequences might be related to loss of market share, revenue, stock value, and attractiveness to investors. At the same time, it might negatively affect the implementation of the company’s corporate social responsibility initiatives due to the need to decrease spending on supplemental activities and community projects (Ginnarakis & Theotokas, 2011).

In this case, to overcome these consequences, Starbucks should pay equal attention to reforming its financial policies and aiming at diversity in its product offerings (Latif, Qurat-Ul-Ain, Gulzar, Bukhari, & Sameen, 2014). In the first place, modifying the states of expenditure according to the industrial trends and the company’s needs would help decrease spending on particular activities while making them cost-effective. This set of procedures would optimize the company’s financial performance and ensure its stability during a financial crisis. Simultaneously, prioritizing the expansion of product lines over geographical growth during the recession stage could increase the company’s revenues and help overcome the difficulties of this economic phase (Latif et al., 2014).

Conclusion

Summary

The paper unveiled that apart from having a well-established brand image, companies such as Starbucks had to pay critical attention to currency exchange rates, actions of different agents, and economic cycles. In the first place, all multinational enterprises including Starbucks are exposed to price volatility and changes in currency values. The fluctuations of price indexes are vehemently defined by the strategies performed by rival firms and actions of consumers and their desire to spend their savings on particular goods and services since both of these agents control supply and demand for Starbucks’ coffee specialties. Foreigners and government also play a pivotal role in economics, as they have a critical impact on prices, tariffs, and quotas while controlling the percentage of foreign and domestic manufacturers in the market. At the same time, the case study clearly shows that Starbucks was able to overcome the challenges of the financial crisis in the past by relying on a well-developed brand image and technology-driven management. Nonetheless, in the case of a severe recession, the potential consequences may cause the loss of market share and financial stability, and the company should focus on redistribution of its budget and diversification of product lines.

Lessons Learned and Recommendations

This case study revealed that apart from having worldwide recognition, companies like Starbucks are vulnerable to any economic changes that take place globally. The matters such as currency exchange rates, actions of various agents, and stages of the economic cycle have a critical impact on organizational performance. In this instance, having high revenues and a well-developed brand image does not guarantee success in the long term, and the company has to review its strategy continuously to survive the constantly intensifying rivalry. Being able to consider these matters and develop a unique blend of features will help the company survive during the stage of economic recession while remaining not only one of the market leaders but also a socially responsible organization.

Based on the analysis conducted above, it is recommended to consider different economic factors in corporate strategy and fill the gaps in the organizational structure and decision-making mechanism by taking into account external threats and internal weaknesses. Apart from aiming at cost-effectiveness and diversification of product portfolio, the management should focus on prevention strategies, risk management, and evaluation of different scenarios for each situation without having any damaging effect on the company’s value proposition. A combination of these factors will ensure the firm’s stability in the market and decrease the enterprise’s exposure to economic changes.

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References

Gerber, J. (2011). International economics. Upper Saddle River, NJ: Prentice Hall.

Ginnarakis, G., & Theotokas, I. (2011). The effect of financial crisis on corporate social responsibility performance. International Journal of Marketing Studies, 3(1), 1-10.

Green, R., Cornelsen, L., Dangour, A., Turner, R., Shankar, B., Mazzocchi, M., & Smith, R. (2013). The effect of rising food prices on food consumption: Systematic review with meta-regression. British Medical Journal, 346(1), 1-9.

Husain, S., Khan, F., & Mirza, W. (2014). Brewing innovation. Business Today. Web.

Latif, M., Qurat-Ul-Ain, H., Gulzar, H., Bukhari, S., & Sameen, S. (2014). Starbucks sustained during economic crisis. International Journal of Accounting and Financial Reporting, 4(1), 307-321.

Reuters. (2015). Starbucks sees bigger hit from foreign exchange this year. Reuters. Web.

Smallman, S., & Brown, K. (2015). Introduction to international and global studies. Chapel Hill, NC: The University of North Carolina Press.

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