Strategic Initiative Paper free essay sample

In the current business environment, companies must take strategic initiatives to prevent the losses and overcome the rough economy we are currently facing. Starbucks Corporation (furthermore, Starbucks) is known as one of the leaders for the retail sales of roasted and specialty coffee. Starbucks is focused on creating a detailed strategic and financial planning that can take the company to the next level. The aim of this paper is to investigate Starbuckss actions upon creation of strategic and financial plans, and its impact on cost and sales and risks associated. Starbucks has a long-standing effort in thical conduct and global responsibility. One of the major efforts is sourcing ethically grown coffee. For example, Starbucks Annual Report for the 2009 states that the Companys focus is on ethically sourcing high-quality coffee, reducing its environmental impacts, and contributing positively to communities. Starbucks Global Responsibility strategy and commitments are integral to the Companys business strategy. We will write a custom essay sample on Strategic Initiative Paper or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page (Starbucks Corporation, 2009, Annual Report). The strategic plan includes the Shared Planet initiative. Starbucks has commenced plans to make environmental ransformations to the companys business practices through the Shared Planet. These changes include buying ethically traded coffee, which encompasses environmentally responsible grown coffee and the ethical treatment of coffee farmers. Starbucks collaborates with Conservation International to ensure that the company is meeting purchasing guidelines for socially, environmentally, and economically responsible coffee. Starbucks Shared Planet also embraces conservation of the growers surrounding communities. For example, Starbucks is committed to creating environmentally clean water filter systems in the communities hat the coffee is grown. The company has also committed to recycling and reducing waste. Starbucks Initiative Plan states that by the year 201 5, the company will serve 25% of its beverages in reusable cups and introduce in-store recycling stations for the non-reusable cups. The company is devoted to reducing energy use by 25% in all new stores and obtaining 50% of the used energy from renewable energy sources for all company-owned stores by the end of 2010. By the year 2012, Starbucks plans on reducing water use by 15% company-wide. Obtaining LEED certification for all new stores globally will begin in late 2010. Such efforts are commendable and provide a solid platform for successful business. However, to be financially sound, Starbucks must consider financial aspects of the aforementioned initiative and costs associated (Starbucks Corporation, 2010, Responsibility). Based on the aforementioned information regarding Shared planet one can easily determine that this initiative is closely aligned with Starbucks mission: to inspire and nurture the human spirit one person, one cup, and one neighborhood at a time (Starbucks Corporation, 2010, Our Starbucks Mission Statement). However, important to note are relationship etween this initiative and financial planning of Starbucks. Sourcing ethically grown and socially responsible coffee has cost Starbucks $1. 28 per pound in fiscal 2005 as Starbucks paid $1. 9 per pound of coffee on average in fiscal 2008 (Starbucks Corporation, 2008, Global Responsibility Report). Ultimately, costs associated have increased cost of sales. For example, cost of sales including occupancy costs increased to 41. 0 percent of total net revenues for the 13 weeks ended July 2, 2006, compared to 40. 6 percent in the corresponding 13-week period of fiscal 2005 (Starbucks Corporation, 2006, Financial Release). In the same financia l release, Starbucks has stated that the increased costs of sales are result of increased cost of green coffee. Similarly in 2008, the cost of sales increased to 43. 8% from 41. 9% in fiscal 2007. However, in this particular case the occupancy costs were additional cost increase margin (Starbucks Corporation, 2008, Investor Relations). The increase in cost of sales has significant impact on the total net revenues. Looking at the Starbucks reports the total net revenues have also increased. For example the total net revenues have risen from (in millions) $7,786. 9, $9,411. 5, to $10,383. 0 in years 006, 2007, and 2008 respectively. Unfortunately, in year 2009 the total revenue has dropped to $9. 774. 6, possibly result of the global economic downturn (Starbucks Corporation, 2009, Annual Report). Based on the mitigation strategies aimed to reduce cost of sales, it appears that Starbucks is aiming for reduced cost of sales and increased revenues. According to the Starbucks Annual Report 2008, the company has 583 million of purchase commitments which, together with existing inventory, is expected to provide an adequate supply of green coffee through calendar 2009 (Starbucks Corporation, 2008, Annual Report). Additionally, nine and five percent of the purchase commitments from 2008 will be received in 2010 and 2011 respectively. Important to note about the aforementioned is that the purchase commitments are based of fixed-price contracts where the price of green coffee has been fixed by either seller or Starbucks directly (Starbucks Corporation, 2008, Annual Report). The fixed price contracts may account for published reports, which state that despite the rising prices of green coffee Starbucks will not increase selling price to the consumers (Morran, 2010). Such efforts would set Starbucks apart from its competitors. For example, J. M. Smucker raised prices an average of 9% on its Folgers, Dunkin Donuts, Millstone and Folgers Gourmet Selections coffees. Kraft followed suit with a hike on the price of Maxwell House and Yuban brand coffee (Morran, 2010, para 3). This coupled with the ethical background and initiative of Shared Planet will ensure loyal following and consumer satisfaction. Risks for any project or initiative are inevitable. However, if the company can foresee these risks they have a better chance of eliminating the problem before it occurs. Starbucks Shared Planet has few risks; as he strategic plan is to become more environmentally aware. The risk is that the company will not be able to execute the initiative as planned. Therefore, the cost of the campaign and advertising will have negative financial impact, if the initiative is not successful (Starbucks Corporation, 2009). The Shared Planet is also dedicated to Material interruptions in Starbucks supply of the coffee they prefer can financially affect these efforts (Starbucks Corporation, 2009). Furthermore, if the sales are not at a peak and Starbucks cannot make a profit on the higher cost coffee; this will affect ts cash flows and liquidity. The Shared Planet initiative is also implementing reusable cups (Starbucks Corporation, 2010, Responsibility). Although ethically sound and an excellent marketing move, this can increase both costs of the products and marketing. The risk associated with this is that customers may not accept the new product or the price increase to purchase the new product (Starbucks Corporation, 2009). The aforementioned risks could result in decreased sales and increased costs. This can severely impact Starbucks financial health, operability, and decrease onsumer confidence. Many risk factors are outside the companys control. However, if Starbucks anticipates the possible risk, develops mitigation and contingency plans, the company will have a better chance at finding solutions for potential problems identified herein. By being proactive instead of reactive, Starbucks has placed itself in a position in the market to grow, expand, and excel with the Shared Planet initiative. The Shared Planet has opened the door and allowed Starbucks to provide a high quality green product at a fair market price to their customers. The production of high quality green coffee has increased acquisition and merchandise costs. Over the past four years, the cost of sales for the green coffee has increased 2. 8%. While this increase in the cost of goods is somewhat significant, the foresight and ability of Starbucks to minimize this increase has allowed Starbucks to increase their overall market share thus increasing their revenue base by 25. 5% over the same period. This effort was part of the Starbucks mitigation plans and its ability to secure fixed purchase (price) contracts for the product through 2011. These ontracts will reduce the cost of the coffee acquisitions and merchandise and will further increase Starbucks share of the coffee market. Such actions have allowed Starbucks to be set apart from its competitors and increase its part in market share. Furthermore, this type of commitment, to both its investors and consumers coupled with sound financial business practices and financial health have allowed Starbucks to be one of the industry leaders who has opportunity to grow over the next fiscal year and beyond.