Starbucks

In forecasting the financial statements for Starbucks, we started by understanding its core business strategy and the industry in which it is active. Starbucks is not only a premier coffee establishment, but also one that prides itself on the total “Starbucks Experience”. It offers its customer’s products that are priced well above average, yet conversely provides other value through its superior customer service and location décor. A Porter’s Five Forces analysis of the coffee industry in general quickly reveals that the buyers hold the power, due to low switching costs, a high number of substitutes on the market and high competitor rivalry. However, via a very successful brand launch, Starbucks has done an excellent job at alienating its competitors from the much sought after premium coffee market, a market in which there are only a few participants. Nevertheless, after a strong start, Starbucks has seen a recent downturn in sales, and we have compiled a forecast for the coming years that considers the current market conditions and specifications, amongst others. There were a number of key drivers used within our forecasted statements, specifically revenue drivers, cost of sales drivers and operating expense drivers.

In 2008 (the year we find ourselves forecasting from), the economic situation within Starbuck’s domestic market, the U.S., experienced a significant downturn. 2008 represented the peak of the Financial Crisis , as people lost their jobs, and as such disposable income was reduced and some consumers were forced to turn to inexpensive brands and away from luxury items. While Starbucks had experienced significant sales growth rates over the past few years (20%+ annually from in 2003-2007), in 2008 we began to see trend starting with sales per average store in the U.S. drop by 4.8%. It is expected that this trend will continue with the economic downturn, and as such, we are forecasting a 10% overall decline in the U.S. market in 2009, with overall sales...