MGT 247 Exam 2 Study Guide - Starbucks Case Analysis

Vocabulary-style flashcards covering Starbucks business-level and corporate-level strategies, corporate governance concepts, and financial ratio analysis for the second exam.

Low-cost (Broad Market) Strategy

A business-level strategy where a firm targets a broad market scope by maintaining low costs relative to competitors.

Low-cost (Narrow Target Market) Strategy

A business-level strategy where a firm targets a narrow or specific niche market by maintaining low costs.

Differentiation (Broad Market) Strategy

A business-level strategy where a firm targets a broad market with unique products or services that customers perceive as valuable, such as Starbucks' Pike Place Roast.

Differentiation (Narrow Target Market) Strategy

A business-level strategy targeting a specific niche with unique offerings, such as Starbucks Oleato with Partanna cold-pressed extra virgin olive oil.

Integrated / Blue Ocean Strategy

A business-level strategy that combines both low-cost and differentiation approaches simultaneously.

Pike Place Roast Strategy

Starbucks' broad differentiation strategy targeting everyday coffee drinkers by leveraging brand reputation, loyalty apps, and consistent taste.

Starbucks Oleato Strategy

A focused differentiation (narrow market) strategy targeting adventurous, health-conscious consumers with an unconventional premium olive oil-infused coffee.

Starbucks Refreshers Strategy

A broad differentiation strategy targeting younger consumers ($ext{Gen Z / Millennials}$) and non-coffee drinkers through unique fruit-forward flavors and customizability.

Single Business

A corporate-level strategy where a firm generates all or nearly all of its revenue from a single business activity.

Dominant Business

A corporate-level strategy where a firm derives the majority of its revenue from one business unit but has minor involvement in other businesses.

Related Diversification

A corporate-level strategy where businesses share common competencies, such as Starbucks' beverage, food, and packaged goods divisions using the same brand and supply chain.

Unrelated Diversification

A corporate-level strategy where a firm enters businesses that share no significant commonalities or competencies.

Vertical Integration

A strategy where a firm controls different stages of its value chain; Starbucks uses backward vertical integration through its C.A.F.E. Practices and roasting facilities.

Restructuring / Retrenchment

Corporate strategies involving closing underperforming units or cutting costs, as seen in Starbucks' store closures and layoffs from $2023$ to $2025$.

Internal Growth

Expanding organically by opening new stores or developing new products in-house without acquisitions.

Wholly Owned Subsidiary

A method of carrying out corporate strategy by acquiring a company and owning it outright.

License Agreement

Allowing another firm to use a brand or IP for a fee, such as the Starbucks partnership with Nestle for at-home products.

Strategic Alliance

A partnership between firms without an exchange of equity, illustrated by the Global Coffee Alliance between Starbucks and Nestle.

Franchise

Granting another party the rights to operate under a brand name in exchange for royalties.

Joint Venture

An arrangement where two firms create a new jointly-owned entity to share capital risk and diversify into high-growth spaces.

Agency Theory

The study of the relationship between principals (shareholders) and agents (managers), where agents may act in their own self-interest rather than maximizing shareholder value.

Agency Problem

The potential misalignment of interest between shareholders and executives, which can lead managers to prioritize personal goals over company performance.

Corporate Governance Mechanisms

Systems such as the Board of Directors, Executive Compensation, and audits used to align agent incentives with principal interests.

Board of Directors

A governance mechanism that provides independent oversight and checks on executive behavior; majority independent directors limit management self-dealing.

Market for Corporate Control

A governance mechanism involving the possibility of a firm being taken over by another entity if it is underperforming.

Large-Block Shareholders

Institutional investors like Vanguard and BlackRock that hold significant stakes and actively monitor management decisions.

Satya Nadella

The CEO of Microsoft recommended for Starbucks' Board of Directors due to his expertise in technology, AI, and digital transformation.

Brian Niccol

The CEO under whom Starbucks implemented a turnaround strategy involving increased labor and restructuring expenses in $2025$.

Net Profit Margin Formula

$$\frac{\text{Net Income}}{\text{Total Revenue}}$$

Return on Total Assets (ROTA) Formula

$$\frac{\text{Net Income}}{\text{Total Assets}}$$

Current Ratio Formula

$$\frac{\text{Current Assets}}{\text{Current Liabilities}}$$

Quick Ratio Formula

$$\frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$$

Days Sales Outstanding (DSO) Formula

$$\frac{\text{Accounts Receivable}}{(\text{Revenue} / 360)}$$

Debt-to-Assets Formula

$$\frac{\text{Total Debt}}{\text{Total Assets}}$$

Starbucks 2025 Current Ratio

$$\frac{7,382.3}{10,210.4} = 0.72$$

Starbucks 2025 Net Profit Margin

$$\frac{1,826.1}{37,184.4} = 4.91\%$$

Starbucks 2025 Return on Total Assets (ROTA)

$$\frac{1,826.1}{32,019.7} = 5.70\%$$

Starbucks 2025 Debt-to-Assets Ratio

$$\frac{40,108.9}{32,019.7} = 1.25$$

Negative Equity in Ratio Analysis

A condition caused by share buybacks that makes ratios like ROE ($-22.55\%$ for Starbucks in $2025$) and Debt-to-Equity analytically non-meaningful.

2025 External Financial Pressure

Slowing consumer discretionary spending driven by inflation and economic uncertainty, reducing transaction volumes and net income.