I. Overview: In your role as vice president of governmental affairs, your boss, the business’s CEO, is considering retaining an outside consulting firm to assist the company with a government issu

Starbucks’s Corporation and the decision to close Stores due to increase in Minimum Wage

Carmen Hendrickson

MBA 665 Mod 2

Business Profile

Company Description and Market Share

Starbucks Corporation is an organization that is involved in the development, marketing, retailing, and sale of specialty coffee. The company has built stores and outlets that provide a choice of coffee and tea beverages, and premium coffee, tea and related beverage products. These include packaged roasted whole beans and ground coffees, a wide range of premium single-serve and ready-to-drink coffee and tea products, juices and bottled water (Starbucks Corporation, 2019). The company also has stores that provide a collection of fresh foods and snack offerings. In addition, Starbucks generates and sells a broad range of ready-to-drink beverages, including Frappuccino coffee drinks. In the last five years, the organization has been producing soft drink beverages known as Refreshers, and child multi-serve beverages through several channels, such as grocery company store outlets.

Starbucks is one of the multinational coffee corporations that have established their presence in different parts of the world. Headquartered in Seattle, Washington, the organization has expanded its operations across different foreign markets. For instance, the company operates in regions such as Asia Pacific, Africa, Europe, Middle East, and North America. In 2018, the organization recorded revenue of $ 24,719.5 million (Starbucks Corporation, 2019). This figure re[presents a 10.4 percent increase from 2017. Furthermore, the organization is the leading coffee brand in the world. As such, its market share is about 21.9 percent. Therefore, the company is the leading player in the out-of-the-home coffee market.

Opportunities and Threats

Starbucks has various opportunities that provide it with potentials for growth in the present and the future. These opportunities include: growing foodservice sector in the United States, growing presence in the emerging and key Asian markets, as well as the company’s growing office coffee marketplace. Indeed, the restaurant sector in the United States is projected to witness a strong growth. This is especially true for the restaurant and foodservice sales, which will was estimated to $800 billion in 2017 alone (Starbucks Corporation, 2019). In addition, Starbucks has been growing and expanding in the Asian Markets, especially in China and India. The high pace of economic progressing China has brought with it opportunities for the company to optimize sales and profits in these target Asian markets.

There are various threats that threaten to cripple the organization’s performance and productivity. One such threat stems from strict government regulations. In the American market alone, the government has been passing policies that are geared towards increasing the federal minimum wage (Starbucks Corporation, 2019). This policy has resulted in increase in the company’s labor costs. As a consequence, the organization has been closing down its operations in some of its branches in the United States. The cost of labor is a vital component in the day-to-day running of a business. Without labor an organization can neither produce or sell its products to the target market. Equally, a high cost of labor makes it impossible for a business to generate profits. Another potential threat stems from intense rivalry from other key players that are serving the same market. The specialty coffee sector is characterized by stiff competition as firms scramble for the already exhausted market share.

Government Action

In 2018 and 2019, the federal government has been increasing minimum wage. Presently, the federal minimum wage stands at $15. In response to this problem, Starbucks reported to the media that it would close about 150 American stores. This report happened at a time when voters in Washington voted for the minimum wage to be increased to $15 (Bartash, 2019). The targeted zones for closures are mainly in metropolitan areas where the increments in minimum wage and occupancy, coupled with other requirements, have the potential to cripple the company’s operations (Bartash. 2019). However, the government has cautioned Starbucks not to close down its stores, stating that such efforts would cause job loss and increase unemployment rates.

References