Starbucks II the First Component Essay

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Starbucks and Peet's have similar gross margins. Dunkin' Brands has a much better gross margin at 78.9%, while McDonalds has a lower gross margin at 39.6%. Starbucks' gross margin might put it in the middle of the pack for quick service, but it is still a healthy margin. The company is profitable, something most of the firms in the industry are. Interesting, Dunkin is the least profitable of these four companies, and McDonalds has a high net margin. This is reflected is an ROE for that company of just 5%, compared with Starbucks' ROE of 27.69% and McDonalds' 39.8%. For the equity investor, Starbucks again has a strong ROE but not the strongest in its industry.

Starbucks continues to have premium positioning in the industry. This should allow the company to earn higher margins and returns. While this is not necessarily the case, the strategic moves that Starbucks has made are reinforcing its competitive positioning.

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For a time in 2007-2008 it looked like other firms in the industry were going to bring Starbucks down to the mainstream, but the company has been able to reinforce its differentiated positioning, to the benefit of its margins and profits. That Starbucks does not enjoy the best margins nor the best profits in the industry is interesting, and worth taking into consideration when evaluating the company for investment. It appears that qualitative analysis of Starbucks' competitive position shows the company's moves as being strong, whereas its financial performance against its biggest competitors shows the company as an average performer. Perhaps given where the company was a couple of years ago, that assessment of mediocrity can be taken with a grain of salt.

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