Starbucks Coffee, sometimes known as Fourbucks Coffee is the biggest coffeehouse chain on earth. It opened its first store in 1971 in Seattle’s waterfront Pike Place Market by three partners: Jerry Baldwin, Zev Siegel, and Gordon Bowker to promote high-quality coffee beans and equipment. In 1982, Howard Schultz, the present Chairman and Chief executive officer joined the company as the Director of Marketing. He was impressed by the popularity of the espresso bars in Italy after he traveled to Milan in 1983. Back to the US, he persuaded the founders of Starbucks to market both coffee beans and espresso beverages. However, the idea was rejected so he left the organization and founded Il Giornale coffee bar chain in 1985. In 1987 Howard Schultz and Il Giornale bought Starbucks hours with $3.8M and renamed Il Giornale coffee bars to Starbucks and turned it into the Starbucks you know today. The company went public with the symbol SBUX in June 26, 1992 at $17/ share with 140 stores. Ever since then the stock has split Five times. As of May 2008, SBUX is traded at about $16, down from the high of $39.43 in November 2006.
Starbucks opened the first overseas store in Tokyo, Japan in 1996. The company currently has about 16,000 stores, employs 172,000 partners, AKA employees as of September 2007 in 44 countries. It offers annual sales of over $10B with most recent quarterly revenue being $2.526B. About 85% of Starbucks revenue comes from company-operated443 stores.
Starbucks will not franchise its operations and has no intends to franchises in near future. In The United States, most stores are company-operated. You might see some Starbucks stores inside Target, major supermarkets, University campuses, Hospitals, and Airports. These stores are operated under licensing agreements to offer usage of real estate which would otherwise unavailable. Starbucks receives licensee fees and royalties from all of these licensed locations. At these licensed retail locations, the personnel are considered employees of the specific retailer, not Starbucks. Since 2008 it offers 7087 company-operated stores and 4081 licensed stores in the united states. Internationally it has 1796 company operated stores and 2792 joint-venture or licensed stores in 43 foreign countries. The pace of expansion is reducing since the company plans to open 1020 US stores in 2008, less than 400 stores during 2009 down from 1800 stores in2007. Furthermore, in addition, it plans to close 100 stores in 2008.
Recession-sensitivity: a hungry man can survive with a Big Mac & fries but can do without a four-buck Frappuccino. This means Starbucks is extremely understanding of economy downturn as noticed in 2007 and 2008 when compared with Burger Kings and McDonald’s. This might be the primary reason sales at stores in the US open at the very least a year are required a mid single-digit percentage decline, the first drop ever. It triggers Howard Schultz to return to the CEO post. The business intends to double its marketing spending to $100M in 2008 to drum up sales. It began an aggressive coupons campaign offering free drinks every Wednesday through May 28, 2008. This is usually a indication of desperation. On April 22, 2008 Starbucks cut its outlook for that year citing weak economy.
Calorie & Sugar: Starbucks drinks acquire more sugar and calorie where individuals are increasingly more concerned because of explosion of obesity and diabetes epidemic in the united states. For instance, its Strawberries & Crème Frappuccino® Blended Crème – whip has 120 grams (over 1/4 lb) of sugar, and 750 calorie on its Venti 24 oz size. When it turns into a trend that consumers decide to reduce on the sugar drinks, or stay with low-carb diets it may have effect on Starbucks revenue.
Competition: McDonald’s, Wendy’s and Dunkin Donuts now also offer espresso at lower prices to contend with Starbucks. They will likely capture some revenue from Starbucks, especially from cost-conscious customers. The existing Starbucks prices are already pretty high; it’s very difficult for Starbucks to improve the prices soon without affecting the visitors to its stores.
High-expenses business model: while Starbucks profit margin is high as it pays an average $1.42 per pound for that unroasted coffee, its company is very labor intensive as with any other foods businesses. It requires between 10-20 employees to perform one store. All eligible part-time and full-time partners in the united states and Canada receive benefit package consisting uqfpxd stock option plan, 401k with company matching, medical, dental & vision coverage. Starbucks is voted since the 7-th best company to get results for in america in 2008 by the Fortune magazine employee’s survey. What is perfect for employees may not be beneficial to the employers. These benefits are usually only accessible to key employees or managers inside the restaurant industry. Historically, the costs of those health and fitness benefits rise faster compared to rate of inflation. Over time, they might have negative impact on Starbucks main point here. Should Starbucks not perform well, it could be under pressure as being a public company to close more stores.