Starbucks Coffee, sometimes known as Fourbucks Coffee is the largest 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 sell high-quality coffee beans and equipment. In 1982, Howard Schultz, the present Chairman and CEO joined the organization as the Director of advertising. He was impressed by the popularity of the coffee bars in Italy after he traveled to Milan in 1983. Back to the usa, he persuaded the founders of Starbucks to market both coffee beans and espresso beverages. However, the concept was rejected so he left the company 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. Since that time 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 very first overseas store in Tokyo, Japan in 1996. The organization currently has about 16,000 stores, employs 172,000 partners, AKA employees as of September 2007 in 44 countries. It offers annual sales well over $10B with many recent quarterly revenue being $2.526B. About 85% of Starbucks revenue originates from company-operated443 stores.
Starbucks does not franchise its operations and it has no intends to franchises in near future. In Canada And America, most stores are company-operated. You could see some Starbucks stores inside Target, major supermarkets, University campuses, Hospitals, and Airports. These stores are operated under licensing agreements to offer access to real estate property 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 this specific retailer, not Starbucks. Since 2008 it offers 7087 company-operated stores and 4081 licensed stores in america. Internationally it offers 1796 company operated stores and 2792 joint-venture or licensed stores in 43 foreign countries. The pace of expansion is reducing as the company wants to open 1020 US stores in 2008, lower than 400 stores during 2009 down from 1800 stores in2007. Additionally, in addition, it wants to close 100 stores in 2008.
Recession-sensitivity: a hungry man can survive having a Big Mac & fries but may live without a four-buck Frappuccino. What this means is Starbucks is extremely understanding of economy downturn as observed in 2007 and 2008 in comparison to Burger Kings and McDonald’s. This may be the primary reason sales at stores in america open at least a year are expected a mid single-digit percentage decline, the initial drop ever. It triggers Howard Schultz to return to the CEO post. The business plans 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 could be a sign 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 by which consumers are more and more concerned as a result of explosion of obesity and diabetes epidemic in america. 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. If it gets to be a trend that consumers decide to reduce on the sugar drinks, or adhere to low-carb diets it could have impact on Starbucks revenue.
Competition: McDonald’s, Wendy’s and Dunkin Donuts now also offer espresso at less expensive costs to contest with Starbucks. They will capture some revenue from Starbucks, especially from cost-conscious customers. The current Starbucks prices are already pretty high; it’s very difficult for Starbucks to increase the prices in the future without affecting the targeted traffic to its stores.
High-expenses business structure: while Starbucks profit margin is high because it pays an average $1.42 per pound for the unroasted coffee, its company is very labor intensive as with any other foods businesses. It takes between 10-20 employees to operate 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 as the 7-th best company to get results for in the united states in 2008 through the Fortune magazine employee’s survey. What is good for employees may not be great for the employers. These benefits are normally only available to key employees or managers within the restaurant industry. Historically, the expense of these health advantages rise faster compared to rate of inflation. In the long run, they may have negative influence on Starbucks main point here. Should Starbucks not perform well, it could be under pressure as being a public company to seal more stores.