Starbucks

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For the last 6 years, Starbucks has, on average, opened more than 5 stores PER DAY!

No wonder they are on EVERY street corner!

The company has opened 11,258 stores in the past 6 years. That's a little less than one-third of McDonald's total restaurant count.

The company makes a vast majority of its revenue, 80%, from company-owned stores. This is a different approach than the franchising approach of McDonald's, where company-owned restaurants make up 45% of sales.

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Apparently the reason for this was that Howard Schultz, the founder and long-time CEO, strongly believed in creating an incentivized culture.

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Here's a high-level view of the store counts broken out by company-owned vs. licensed.

Notice that the total store count at the end of 2018 was 29,324. In perspective, McDonald's has 38,155 restaurants.

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Before moving on, we need to understand the difference between franchising and a "licensed" store. The company licenses its brand in retail centers and acts as a franchisor.

Ever been to a Starbucks inside an airport? Or in a Target? Those are licensed locations. The employees in those locations aren’t actually Starbucks employees, but rather the retail location hires them. This is not to say these locations can do whatever they want. Starbucks has strict guidelines for licensed stores, similar to franchising agreements.

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Now we'll break down the growth in store locations by the three geographies.

We'll start with:

"Americas" (US, Canada, Brazil)

About 600 new owned stores vs. 1,200 over the past two years. There is a focus on more licenses.

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CAP (China, Asia Pac)

In this geography, there is a clear focus on company-owned stores. This is because, in 2018, the company purchased the remaining 50% stake in 1,477 stores in China.

This was the biggest acquisition Starbucks had done at $1.4 billion.

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EMEA (Europe, Middle East, Africa)

Europe was the first place where Starbucks allowed franchising. It is now standard practice outside of the Americas segment. You can see the lop-sidedness towards licenses.

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Moving onto more unit-level metrics, in the Americas, revenue per owned store is about $1.54 million.

You can see, on average, Starbucks gets a 15% cut as a license partner.

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These numbers are a little different for the other two geographies.

For CAP:

And for EMEA:

Notice how nascent CAP’s numbers are. Part of this is because Starbucks is still young in China, and part of it is lower purchasing power in select locations. With that said, should comps become somewhat close to the Americas and EMEA, that gives the company a decent growth runway.

We've talked about store count but there are 2 more factors to Starbucks' growth.

  1. More traffic

  2. Pricing power

Here you can see the pricing power it has, affording to raise prices 3-5% annually.

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In-store, the company makes about 75% of its sales from beverages. That’s probably a little lower than I was expecting but that proportion has stayed pretty steady over the years.

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In summary, the company is shifting to more licenses in mature markets and investing heavily in China through company-owned stores. It also still has solid pricing power. Management even returned $9 billion to shareholders last year and is on track to return more than $11 for 2019.

To end, here’s a fun fact: the name, Starbucks, came from Captain Ahab's first mate from Moby Dick.

Because of this, the logo is a nautical creature. It’s meant to look like a mermaid.

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This will be the last free example.

If you’re on the free email list, consider subscribing because we will only be sending out marketing emails from here on out.