Published on Jan 19, 2020

Starbucks Background Images

License Info: Creative Commons 4.0 BY-NC
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Starbucks Coffee, sometimes referred to as Fourbucks Coffee is the largest coffeehouse chain in the world. 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 current Chairman and CEO 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 convinced the founders of Starbucks to sell both coffee beans and espresso beverages. However, the idea 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 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 then the stock has split 5 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 has annual sales of over $10B with most recent quarterly revenue being $2.526B. About 85% of Starbucks revenue comes from company-operated stores.

Starbucks does not franchise its operations and has no plans to franchises in foreseeable future. In North America, most stores are company-operated. You may see some Starbucks stores inside Target, major supermarkets, University campuses, Hospitals, and Airports. These stores are operated under licensing agreements to provide access to real estate which would otherwise unavailable. Starbucks receives licensee fees and royalties from these licensed locations. At these licensed retail locations, the workers are considered employees of that specific retailer, not Starbucks. As of 2008 it has 7087 company-operated stores and 4081 licensed stores in the US. Internationally it has 1796 company operated stores and 2792 joint-venture or licensed stores in 43 foreign countries. The pace of expansion is slowing down as the company plans to open 1020 US stores in 2008, less than 400 stores in 2009 down from 1800 stores in2007. In addition, it also plans to close 100 stores in 2008.

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Risks to Real Estate Investors

Starbucks coffee buildings remain a popular investment for many investors. When you consider investing in a property occupied by Starbucks, you need to understand the following risks of your investment:

Recession-sensitivity: a hungry man can survive with a Big Mac & fries but can live without a four-buck Frappuccino. This means Starbucks is very sensitive to economy downturn as seen in 2007 and 2008 compared to Burger Kings and McDonald’s. This may be the main reason sales at stores in the US open at least a year are expected a mid single-digit percentage decline, the first drop ever. It triggers Howard Schultz to return to the CEO post. The company 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 may be a sign of desperation. On April 22, 2008 Starbucks cut its outlook for the year citing weak economy.

Calorie & Sugar: Starbucks drinks have more sugar and calorie in which consumers are more and more concerned due to explosion of obesity and diabetes epidemic in the US. For example, 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 becomes a trend that consumers decide to cut down on the sugar drinks, or stick to low-carb diets then it will have impact on Starbucks revenue.

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