A brief look at the business & revenue model of Starbucks.
Revenue Model of Starbucks
Starbucks is the leading coffee brand of the world with 27,339 stores operational worldwide in 2018. The company has its headquarters in Seattle and operates its global business through a large and international network of licensed and company operated stores. Starbucks has achieved superior growth and market leading position through consistent focus upon quality and customer experience. In the recent years, its number of stores as well as total net revenues have grown faster. The largest market of Starbucks are the Americas and specifically United States. The company has achieved its market leading position without aggressively spending on marketing. Instead it focused on superior customer experience and quality so as to build a strong reputation. The brand runs its network of stores globally through both company operated and licensed stores. Take a look at how it generates its revenue and the proportion of revenue it generates from each segment. .
While Coffee beverages are the core product offering of starbucks, they are not the only product category Starbucks offers. The company also offers other products. These products are divided into four main categories that include beverages, food, packaged and single serve coffees and teas and others. The largest of these categories is the beverages category. Beverages accounted for around 14.5 Billions of the entire revenue of the brand. Food is the second largest category of products accounting for more than 17% of the brand’s earnings in 2018.
Geographical Business Segments:-
US is the largest and primary market of Starbucks. However, the company has divided its business into three major geographical segments that include the Americas, EMEA (Europe, Middle East & Africa) and CAP (China/Asia Pacific). Americas are the largest of these three with the highest number of stores in 2018. They also account for the largest part of the brand’s revenue. The domestic market of Starbucks accounted for around 70% of its revenue in 2018. Americas overall accounted for around 16.7 Billion dollars of 24.7 Billion dollars that Starbucks generated in revenue in 2018. CAP was the second largest source of revenue accounting for around 4.5 Billion dollars in revenue. EMEA generated a little over 1 Billion US dollars in revenue.
Global Store Network:-
Starbucks has a global network of coffee stores that include both company operated and licensed stores. The highest number of these stores are in US. US is also the main market of Starbucks. The number of company operated stores in 2018 was 15,341 whereas that of the licensed stores was 13,983. The company operated stores have always accounted for the larger part of the brand’s revenue. In 2018 they generated around 19.7 Billion dollars in revenue for the brand whereas the licensed stores generated 2.7 Billion dollars in revenues.
Sources of Revenue:-
Starbucks has mainly three sources of revenue that include its company operated stores, earnings from the licensed stores, and other revenues from its channel development segment. The company operated stores are the main source of revenue for the brand. They account for the largest part of its revenue. In 2018, the company operated stores accounted for around 80% of the company’s revenue. On the other hand, revenues from the licensed stores accounted for around 11% of the total revenue of the company. Compared to the company operated stores, the licensed stores generally have lower gross margins and higher operating margins. In the licensed operating model, the company receives a small share of the revenues. However, the costs for running the licensed stores are also primarily born by the licensees. The company sells coffee, tea, food and related products to licensees for resale to its customers and receives royalties and license fees from the licensees. Apart from these, the company also sells certain equipment like coffee brewers and espresso machines to its licensees for use in their operations. The company also generates revenues from sales of packaged coffee, tea and ready-to-drink beverages to customers outside of its company-operated and licensed stores. These revenues are primarily included under the other revenues.
2018 Financial Performance:-
The financial performance of Starbucks has improved impressively in the past five years. From 16.5 Billion dollars in 2014, the net revenues of the company have grown to 24.7 Billion dollars in 2018. The company operated stores generate the most significant part of its revenue every year. Total revenue of the brand from the company operated stores in 2018 was 19.7 Billion dollars. In the same period the revenue of the brand from the licensed stores was 2.7 Billion dollars. Compared to 2017, total revenues of Starbucks saw 10% growth. Comparable store sales of Starbucks grew 2% driven by a 3% growth in the average ticket. Americas are the largest geographical market of Starbucks which generated 16.7 Billion dollars in sales. This was 7% higher than the previous year.
Sources: Starbucks Annual Report.