Starbucks Coffee – You Have To Understand This..

Starbucks Coffee, sometimes known as Fourbucks Coffee is the biggest coffeehouse chain in the world. It opened its first store in 1971 in Seattle’s waterfront Pike Place Market by 3 partners: Jerry Baldwin, Zev Siegel, and Gordon Bowker to market high-quality coffee beans and equipment. In 1982, Howard Schultz, the current Chairman and Chief executive officer joined the company as the Director of promoting. He was impressed by the popularity of the coffee bars in Italy after he traveled to Milan in 1983. Back to the united states, he persuaded the founders of Starbucks to promote 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 hours of operation with $3.8M and renamed Il Giornale coffee bars to Starbucks and turned it into the Starbucks you know today. The organization 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 very first overseas store in Tokyo, Japan in 1996. The company currently has about 16,000 stores, employs 172,000 partners, AKA employees at the time of September 2007 in 44 countries. It has 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 has no intends to franchises in foreseeable 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 usage of property which will otherwise unavailable. Starbucks receives licensee fees and royalties from the licensed locations. At these licensed retail locations, the personnel are considered employees of that specific retailer, not Starbucks. Since 2008 it has 7087 company-operated stores and 4081 licensed stores in the US. Internationally it offers 1796 company operated stores and 2792 joint-venture or licensed stores in 43 foreign countries. The pace of expansion is slowing since the company intends to open 1020 US stores in 2008, less than 400 stores in 2009 down from 1800 stores in2007. Additionally, additionally, it wants to close 100 stores in 2008.

Recession-sensitivity: a hungry man can survive using a Big Mac & fries but may live without a four-buck Frappuccino. This implies Starbucks is extremely responsive to economy downturn as noticed in 2007 and 2008 when compared with Burger Kings and McDonald’s. This may be the primary reason sales at stores in the US open at least per year are required a mid single-digit percentage decline, the very first drop ever. It triggers Howard Schultz to go back to the CEO post. The organization 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 indication of desperation. On April 22, 2008 Starbucks cut its outlook for the year citing weak economy.

Calorie & Sugar: Starbucks drinks acquire more sugar and calorie by which consumers are increasingly more concerned because of explosion of obesity and diabetes epidemic in the united states. As an 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 gets to be a trend that consumers decide to minimize on the sugar drinks, or adhere to low-carb diets this could have effect on Starbucks revenue.

Competition: McDonald’s, Wendy’s and Dunkin Donuts now also offer espresso at affordable prices to contend with Starbucks. They are going to capture some revenue from Starbucks, especially from cost-conscious customers. The present Starbucks charges are already pretty high; it’s very difficult for Starbucks to boost the costs in the future without affecting the traffic to its stores.

High-expenses business model: while Starbucks profit margin is high because it pays an average $1.42 per pound for the unroasted coffee, its business is very labor intensive as with every other foods businesses. It will take between 10-20 employees to run 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 work for in the united states in 2008 through the Fortune magazine employee’s survey. What is useful for employees might not be great for the employers. These benefits are usually only accessible to key employees or managers within the restaurant industry. Historically, the expenses of those health benefits rise faster than the rate of inflation. In the long run, they may have negative influence on Starbucks financial well being. Should Starbucks not work well, it may be under pressure as a public company to close more stores.

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