The word 'Starbucks' is synonymous with coffee. The company is
most famous for the wide presence of its stores globally which
provide customers with an inviting atmosphere to drink and enjoy
premium coffee. This strong brand is associated with consistent,
high quality coffee, and this experience distinguishes it from
other coffee chains and is a key reason why the chain is able to
charge premium prices.
The company's revenue stood at $12.2 billion in 2011 and $13.7
billion for 2012. The company-wide EBITDA margins have historically
been in the range of 22-24%.
See our full analysis for Starbucks
Starbucks has close to 18,000 stores worldwide of which more
than half are company-operated and the rest are licensed stores.
However, the company has shown a greater predilection to open
licensed stores lately with close to 60% of new additions being
licensed stores. In 2013, Starbucks will accelerate store openings
to 1,300 primarily focusing on China, Mexico, Costa Rica as well as
India and the Nordic region.
1) Company-operated stores:
Starbucks incurs all costs related to the stores and profits go
to the company's books. The company-operated stores generated
revenues of $9.9 billion and $10.8 billion in 2011 and 2012,
respectively. Trefis adjusted margins in 2011 were close to 17%. We
estimate company-operated stores account for 60% of Starbucks'
Margins are expected to stay in a similar range in 2013 since
the company's same-stores sales have fared well, negating the
impact of any rise in fixed costs such as labor and occupancy
costs. Starbucks has outperformed other mature restaurant stocks.
Same-store sales were up 7% in the U.S. in 2012 as well as 2011. On
the other hand, same-store sales of McDonald's, Chipotle Mexican
Grill and Dunkin Donuts have slowed in 2012.
2) Licensed Stores:
Revenue from licensed stores exceeded $1.2 billion in 2012. Due
to the franchising nature of the business, it has a high profit
margin of around 75%. We expect EBITDA margins will continue to
remain high as royalty rates tend to remain stable. In 2013,
Starbucks plans to add 800-900 licensed stores globally.
Starbucks earns its revenues as a percentage of franchisee
sales. All expenses related to the cost of food/beverages, labor,
occupancy and miscellaneous are borne by the franchisees.
We estimate this segment accounts for 30% of the company's
3) Distribution Channel:
In addition to its stores, Starbucks has a growing packaged
products business which it labels as distribution channel products.
It has built a good distribution network through which it
sells its packaged coffee and tea, K-cups and Evolution juices.
Revenues for its consumer packaged goods exceeded $1.3 billion for
2012, up 30% over 2011.
One of the reasons why this division is witnessing strong growth
is because of expanded distribution combined with the continuous
addition of new products to its portfolio. For example, the company
has made available its bottled juices available in supermarkets and
mom & pop stores under the Evolution brand besides opening up
its juice bars. Similarly, for Teavana, it plans to sell packaged
tea at supermarkets besides opening tea bars under this brand.
The company is trying to diversify its offerings beyond coffee
and acquired a juice company, Evolution Juice, in November 2011 for
$30 million. Similarly, it acquired bakery chain La Boulange for
$100 million in the first half of 2012. The bakery items will help
expand the menu at its stores, and food revenues already constitute
$1.5 billion in annual sales and can only grow with the help of
this acquisition. It also acquired a tea company called Teavana in
a deal estimated at $620 million in late 2012. These moves appear
aimed at extending the Starbucks experience to other food and drink
items than coffee and could help expand its addressable market.
Starbucks has also forayed into the single-cup brewer segment by
introducing the Verismo, a high pressure brewer system used for
making lattes and cappuccinos, in September 2012. The Verismo is
seen as a potential threat to Green Mountain Coffee Roasters' (
) dominant position in the single-cup brewer market owing to
Starbucks' financial muscle. Within the first quarter of its debut,
the company has already sold more than 150,000 brewers.
have a $58 price estimate for Starbucks
, which is about 10% higher than the current market price.
how a company's products impact its stock price at Trefis