Starbucks has grown to be a big coffee company. $7.8B in revenue, 25% ROE, 145K employees… Whew, I’m glad we got those charts out of the way…
They have major expansion plans, especially internationally. For the current FY they should reach 14,840 stores and their goal is 40,000. Same store growth has been between 5 and 10% for the last 15 years. Notable expecially considering how many additional stores are put into existing markets.
Company operated retail stores comprise 85% of total revenues. The 2,400 new stores in FY07 require about $406K capex on average per store. First year sales for a US store have increased from $631K in FY2000 to $920K for FY2006.
International is where it gets interesting. The growth opportunities are there but margins appear to be slightly lower with more variance. There are 3,600 stores outside the US with an opportunity for at least 20,000. Starbucks owns 100% of the equity in 10 countries and 50% in 6 others.
The bulk of the international business is in the UK (39%) and Canada (34%). The rest is grouped into JV/Licensed and Other. International revenues as a percentage of total revenues have been climbing from 15% in FY03 to 18% in FY06.
First year sales to investment ratios are lower internationally. They are 1.6:1 versus the 2.1:1 in the US. Specifically in the UK first year sales of $905K compare to new store investment of $561K. In Canada the numbers are $692K and $450K respectively. However the ratio has improved from 1.3:1 in FY2000.
Internationally the average daily transactions are lower but ticket prices are higher. Labor costs are lower (?) but occupancy costs are higher. COGS is said to be about the same.
By geography Starbucks is pointing to Asia Pacific (10,000 stores), EMEA (5,000 stores), Latin America (3,500 stores) and Canada (1,500 stores).
They keep the beverages and mixtures the same around the world. In fact when they tried to add a Turkish coffee in Turkey and a Greek coffee in Greece nobody wanted them. Turns out they come to SBUX for the experience and find their own beverage. The first beverage sold in a new store in a Chinese village was a Venti Carmel Macchiato.
Most of the Q&A was focused on understanding same store sales growth in the oldest stores and the impact of higher International growth on margins. Most (75%) of the same store sales growth is said to be transaction-based rather than price.