This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for Starbucks (NASDAQ:SBUX)
WHAT HAS CHANGED?
Starbucks goes one level up with the introduction of Starbucks Reserve Roastery and Tasting rooms
In December 2014, Starbucks introduced a new concept and opened the first ‘Starbucks Reserve Roastery and Tasting Rooms’ in Seattle. The concept is aimed at enriching the experience of coffee lovers by providing them a 15,000 square foot space, which serves as a site for the roasting of some of the premium coffee lines.
The menu items in these Reserve stores are much more expensive than those in regular Starbucks stores. The company is planning to open its second roaster store in 2016, with the city to be declared later this year. The incremental small batch coffee roasting capacity provided by the roastery helps the company in sourcing roast blend coffees from around the world, and thus, helps them in providing a rich coffee experience to the coffee lovers in the country. Starbucks is planning to expand the availability of Starbucks Reserve coffees to over 1,000 locations. The roastery provides the company the opportunity to launch 500 Starbucks Reserve stores around the world. Apart from providing super-premium coffees made by new coffee brewing methods, the stores will also include Teavana kiosks.
On the other hand, the company has introduced Reserve coffees in over 1,200 regular stores worldwide, to drive additional customer traffic. Starbucks now serves Starbucks Reserve coffees in around 136 locations across 10 markets in China and the Asia-Pacific (CAP) region.
Below are key drivers of Starbucks' value that present opportunities for upside or downside to the current Trefis price estimate for Starbucks:
Company Owned Stores
- Company Operated Stores EBITDA Margin :The margins improved to 18.7% in 2010 from 15% in 2009 due to restructuring and store closures. However, in 2011, the margins dropped to 17.5%, primarily due to high coffee prices. In 2012, they remained relatively stable. In 2013, the margins increased to 19.4% as a result of low arabica coffee prices, and further to 20.3% in 2014. Experts believe that the coffee prices might shoot up again in 2015, due to potential threat by the El-Nino disturbance in African and South American coffee producing nations, as a result of which long-term margins might decline to 17.0%, and we could see a 15% downside to the Trefis stock price. However, if arabica coffee prices continue to decline and test new lows, margins may improve to 24.0%, leading to an upside of 7% to the Trefis valuation.
Starbucks is the world’s leading roaster and retailer of specialty coffee. Through its global network of owned and franchised coffee retail outlets, Starbucks offers a wide range of products like high-quality whole bean coffees, freshly brewed coffees, Italian-style espresso beverages, cold blended beverages, food items like sandwiches, premium teas, and coffee making equipment.
Starbucks' own stores are located near offices and residential areas and are larger in size, compared to its licensed stores that are much smaller and mostly located at airports and supermarkets.
Starbucks also sells its packaged coffee and tea through retail channels such as grocery stores, warehouse clubs, convenience stores, and US food service accounts.
The Company Operated Stores division is more valuable than the Franchise Stores division for Starbucks because of the following two reasons:
Company operated stores generate more revenues than franchised stores
Starbucks makes money through its company-owned stores as well as through franchise fees and royalties from franchised stores. Starbucks earns higher profit margins from franchised stores compared to company-owned stores because there are no operational and employee costs involved with franchised stores, hence Starbucks gets to keep the entire royalty & rent fee without paying for any costs.
Revenues earned from Starbucks' company owned stores are much higher than the franchised stores. This is because, although there are costs involved, Starbucks owns 100% of the revenues from its own restaurants, while it gets a percentage of the revenues (in the form of royalty fees) from its franchised restaurants.
Number of company owned stores comparable to franchised stores
Food & beverage companies, in general, increase their reach and profits by having a large base of franchised stores. For example, McDonald's has four times more franchised restaurants than company owned restaurants, making the franchise business more valuable to its stock. However, Starbucks has almost an equal number of company owned stores and franchised stores. As of June 28, 2015, Starbucks had 12,095 company-owned stores and 10,424 franchised stores making a total of 22,519 stores.
International expansion fueling growth
Most of the new restaurants the company plans to open are in China/Asia Pacific. The number of Starbucks outlets in these countries are only a fraction of what they are in the U.S. New outlets opened will be a mix of company-operated and franchised restaurants. The company plans to take the store count in China to 3,400 by 2019. Shanghai alone has 320 Starbucks stores. Starbucks plans to double the store count in China & Asia-Pacific to 10,000 by 2019. Moreover, the company decided to take full ownership of Starbucks Coffee Japan Ltd. (Starbucks Japan). On September 23, 2014, Starbucks announced its intent to acquire the remaining 60.5% of Starbucks Japan through a two-step tender offer process for about $914 million. Similarly, it plans to double the number of restaurants in South Korea to 700 by 2016. The company plans to accelerate the expansion in India in the coming years.
Ease and convenience of payment through mobile apps helping domestic sales
As of June 28, 2015, Starbucks' mobile payments accounted for 20% of the net transactions in the U.S., with nearly 9 million transactions each week. Consumers can load the money on to the app and then present a 2D bar code to pay at the register. With this app, it’s easy to pay with a phone, track purchases, and view one's My Starbucks Rewards Stars and rewards.
Starbucks Reserve coffee initiative boosts revenue growth
In December 2014, Starbucks introduced a new concept and opened the first ‘Starbucks Reserve Roastery and Tasting Rooms’ in Seattle. Moreover, the company has introduced Reserve coffees in over 1,200 regular stores worldwide, to drive additional customer traffic. Starbucks now serves Starbucks Reserve coffees in around 136 locations across 10 markets in China and the Asia-Pacific (CAP) region. Reserve coffees are more expensive than regular coffee items, and the company is trying to expand the initiative throughout the U.S. stores.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
View All Help Topics