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Starbucks: Understanding the Business Model

Hi Patm59,

Your analysis of the licensee example is correct. For investors, in looking at SBUX, the licensee model has much less risk in that the little capital is expended and the returns are very high. The issue is that using the licensee model as a greater percentage of revenue tends to slow down growth rates of sales, operating margin, and net income, relative to the historical returns of the company owned and operated model. The point about the licensing division of SBUX is that 44% the stores are licensed yet only provide around 10% of the sales and operating profits- which shows that the real driver of profits in the past has been the company owned stores. I hope this clarified my thoughts a bit. Any other questions, please let me know.

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