RPK

Starbucks: Understanding the Business Model

The strength of Starbuck's was its experience. Prior to the company's more recent high growth years, Starbuck's picked good locations in generally affluent areas. The stores attracted people with decent coffee in a relaxing environment and became a gathering place for people. Many of Starbuck's new stores deviate from that formula. Some are primarily drive thrus near major intersections or highway entrances.

Starbuck's also lost focus as the company tried to push into warm breakfasts, sell music and books, sponsor movies, etc. While some of these make sense not all do.

In addition, the coffee and specialty drinks are not consistent from store to store. Starbuck's has attempted to address this problem with a three hour long training shutdown, which is probably not sufficient.

Most of the company's problems are solvable but aggressively opening new stores and pushing sales via the CPG division it not the answer. Starbuck's needs to drive sales through it current existing stores to increase operating income and justify the capital costs of building a store.