Founded in 1971 in Seattle, Washington, Starbucks is an extremely popular coffee shop. It is known for darkly roasted coffee and has over 30,000 locations worldwide.
Does Starbucks franchise?
Starbucks does not franchise. It is also worth mentioning that the company is not interested in franchising in the future. The coffee shop prefers to own each of its locations and prefers their customers to have the full Starbucks experience. How the company interacts with the customer is one of the main reasons why it has had so much success.
More so, Starbucks doesn’t want to erode the values the company holds dear. Although franchising is not possible in the US and Canada, there are franchises in Europe. And, the good news is there are other strategies for ownership. Becoming a Licensed Partner is one of them. Licensed locations are found in large venues such as airports, hotels, hospitals, and colleges.
So, if you are looking to work with the Starbucks brand, you have the option of opening a licensed store. Starbucks aims at reaching different demographics. If you have a location or business that can help the coffee house achieve this goal, then you will be received with open arms. Currently, 13,930 Starbucks locations exist in the US, and 41% of them are licensed shops. Once you are licensed, the following is provided: training, design, menu, promotions, equipment, and other continuous support.
So why did Starbucks turn down franchising and stick to the company-owned model?
1. Company Culture
As mentioned earlier, the predominant reason is to maintain the company culture. The success of the coffeehouse is based primarily on their ability to tend to the sensitivity of their customers. Customers identify with the values of the corporation, and the company is not ready to let go of that.
The company indeed has several international franchises and licensed stores. However, it still maintains the most significant share of ownership. Starbucks is focused on its values and mission as opposed to trading control for expansion.
2. Efficiency
The coffee chain has been able to maintain efficiency in running its operations as a result of remaining a company-owned entity. Compared to other companies in the industry, Starbucks has been generating a higher EBITDA (earnings before tax, depreciation, and amortization).
3. The existing model is capital intensive
The most significant chunk of revenue franchises make is from the royalties and fees they receive from their franchisees. Yet, Starbucks is still competitive in the market and is one of the coffee shops generating the most revenue.
Starbucks’ profitability mainly relies on the changes in the prices of raw materials. The profit margins of Starbucks restaurants are affected by the prices of coffee beans and the costs associated with acquiring human resources. If the coffee beans are being sold at a high price and employee expenses increase, the earnings before tax, depreciation, and amortization decline. The reverse is also true.
Franchising is a way of diversifying risk. The model that Starbucks uses, on the other hand, is not risk-free. As you may well be aware, when the risk is high, the returns are also expected to be high. Starbucks’ margins rely heavily on the fluctuation of the prices of raw materials. To open a new restaurant, the corporation has to pump in a lot of capital to make it operational.
Despite the company’s unwillingness to franchise, it is doing well on its own. Starbucks continues to focus on customer satisfaction and sensitivity. The corporation takes pride in being able to stick to its mission and maintain its core values. This has resulted in efficiency in operations, which is partly responsible for the high profit margins.
Using the company-owned model, Starbucks has achieved immense growth by investing in restaurants and operating licensed stores. Maintaining the brand image and values enhances brand identity, which earns the company impressive margins.
References
https://www.statista.com/statistics/306915/countries-with-the-largest-number-of-starbucks-stores-worldwide/
https://www.businessinsider.com/why-starbucks-doesnt-franchise-2016-9?IR=T
https://www.investopedia.com/ask/answers/032515/why-did-howard-schultz-decide-keep-starbucks-chain-rather-allow-franchising.asp
https://www.starbuckcoffee.net/starbucks/how-to-open-starbucks/
