Starbucks is quite possibly one of the most successful coffee chains in the entire world, kick-starting the concept of a coffee shop becoming a franchise.
But let me save you some time: No, you cannot franchise a Starbucks. Here’s why.
Starbucks Does NOT Franchise
The Seattle-based company has made its position very clear: Starbucks has never franchised, it isn’t franchising, and it is not interested in franchising in the future. Every single Starbucks in the country (that’s 15,341 locations as of June of 2020) is owned, operated, managed, and barista’d by the Starbucks corporation (SBUX on NASDAQ).
They have good reasons for keeping the business within the family, so to speak. Starbucks is very particular about its corporate identity and it honors its values in every location they have by giving their customers the full ‘Starbucks’ experience. Beyond its innovative frappes and lattes, it’s this completely personalized customer service that has made Starbucks a national institution.
Which is why it doesn’t want to franchise: while there are thousands of reliable and competent franchisers out there, it only takes one bad egg to stain the Starbucks reputation. After all, the worked so hard to convince people that their products are an indulgence worth having. It’s a risk they’re simply not willing to take.
Even in its international locations, Starbucks prefers to deal with companies that they can have equal stock in, just so they can monitor very closely just how that particular location operates and behaves.
So, What are My Options?
But if you’re dead-set on owning a Starbucks, there is only one way you can do it: become a Licensed Partner. The differences between franchising and licensing can be pretty technical, but basically, it boils down to how much control the parent corporation has over the location. It has more control over the overall operations of a licensed store than it does with a franchise, which is why Starbucks prefers licensing stores over selling franchises.
Opening a Starbucks Licensed Store is a good opportunity to dip your hands in that coffee chain money, especially since that’s the only way you can do it. Of the more than 15,000 Starbucks locations in the United States, more than 40% of those are licensed stores. This is an easier way for Starbucks to expand their operations without exactly relinquishing control: they contact people with attractive locations (i.e. airport stalls, malls, outside of schools, etc.) and offer them a chance to become a Starbucks licensed store.
Why Exactly Doesn’t Starbucks Franchise?
Like what we mentioned earlier, Starbucks has plenty of reasons why they prefer not to franchise, but all those reasons can probably be condensed into three main factors:
Starbucks Wants a Consistent Company Culture Across All Stores
The foundation of Starbucks’ success lies in the way they handle their customers; that is, Starbucks became well-known for catering to every coffee-related issue they might have. You could even say that Starbucks is known for bending over backward for their customers just so the latter has the most positive experience in the store possible.
Without this attention to customer service, Starbucks would never have made it to the top of the coffee chain industry, and it’s a value and image that they hold in very high regard and is a pillar of their corporate operations. Even with international partners, Starbucks retains the majority share just so they can be hands-on with every single customer relations issue that might pop up in that country.
It sounds like Starbucks has control issues, but really, it’s one of the main reasons why it’s been able to expand the way it has and how it became a household name both here and around the world. They focused on retaining their values and keeping consistent rather than just expanding as much as possible.
It’s one of the best and most underrated tips for business growth, but focusing on who you are as a business is actually better than focusing too much on making money fast.
Starbucks Prefers Licensing Stores Because It’s More Efficient
In the food-and-beverage industry, the higher the EBITDA (that is, Earnings Before Income Tax, Depreciation, and Amortization), the better the profits will be. In the coffee chain industry, Starbucks has consistently generated more EBITDA than its competitors, and it’s thanks to their rejection of the franchise model.
And it makes sense: by retaining more corporate control, Starbucks is able to keep operations lean and efficient, thereby maximizing gross profit and minimizing waste purchases. Because all Starbucks locations follow the same exact rules, regulations, and best practices (not to mention a uniform training program for employees and standardized equipment and recipes) the corporation is able to monitor closely how much money is coming out and can expect a regular amount of money coming in.
Starbuck’s Existing Model is Capital Intensive
In general, franchises generate most of their revenue from the royalties and franchising fees that they receive from their franchisees: the more franchisees a company has, the more income it can make. However, Starbucks doesn’t franchise, and yet it’s generating more revenue than most of its competitors. How do they do it from a business sense, and how did they avoid common fundraising mistakes from the get-go??
A key factor in Starbuck’s profitability is the price of the raw materials of its products. Starbuck’s overall profit margins are greatly affected by fluctuations in raw coffee bean prices, not to mention the cost of acquiring and managing human resources. This is, of course, risky: if prices for raw materials go up, Starbucks’ cost go up, and their EBITDA goes down.
However, the inverse is also true, which is why Starbucks is very active in keeping their entire supply chain ethically sourced: ethically sourced coffee is slightly more expensive, but the prices remain more stable. It also looks good for Starbucks’ CSR.
This allows Starbucks to more accurately monitor its finances, which in turn makes overall management more efficient, which, again, in turn, keeps profit margins healthy and thriving. By investing heavily in making great customer service synonymous with its corporate image and branding, Starbucks was able to expand without relying on a franchise model. IT was a very risky move, but one that proved profitable in the long run.