Everywhere you turn or shop, there’s probably a Starbucks nearby. Starbucks is considered the largest coffee chain in the world with over 32,646 stores in 2020 and still growing. What started as a small coffee shop in Seattle has grown into a multi-national corporation with 70 million loyal patrons young and old.
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How much will it cost to open a Starbucks franchise?
The bad news is that you still can’t franchise this concept. Why? Then Starbucks CEO Howard Schultz once said in 2003 that “It would have been hard to provide the level of sensitivity to customers and knowledge of the product needed to create those Starbucks values if we franchised.” In other words, Starbucks would like to preserve and maintain the quality of their coffee shop and service. They believe consistency and quality can get lost with the franchise model.
But don’t click close on the tab just yet. There’s still a way you can get involved in managing the operations of a Starbucks store. Let me explain.
You can still open up what is called a “licensed” Starbucks store. Bear in mind that licensing is not the same as owning a franchise. It’s like renting the brand instead and the companies likeness instead. You’ll need to pay a licensing fee rather than a franchising fee. A licensed Starbucks is roughly around $315,000. You’ll also need $700,000 in liquid assets to be considered for this opportunity.
To learn more about licensing a Starbucks store, I walk you through the details below. Grab a coffee any way you like it and let’s get started.
Financial Requirements and Fees
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As mentioned above, licensing a Starbucks store has significant fees and asset requirements. Below are estimated details on what these fees are:
To better understand the term, liquid asset simply means cash on hand. This is the amount of money you have that you can easily and readily use. You can consider money in a savings account or stock holdings as an example of a liquid asset.
Again, Starbucks does not allow franchising of their store so it’s best to talk to Starbucks directly if you’re interested in licensing their coffee shop. You’ll have to fill up a form and they’ll have to assess your qualifications before accepting you as a licensed operator of their brand.
Keep in mind even though you’re not a franchisee, the investment is at a similar level to comparable concepts like McDonald’s as an example that requires $1 – $2.2. million on average to join the franchise.
Why do entrepreneurs still decide to invest in a Starbuck licensed store if they aren’t even the owner? The fact is you can still make money leveraging the likeness, menu, and 70 million strong customer base of the global brand. If you’re able to find a location like airport or shopping mall, you can leverage the brand recognition to sell a lot of cups of coffee.
Average Sales / Revenue per Year
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Starbucks’ average sales for the past five years is $23.69 billion annually. This is why they’re the king of all coffee shops. Although they had a dip in sales in the year 2020 due to the pandemic, their stats for the past five years show how their sales were continually growing. We expect this growth trend to continue as the company expands deeper into large international markets like China.
One catalyst for their growth is the mobile app that now accounts for a staggering 24% of sales in the United States. This percentage of company increased from only 3% in 2016. The mobile app allows customers to get rewards when you order drinks or food through the app. These rewards, or stars as they are called inside the app, can be exchanged for free menu items similar to a loyalty punch-card program.
As someone who has the Starbucks app downloaded on their phone, I can confirm the app is a powerful marketing tool for the company. I get push notifications delivered on my phone through the app offering me coupons or informing me about specials or new drinks. This gentle reminder that has encouraged me on more than one occasion to drive to my neighborhood location to get a Venti dark roast.
Costa Coffee and Dunkin’ Donuts are considered as Starbucks’ competitors but their yearly average sales (Costa Coffee: £1.34 billion; Dunkin’ Donuts: $1.37 billion) falls far short compared to Starbucks. Still, they can be viable alternatives to evaluate if you want to get into the coffee business.
Starbucks Franchise Facts
|Only open for licensing
Starbucks’ main headquarters is located in Seattle where the company was founded. Although their largest branch is in Chicago with over five floors of baked goods, a cocktail bar, and a rooftop deck. Starbucks has over 349,000 full-time employees around the world.
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The name of the coffee shop came from the first mate in Herman Melville’s book “Moby Dick.” Though they’re known for selling coffee, Starbucks also owns Evolution Fresh, their bottled fruit juices, and Ethos Bottled Water. Other notable businesses that Starbucks owned were Seattle’s Best Coffee and Tazo, a tea company.
At the time of this writing, Starbucks’ president and chief executive officer is Kevin Johnson.
How Much Does Starbucks Make in Profit?
As reported by Statista, Starbucks’ sales in 2020 reached $19.16 billion. According to an SEC filing from 2010, the company made a gross margin of $108,000 per store. Considering Starbucks now has 32,646 locations, you could estimate a annual gross margin of more than $3.5 billion annually. That is a staggering amount of profit.
There is even speculation that Starbucks has increased profitability further since way back in 2010. This profit margin has likely increased due to the power of their scale and lower costs, distribution, and even stock buy backs.
Starbucks did suffer a 27.7% drop in 2020 compared to the previous year but that was caused by the pandemic. It should also be noted that Starbucks’ sells other items aside from beverages. They also sell food products such as their baked goods. Beverage products earned around $14.34 billion while food products reached $3.8 billion in 2020.
Advantages of a Starbucks Brand License
We know that you can’t franchise a Starbucks. But you can license a location. Here are some advantages of going this route.
Customized Store Design
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According to Business News PH, when you’re granted a license to operate a Starbucks, you can customize the coffee outlet according to your style. Unlike other franchises where the company strictly gives you the layout or store design with Starbucks, you can apply a few designs that would suit the local taste.
But that doesn’t mean you can be totally creative on the design. You’d still need to have your outlet based on one of the 18 design studios that Starbucks will provide. But it’s still better than the uniformed look you’ll get from other business franchises.
Exclusive Food Menu and Whole Beans
In addition to a customized store design, you also get Starbucks’ exclusive bakery program. Not only do you get the signature drinks from them but you also have access to their menu. All those croissants, cheesecakes, buns, cookies, and tarts, you’ll have at your coffee shop.
You’ll also get the Starbucks beans so you also don’t need to worry about where to get your supply of coffee to sell.
Starbucks won’t just leave you right after you’ve put up an outlet. All the concerns you have will be answered as consultations and support will be provided. It would also be beneficial to work inside a Starbucks store prior to investing in a brand license. This will get you familiar with the day-to-day operations of a retail store.
Proprietary Equipment Package
You’re probably wondering how will you know which coffee machine is the best one to use or what other equipment you’ll need when you license a Starbucks store. You won’t need to worry about that because they’ll be providing you with the equipment they’ve already approved for use. This helps maintain consistency of your store to other coffee shops operated under this umbrella.
The Starbucks Trademark
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One of the major advantages of owning a Starbucks is that you’ll have that extra oomph among other coffee houses. Your store name is already well known. You already have a customer base. The Starbucks aesthetics is already set up for you. You’ll have the signature coffee line, the merchandise, and the seasonal promotions like Pumpkin Spice Lattes. You’ll have most of the store ready for operation without having to figure out your brand.
Challenges of a Starbucks Brand License
Just like any other business, operating a Starbucks comes with its challenges. But this is why we’re here breaking it all down for you so that you’re familiar with the obstacles you might hurdle through if and when you decide to license a Starbucks. Here are a few that you should know:
Expensive Licensing Fees
We’ve already mentioned how much it would take to license a Starbucks. Other than the fee, you also have to consider having a liquid asset that Starbucks would deem an acceptable amount in order for them to approve your application.
So unless you’re already running a huge national company, getting to license a Starbucks may be difficult.
High Priced Coffee Menu
It’s no surprise that Starbucks is deemed expensive by many. A Tall-sized cup of iced coffee from Starbucks is $2.25 (12 ounces) while at Dunkin’ Donuts it’s $1.99 for a small size (16 ounces). Several factors come into play why Starbucks coffees are expensive. You take into consideration the prime spots they’re located in, the popularity, the convenience, and the staff that’s highly trained.
Starbucks may have a large following that’s why they’re still standing strong. But there are a lot of other people as well that prefer to get their coffee somewhere else that’s much cheaper.
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Starbucks always chooses the best locations but even that comes with a price. If it’s at a mall, the rental fees would be steep. If it’s at an empty lot, then you may have to rent a piece of that lot or even go through the necessary legal requirements to purchase it and then spend money to build the coffee shop.
In conclusion, it’s not just the licensing fee you’ll have to worry about. It’s all these other expenses too that come with putting up a Starbucks in your area.
Working with the Public
Anytime you’re serving the public there will be challenges. One challenge expressed by managers of Starbucks is how to deal with the bathrooms at these coffee shops. If you’re in a downtown area, often the only place to find relief is at a Starbucks. This has led to conversations on whether or not to allow communities like the homeless should be able to use these facilities, while at the same time not disrupting the comfort of customers.
In general, Starbucks allows anyone (customer or not) to use their bathrooms. They also provide free cups of water upon request. These larger society issues are considerations that will continue to come up. We don’t have any specific answers for you here, but it’s a fact that you should be aware of before running a licensed store.
Is the Starbucks Brand License Right For You?
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If you’ve read through the whole guide then you know that the bulk of your concerns in having a Starbucks outlet are the expenses. Business-wise, you can see via the statistics that this coffee shop is doing well worldwide but you may also have to do a study around your area whether or not people would be interested in a Starbucks, especially when the rates of their coffee prices can be a little expensive. So if you have the means and the money to be able to license a Starbucks, it doesn’t hurt to apply.
What is an alternative coffee house franchise?
If you find a Starbucks exceeds your budget, consider Dunkin’ Donuts. Their initial franchise fee is $40,000 to $90,000. You’ll also get a line of beverages and baked goods if this is the industry you’re looking into joining.
Another alternative is Dutch Bros, a drive-through coffee chain. Their franchise fee is $30,000 and they have a wide variety of hot and cold coffee drinks as well as tea, smoothies, and energy drinks. Where I live Dutch Bros is an extremely popular concept. However, their baked goods are not be as extensive as Starbucks and Dunkin’ Donuts.
Another option would be to sell Starbucks items like their packaged beans and tea. The guidelines for selling Starbucks products like pre-made iced coffee is much lower. Though the experience wouldn’t be the same as operating a coffee shop, you can sell Starbucks branded merchandise.
In conclusion, make sure to weigh your options and your budget when you choose to license a Starbucks. Remember there are many options for other coffee businesses you can choose from that are also performing well and growing fast. You’ve got plenty of options.