Starbucks Corp. (SBUX) has rapidly grown into the world's dominant coffee shop-themed chain over five decades by roasting, marketing, and selling an ever-expanding assortment of specialty beverages, food and branded products. These products were sold through more than 31,000 stores in 81 markets around the world in its latest fiscal year. Beverages are the biggest revenue generator by product category. The Americas segment, dominated by U.S. sales, accounts for the vast majority of revenue for the Seattle-headquartered company.
While Starbucks dominates the U.S. market, it faces increasingly tough competition in international markets, including from U.K.-based Costa Coffee, a subsidiary of Coca Cola Co. (KO); and China-based Luckin Coffee Inc. (LK).
- Starbucks sells beverages, food and other items in 81 global markets.
- The company gets the vast majority of sales from beverages and from its Americas segment, comprised of North America, Canada, and Latin America.
- Starbucks is focusing on international expansion and new products for future growth.
- The company recently began to offer Meatless Breakfast Options, including 5 new items such as veggie breakfast wraps and oatmeal.
Starbucks has grown so big in the U.S. and key foreign markets that a major challenge is how to keep boosting revenue and profit at a healthy pace. Revenue in the fiscal year ending September 29, 2019 rose 7.2% to $26.5 billion from a year earlier as operating income increased about 5% to $4.1 billion.
The FY 2019 revenue gain marked a slowdown from 10.5% growth in FY 2018, but was higher than the 5% increase in FY 2017. FY 2019 marked the first annual operating income increase since FY 2016. The FY 2019 improvement in operating income, and also in revenue, was underpinned by improved sales leverage, cost savings, lower restructuring and impairment costs, and other factors.
Despite Starbucks' size, the company succeeded in boosting comparative sales at company-owned stores by 5% in FY 2019, marking a significant increase from the previous year, when the company reported a 2% increase. The majority of those gains came from beverages, which comprised 74% of retail sales for company-owned stores. Food comprised 20% of store sales, while packaged goods and other branded items comprised 6%. Stores are equally divided between company-owned and licensed enterprises but 81% of total segment revenue is derived through direct ownership.
Starbucks' Q1 2020 results announced on January 28 showed continued improvement. Operating income rose 20% on a 7% gain in revenue, as a strong holiday season drove results. The company also reported a 5% increase in global comparable store sales.
Starbucks' Business Segments
Starbucks operates through three main business segments and breaks them down into revenue and operating income as we show below and in the pie charts above: Americas, International, and Channel Development.
Starbucks' Americas segment comprises company-owned and licensed stores in North America, Canada, and Latin America. Americas accounts for 69% of the company's total segment revenue and operating income, and is dominated by U.S. sales. About 58% of all Starbucks stores are in the U.S. The Americas segment posted revenue of $18.3 billion in FY 2019, a 9% increase over the previous year. Operating income rose 8.5% to $3.8 billion YOY.
Starbucks' International segment includes company-owned and licensed store revenue and operating income in China, Japan, Asia Pacific, Europe, Middle East, and Africa. It comprises 23% of total segment revenue and 18% of total operating income. The segment posted $6.2 billion in revenue in FY 2019, an 11.5% increase YOY. Operating income rose 10.5% to $964.7 million.
Starbucks' Channel Development segment includes branded roasted whole bean and ground coffees, including Seattle's Best Coffee; Starbucks and Teavana-branded single-serve products; ready-to-drink beverages such as Frappuccino, Doubleshot, Refreshers, and Teavana iced tea; and other branded products sold worldwide outside of company-operated and licensed stores. Segment revenue of $2.0 billion in FY 2019 marked a significant decrease from $2.3 billion a year earlier. Operating income fell 25% to $697.5 million. The company cited a charge for licensing several brands to Nestlé as the cause for the shortfall.
Starbucks' Recent Developments
Starbucks recently began to offer 5 Meatless Breakfast Options to address the growing popularity of plant-based foods among U.S. and global consumers. The new items include veggie breakfast wraps, oatmeal, and avocado spreads for toast. The company also introduced a Beyond Meat Cheddar and Egg Sandwich soley for the Canadian market.