A Starbucks on every corner: A guide to the SBUX business model

The business model

American restaurant chains typically favor one of two business models: the standard retail business model or the franchise model. Starbucks (SBUX) has historically used the standard model. To this day, the majority of its net revenue is generated by the retail locations the company owns. While this business model typically hinders domestic expansion, Starbucks conquered this hurdle in the late 20th century, before the domestic coffee industry flooded with large-scale vendors. Plus, Starbucks has targeted highly populated areas with large volumes of foot traffic.

However, our globalizing world has spurred an economic trend toward expansion into emerging markets. Starbucks is accommodating this trend by loosening its licensing agreement requirements, using pieces of the franchise model to rapidly expose itself to developing markets’ share. This business model has allowed Starbucks to be the first coffee firm to put retail locations in each of the BRIC nations and many more. During FY2013, 23% of Starbucks’ revenues originated outside of the United States, compared Dunkin’ Donuts’s (DNKN) 3% international revenue stream. While Starbucks’ margins are slimmer than those of Dunkin’s franchise model, Starbucks enjoys a larger global presence and more control over its day-to-day operations via the retail model.