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Starbucks Focusing on Franchising for Expanding Its Business

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Current operations

By the end of fiscal 4Q16, Starbucks (SBUX) operated 25,085 restaurants. 12,711 of those were company owned and 12,373 were franchised.

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SBUX’s unit growth

In fiscal 2016, the company has increased its unit count by 2,042, which comprises 476 company-owned restaurants and 1,566 franchised restaurants. The company has been focusing on expanding aggressively in the CAP (China and Asia-Pacific) region with the addition of 981 new restaurants in 2016 (359 company-owned restaurants and 622 franchised restaurants). Of the 6,443 restaurants in CAP region, approximately 2,400 operate in China. In Shanghai alone, the company operates 500 restaurants, which has prompted the company to open its first international Starbucks Roastery and Reserve Tasting Room. The opening is scheduled for late fiscal 2017. Also, management wants to increase the unit count in China to 5,000 by the end of fiscal 2021.

In the Americas, the company raised its unit count by 804 units in fiscal 2016, with the addition of 348 company-owned restaurants and 456 franchised restaurants. Meanwhile, the EMEA region increased its unit count by 280 units with the refranchising of 214 company-owned restaurants and the addition of new franchised restaurants.

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Outlook

Analysts are expecting Starbucks to add 1,880 restaurants in fiscal 2017. Management has also been focusing on the opening of roasteries, which will showcase new coffee brewing methods. In addition to the Shanghai roastery, the company is planning to open roasteries in New York City and Tokyo in 2018, and in Europe by 2019.

Peer comparison

In fiscal 4Q16, Starbucks raised its unit count by 690. Peers Dunkin’ Brands (DNKN), Domino’s Pizza (DPZ), and McDonald’s (MCD) have added 215, 316, and 111 units, respectively. Next, we’ll look at Starbucks’s EBIT (earnings before interest and tax) margins.

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