Is Starbucks Considered a Franchise?

WASHINGTON, DC - DECEMBER 27: An exterior view of a Starbucks, on December 27, 2012 in the Chinatown neighborhood of Washington, DC. Starbucks CEO Howard Schultz announced Washington locations would serve coffee with the words 'come together' written on the cups intended as a message to lawmakers about the damage being caused by the divisive negotiations over the 'fiscal cliff.'
Drew Angerer/Stringer/Getty Images News

In 1971, three partners who met in college opened the first Starbucks in Seattle, WA. They were inspired by coffee roaster Richard Peet, and sold fresh-roasted gourmet coffee beans in addition to teas, spices and other coffee-making supplies, naming their store after the obsessive chief mate "Starbuck" from the novel Moby Dick. The early Starbucks did not sell brewed coffee, and sourced their green coffee beans from Peet's.

Starbuck's purchased Peet's in 1984 just as sales of specialty coffee were beginning to take off, and quickly grew.

In 1987 Howard Schultz, vice president and general manager of Hammarplast USA, noticed that Starbucks was purchasing quite a few of his company’s espresso machines. This attracted his attention, so he decided to take a look at the business for himself. When he arrived in Seattle he found out that there were four locations in operation under the ownership of Gerald Baldwin and Gordon Bowker.

Shortly after his visit, Schultz joined the owners’ team to offer his marketing and business expertise. A year later while vacationing in Europe, Schultz realized that in Italy coffee shops were an important part of people’s daily social lives, and decided he wanted to try to replicate the feel of an Italian coffee shop in the US.

At that time, he left Starbucks to open one of his own coffee shops that would more closely mirror the type of shop found in Italy.

However, he later found out that the Starbucks owners were interested in selling their stores, and purchased the chain for $3.8 million and combined them with his own coffee shop. Starbucks had its initial public offering (IPO) on the stock market in 1992.

What is the structure of Starbucks? Is it a Franchise?

Schultz quickly set out to overhaul the entire operation through several strategically planned adjustments.

First he expanded the items that Starbucks would offer to include more gourmet type drinks such as espresso, café latte, and iced coffee. Even more importantly, he enhanced the company’s interaction with its employees by training the employees to provide top-notch customer service and making Starbucks an enjoyable place to work, offering many perks and benefits and comfortable living-room style seating.

The company experienced tremendous growth throughout the 1990s and took its place as the country’s number one specialty coffee retailer. With well over 16,000 locations worldwide, many people believe that Starbucks is a franchise. However, in reality it is considered the world’s leading coffee chain.

Most Starbucks stores in North America are company-operated. The company does sometimes enter into licensing arrangements with companies who provide the right to use particular locations that would otherwise not be accessible, such as in airports, grocery chains, and colleges/universities. Starbucks calls these special market arrangements coffee and tea "programs," and will also consider qualified high volume or high traffic retail locations.

Starbucks’ wholly owned subsidiary since 2003, Seattle’s Best Coffee, does franchise the operation of its cafes and kiosks. As of the middle of 2008, this subsidiary had over 540 cafes in the U.S. as well as nearly 100 espresso bars, with retail stores and grocery sub-stores in 20 states and provinces and the District of Columbia. Sub-stores can be found within many other businesses and college campuses, including Subway restaurants.

A well-executed concept

Although Starbucks is not considered a franchise, it is still thought of as a valuable example of a well thought out franchising concept through the business principles it operates on. Clever marketing, a consistent product and image, superior customer service, and good old-fashioned hard work have led to its success as a multi-billion dollar business. This company demonstrates that it is possible for a small business operating on these principles to become very large and successful. As Howard Schultz wrote about the company in his book, “There was something magic about it, a passion and authenticity I had never experienced in business. Maybe, just maybe, I could be part of that magic. Maybe I could help it grow.”

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