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Re: A History Inquiry

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By Goofyhoofy
January 3, 2007

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Don't have time this second to research it, but what we are really looking for is the relationship between the growth and CAPEX.

I don't think it's as easy as this. In fact, I'm sure of it.

Things change. Time moves on. Have any other clich�s about how it will be different next time? Feel free to throw them in.

For the first few years, Starbucks spent all its money opening its own stores; virtually no partnerships that I know of. They had no great brand; why would someone want to plaster a "Starbucks" in a Safeway?

As the brand grew, partnerships appeared. That means (I presume) less capital spending on the part of Starbucks, more on the part of the partner. Some locations, like concessionaire controlled locations (airports, convention centers) were a different animal altogether. Certainly less revenue flowed to Starbucks, but then there was almost no investment required of the company.

Then other product lines showed up. I'll bet there's close to zero CAPEX in Starbucks licensing of ice cream, or letting Pepsi bottle some witches brew, or making candy bars with the Starbucks logo on them. (Obviously there's some, you have to do something with the beans somewhere.)

At some point - and perhaps they're already getting there in a few places - there will be not such easy pickings. It won't be "open a restaurant", it will be "buy an existing chain", which means gobs of investment - or perhaps not, depending on the deal.

I've retold the McDonald's saga many times, but with the recent company quote about Italy (and the entrenched coffee culture there) here it is again: MCD tried to open restaurants in Italy and fell on their face. They closed up and left town. They tried again, this time with a local partner, and failed again. Finally, a decade later they bought an already existing burger chain in Italy with already existing customers and already existing cash flows and a restaurant business model close enough for horseshoes - and they paid dearly for it. Of course with a base from which to grow, vendors in place, customers walking in, local customs understood, town zoning boards bypassed, they changed the signs, improved the model, grew handsomely and Italy is now a highly successful market for them - even though they overpaid to get in. That was a CAPEX hit that would have hurt the formula, but in the long run, not.

Perhaps it will be the same with Starbucks, or perhaps the story will be completely different, I don't know, and neither does anybody else. That's why you have to trust your management - or sell your stock.

If it was as easy as "a formula" then everybody would know when Friday is coming and they'd all vamoose. It doesn't work like that.

(Hint, though: The quiz is gonna happen on Wednesday afternoon.)


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