Starbucks (SBUX 0.29%) has profitably licensed out its products for a while now, but considering the effect that the pandemic has had on brick-and-mortar locations, could there be even more opportunity for the at-home business? On this episode of "Ask Us Anything" on Motley Fool Live, recorded on March 18, Fool.com contributors Jamie Louko talks about the possibility of more at-home Starbucks products with colleague Jason Hall.
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Jamie Louko: Before COVID, they had really prided themselves on being that third place. You have your home, you have your work, and then you have Starbucks, where you do work, you hang out, you relax, or you do other projects. The fact that they were really trying to sell that and create that place, I would have had questions about where they wanted to focus if they were trying to push into there. But now, whereas I don't see that necessarily as -- clearly, it's still going to be very important to the business having that third place and building itself on that thought. But I do think that it is definitely a more real possibility. Considering I make 90% of my coffee at home with my Keurig, if there was a Starbucks-branded or Starbucks version...
Jason Hall: There are.
Louko: There are. Even if there was some subscription, I would totally look into that. Where if I could get a machine and get my Starbucks K-Cups and get that on some subscription. I definitely think there is opportunity there, is what I'm trying to say. It might not be a major market mover. Their brick and mortar is going to be a lot of where their major business is. But I do see it as a potential opportunity for the company over the coming years.
Hall: I'm going to do a quick screen share here. This is Starbucks' channel development segments. This outlays Starbucks' strategy for stuff that has the Starbucks logo that's not in a Starbucks store. They've largely gone through licensing with this over the past number of years. They did a big deal. I can't remember, Matt, Dan, maybe you can remind me. They did a deal with one of the consumer foods companies that paid a ton of cash up front to Starbucks, and then they're going to get recurring licensing revenues for this. But this is like the bottled beverages you get in the grocery stores or your 7-Eleven or that thing, the K-Cups, all of those sorts of things. What I wanted to point out is here, operating margin. This is a business that runs between 40 and 50% operating margin. It is a small portion of the company's revenue. Quarterly revenue was $417 million in that period I showed you, but it generated $183 million in operating income. That's a lot of operating income, compared, the international segment generated 300 million. So it generated almost half as much operating income as the international segment on a quarter as much revenue. It's a really profitable part of the business. But they leave it to that licensing bit.
