In my last article on the topic of Starbucks Corporation (SBUX 0.86%), I discussed four interesting things about the world's largest coffee chain that you probably don't know. However, while I was writing the article, I discovered that there are many things that make Starbucks such an interesting corporation. So, in an effort to do the company, and its investors, justice I wrote this follow-up article. I hope you all enjoy!
The coffee chain didn't start with Starbucks
Ten years after the founding of Starbucks in 1971, Howard Schultz, the company's current CEO, began working at the coffee chain. Following a trip he made to Italy, where he fell in love with the "espresso bar" culture there, he proposed that the company, which as of that time sold only coffee beans instead of brewing them, sell specialty coffees.
Much to his chagrin, the two remaining partners of the company turned down the idea. Frustrated, Schultz quit the company and eventually went on to start his own coffee company in 1986; II Giornale.
In less than a year, II Giornale expanded from one to three locations and, in 1987, acquired the six Starbucks stores and its roasting plant. This acquisition allowed the company to fuel its growth even more, increasing its number of locations to 17 by the end of 1987.
Starbucks has grown quicker than you might think
If you take 1986 as the year the Starbucks "concept" was put into implementation, only then can you fully appreciate how fast the company has grown. As of the company's most recent fiscal quarter, the number of stores across the globe has risen to 19,209. By dividing this number by the number of years that the company has been in operation, we arrive at an average store addition of 711.4 per year. Converting this to a daily basis, we arrive at an exciting conclusion about the company's growth; it has added nearly two Starbucks locations per day, on average, since 1986.
In truth, this growth is impressive. What is even more impressive though is that the company has been able to maintain a high level of growth. Between its 2008 fiscal year and its 2012 fiscal year, Starbucks has averaged approximately 0.76 new stores opened per day. Although this performance is significantly below the company's historic average growth, readers should keep in mind that this growth occurred throughout a global recession.
In an effort to make up for the past few years, the company has picked up the pace a bit, adding about 2.91 stores per day between 2011 and 2012, and racking up another 1,143 stores between September 2012 and June 2013.
International markets are key to the company's future growth
So, by now, we understand that Starbucks is a fast-growing and innovative company that currently sits at the pinnacle of its industry. However, do you know exactly how global the company is? For starters, I mentioned in my previous article that the company has about 68.5% of its stores located in the United States. However, I did not mention that the company, which began growing internationally in 1996 when it opened its first Starbucks in Tokyo, Japan, is seeing phenomenal growth in its international operations.
As of the company's most recent fiscal quarter, the growth rate of stores within the United States has only amounted to 4.7% compared to the same quarter a year ago. However, the company's Europe, Middle East, and Africa (EMEA) segment has seen higher growth which amounted to 5.7% over the same time horizon.
Still not impressed? Well then, how about the attractive 16.5% growth rate the company saw in its China/Asia Pacific segment? Now that's growth! Even more extreme is the growth (albeit, with a small base of 96 locations in the same quarter a year ago) in its Other segment of 347.9%.
Based on this historical growth, it can be reasonably inferred that much of the company's future growth will take place outside of the United States. The positive side to this is that it will allow the company greater market presence, but at the cost of lower margins. While the company posted an impressive operating margin of 21.4% domestically in its most recent fiscal quarter, it was only able to eek out a 13.4% operating margin abroad, which should caution investors who expect both significant growth and high margins.
Starbucks isn't just about coffee anymore!
In 2006, Starbucks took a bold step that, to some, may not make much sense; it created Starbucks Entertainment. This concept allowed the company to expand into the motion picture world. The first film that Starbucks Entertainment worked on was Akeelah and the Bee, which was released in 2006. As a result of the company's partnership with Lions Gate Entertainment and 2929 Entertainment, it was able to heavily promote the DVD release of the film in its stores.
On top of motion picture endeavors, Starbucks has a history of being involved in the world of music. In 1999, it acquired Hear Music, a former catalog company that traces its roots back to 1990. By 2002, Starbucks used its resources to produce its first opera album. In 2007 it signed Paul McCartney on as the first artist whose music would be featured in its stores.
Foolish takeaway
Irrespective of whether or not Starbucks makes for a good investment for the Foolish investor, no one can deny that the company has been innovative and a high-growth prospect. Moving forward, I don't know what will become of the coffee chain, but if it keeps pressing on with its growth ambitions (both in the realm of drinks and in entertainment and social activism), it appears that the future will likely be bright.
