How Starbucks Makes Money

Starbucks Corp. (SBUX) has rapidly grown into the world's dominant coffee shop-themed chain over five decades by roasting, marketing, and selling specialty coffee and an ever-expanding assortment of other beverages, food, and branded products.

KEY TAKEAWAYS

• Starbucks sells beverages, food, and other items in 83 global markets.
• The company gets the vast majority of sales from beverages and from its Americas segment, comprised of the U.S., Canada, and Latin America.
• Starbucks is focusing on international expansion and new products for future growth.
• The adverse impacts of the COVID-19 pandemic on Starbucks' operations during the year were most severe in fiscal Q2 and Q3.
• Starbucks announced plans to close 405 stores in the U.S. and Canada as part of its restructuring plans.

These products were sold through more than 32,000 stores in 83 markets around the world as of September 27, 2020.1 Beverages are the biggest revenue generator by product type. The Americas segment, dominated by U.S. sales, accounts for the vast majority of revenue for the Seattle-headquartered company.2

Starbucks' primary competitors for sales of coffee beverages are other specialty coffee shops.3 While Starbucks dominates the U.S. market, it faces increasingly tough competition in international markets, including from U.K.-based Costa Coffee, a subsidiary of Coca-Cola Co. (KO); and China-based Luckin Coffee Inc. (LKNCY).

Starbucks' Financials

Starbucks, like many restaurants and retailers, has been severely affected by the impacts of the COVID-19 pandemic this year. The coffee chain posted net earnings of $924.7 million for its full 2020 fiscal year (FY), which ended September 27, 2020. Net earnings were down 74.3% compared to FY 2019. Total operating income for the year was $1.6 billion.4

Net revenue for the year was $23.5 billion, down 11.3% from last year.4 Broken down into product type, beverages sold within the company's operated stores were responsible for 75% of total revenue, while food sold in the company's stores comprised 20% of the total. Packaged and single-serve coffees and teas comprised 1% of total sales and another 4% from other sources, including sales of serveware and ready-to-drink beverages.5

Starbucks said that the most adverse impact of the pandemic occurred during the company's second and third fiscal quarters, driven by temporary store closures and modified business operations. The company has gradually reopened its stores and has begun to see sequential improvements in comparable store sales.6

Starbucks' Business Segments

Starbucks operates through three main business segments and breaks them down into revenue and operating income: Americas, International, and Channel Development. The company also provides data on non-reportable operating segments in a "Corporate and Other" category, which includes unallocated expenses. Corporate and Other posted an operating loss of $1.3 billion on net revenue of $66.2 million in FY 2020.7 These figures, as well as any negative amounts, were not used in the calculation of the segment percentage shares below nor in the pie charts above.

Americas

Starbucks' Americas segment comprises company-owned and licensed stores in the U.S., Canada, and Latin America.1 Americas accounts for about 70% of the company's total segment revenue. About 54% of all Starbucks company-operated stores are in the U.S.8 The Americas segment posted net revenue of $16.4 billion in FY 2020, falling 10.3% compared to FY 2019. The segment reported operating income of $1.8 billion, a 51.7% drop from the previous year. The Americas comprise about 64% of total segment operating income.9

International

Starbucks' International segment includes company-owned and licensed store revenue and operating income in China, Japan, Asia Pacific, Europe, Middle East, and Africa.1 It comprises nearly 22% of total segment revenue. The segment posted $5.1 billion in net revenue in FY 2020, a 16.8% decrease compared to FY 2019. The International segment posted operating income of $354.0 million, down 63.3% from last year. It accounts for 12% of total operating income across all segments.10

Channel Development

Starbucks' Channel Development segment includes branded roasted whole bean and ground coffees, including Seattle's Best Coffee; Starbucks- and Teavana-branded single-serve products; ready-to-drink beverages such as Frappuccino, Doubleshot, Refreshers, and Teavana iced tea; and other branded products sold worldwide outside of company-operated and licensed stores.1 The Channel Development segment comprises about 8% of total segment revenue. Net revenue for the segment was $1.9 billion, down 3.4% compared to FY 2019. Operating income fell 1.5% to $687.2 million, comprising about 24% of total segment operating income.11

Starbucks' Recent Developments

Starbucks indicated in its FY 2020 filings that, as of September 27, 2020, it had identified 405 stores across the U.S. and Canada that will be closed as part of the company's restructuring plans. It also said that it expected to potentially identify another 395 stores for closure.12

How Starbucks Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Starbucks and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Starbucks releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Starbucks discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Starbucks breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

Article Sources:

1. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 2. Accessed Nov. 16, 2020.
2. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Pages 4 & 29. Accessed Nov. 16, 2020.
3. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 6. Accessed Nov. 16, 2020.
4. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 22. Accessed Nov. 16, 2020.
5. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 4. Accessed Nov. 16, 2020.
6. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 25. Accessed Nov. 16, 2020.
7. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 32. Accessed Nov. 16, 2020.
8. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 3. Accessed Nov. 16, 2020.
9. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 29. Accessed Nov. 16, 2020.
10. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 30. Accessed Nov. 16, 2020.
11. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 31. Accessed Nov. 16, 2020.
12. Starbucks Corp. "Form 10-K for the fiscal year ended September 27, 2020," Page 44. Accessed Nov. 16, 2020.