When we think of excellence in business or what is known as Best in Class, what is it that drives such a company? Quite often it is as simple as being excellent at customer service. We have all seen companies that are terrible at customer service. It isn’t that these organizations think the customer isn’t right. In some instances it’s as if the customer doesn’t count. Somehow these organizations consider the customer to be a necessary evil to their business and treat them as such.

What business could exist without customers? Since the answer is, none, why is so little significance often placed upon customer satisfaction? Even the term customer satisfaction is mediocre term. For some companies customer satisfaction is far too little. These organizations want raving customers, lifetime customers; people who will drive others to the organization for products or services. To these organizations a satisfied customer is one that did not get the organizations best.

Is Good Enough, Good Enough?

There is a significant difference between good customer service and raving customer service. The difference may seem philosophical but can be the determining factor between surviving and thriving in your business in any economy, especially today’s. Many organizations, too many, would look at creating raving customer service as a waste of time and resources. Often these are the same organizations that struggle in down economic times and then wonder why.

Business decisions throughout the organization are made every day that impact customer service. How do businesses move from good to great? The first thing to understand is that without customers there is no business. So customer service should be ranked as a high priority in any given business, possibly the highest. Sounds simple, but many businesses will not put forth the effort; they consider good enough to be good enough. Others would like to become great but struggle with providing the right kind or level of customer service for many seemingly significant reasons. These latter organizations look to protect what they have instead of searching for ways to be better or great. As one associate put it, “they’re guarding an empty dog dish!”

What moves a company from good to great? For one thing it is a deep internal understanding that customer service is not a division or group within an organization. It is the whole product or reason for the organizations existence. The customer is the reason for the organization. Therefore, for these organizations the whole organization needs to be totally focused on the customer.

Being the Best!

One only needs to look at Starbucks. Starbucks took a cup of coffee and built a world-wide dynasty around it. Starbucks didn’t accomplish this by focusing on great customer service, which it has. Rather Starbucks determined that the whole organization is about customer service. Everything at every level within the organization is about servicing the customer the best way possible. This way of thinking about customer service creates a unique and satisfying experience at Starbucks for the clientele. Who doesn’t like Starbucks? Every time I get one of the Starbucks gift cards my wife takes it from me. That’s loyalty to a brand.

To be great, customer service should be the defining and driving force within a business. It starts at the top and inculcates the organization from top to bottom and side to side. At Starbucks every employee is taught the coffee process from start to finish. They learn every step of how Starbucks delivers their coffee from growers to the individuals handing you your mocha at the counter. Starbucks is not about great coffee, but rather Starbucks is about great raving customer service over a good cup of coffee!

Starbucks Principles:

“Our coffee has always been, and will always be, about quality. We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of people who grow them. We care deeply about all of this; our works is never done,” Starbucks (2014).

Starbucks immerses their partners, as they are called at Starbucks, in every aspect of the coffee business from the grower to the partner who hands the coffee over the counter to the client. Is this how most organizations you are familiar with operate?

Consider for a moment that this gigantic corporation was built over a cup of coffee. Doesn’t that impress you? I can make a cup of coffee at home in my high-end coffee maker. I can get pretty good coffee too to use in that coffee maker. However, I still stop at Starbucks and obviously so does my wife. Why is that? It’s because of the people and the experience you have at Starbucks. Starbucks deserves to be great, they have earned it.

Best in Class

I’m often frustrated with organizations that cannot see the value in becoming very good or even daring to be great. Where are the organizations that want to be Best in Class and not an “also ran?” I do realize that the cost often outweighs the gain by being better than just good enough from an accounting perspective. Starbucks as well as the other organizations that refuse to be mediocre consider anything less than the cost of being great as a waste of revenue!

Maybe mediocrity is a foregone conclusion in this homogenized, digitized, and miniaturized world in which we now live. If we can’t have it at Giga or Tera speeds, why have it at all? Every cell phone I’ve owned in the last decade has had bugs in it. We put up with all kinds of problems just to have the newest, fastest, smallest phone in the neighborhood. Who cares about quality or price right?

Who has the best phone is a relative concept based upon the newest technology which changes at least every year. What sets these organizations apart is not their technology but their customer service. In that battleground Apple wins. You can walk into an Apple store with a shattered phone and in twenty minutes walk back out with either a totally fixed phone or a new one! That’s hard to beat today in the highly competitive cell phone industry. If you haven’t noticed Apple has raving customers.

Some organizations want to compete on price and fight for market share there. That’s understandable but you are always under pressure to lower price and give more away to win that market share. There a few though that desire to compete at the top. These are the organizations that usually do well in good economic times and bad. Rather than fight over pennies, guarding an empty dog dish, these companies choose to be defined by the quality of their offers and how they deliver their customers the Best in Class.

Maybe I’m just a dinosaur and living in my own fantasy world so I guess I wonder just how important is Best in Class today?

References

Starbucks, 2014. J., Michelli. Leading the starbucks way. McGraw hill, New York.

Five years ago, the Organic Consumers Association had Starbucks squarely in its sights. They were running a “frankenbucks campaign,” protesting the company’s annual meeting and were undertaking an effort to prevent Starbucks from selling or using any milk produced from cows receiving supplemental bovine growth hormones (rbST/ rbGH). Starbucks made the correct decision to not be cowed by the OCA and continue to serve safe and affordable conventionally-produced milk, while offering consumers organic milk produced without the aid of these safe supplements as an alternative.

What happened? Well, Starbucks stores stocked up on organic milk anticipating the huge demand that activists claimed existed. The organic milk, like all national organic brands, was ultra-pasteurized for extended shelf life. Unlike your local conventional, normally pasteurized milk with a shelf life of about 14 days, these U-P organic brands can last weeks. Stonyfield Organic claims their milk can last up to 70 days before the stores have to stop selling it. Even with the extended shelf-life, Starbucks managers across the country reported that they were throwing away far more organic milk than they were selling, so most stores no longer offer it even as an option. The company tells us that the decision to offer an organic milk alternative is now left up to individual stores. Starbucks offers organic soy juice alternatives instead. All of this really puts a dent in the OCA’s “consumers are demanding organic milk” argument.

Yet once again Starbucks is the target of an anti-rBST campaign, this time led by Food and Water Watch, a spin off of Ralph Nader’s anti-corporate, anti-globalization, anti-modern technology, self-anointed protector of the populous Public Citizen. This campaign is being launched on the tattered shirt tails of the animal rights extremists’ Meatrix II: Revolting, which purports to tell the truth about dairy farms.

As Starbucks learned five years ago, the demands of these wactivists are not shared by most consumers. And today we have the activists’ own words to back us up. In a lengthy email chain in response to a question from Michele Simon of InformedEating.org – who refers to Starbucks as “rapacious” – Wynona Hauter of Food and Water Watch writes:

“There were several reasons why we chose Starbucks as our target for an rBGH-free campaign, and none of them were that we thought we could morph them into a model corporate citizen. One is that we needed to focus on a national target that was easily identifiable to the public, would entail a simple action, and had a feasible chance of success. More importantly, if Starbucks switched to rBGH-free milk, it would have a big impact.”

We’ve learned from tax returns and other publicly available documents that the OCA-led wactivist campaign from five years ago was funded by the very same organic dairy industry that would benefit from an attack on conventional milk.

It is shameful, but not surprising that multi-million-dollar-organic-mega-dairies would fund activist scare campaigns to whip up demand for their high-profit, no-benefit products. The Organic Trade Association has gone so far as to produce an online media campaign entitled “Store Wars” demonstrating the aggressive lengths to which they will go to deceive consumers and vilify safe, affordable products to make a buck.

Because disclosure rules for activists like Ralph Nader’s Food & Water Watch are so lax and are virtually un-enforced by regulators, we won’t learn for years who is paying them to attack milk this time. If I were a betting man, my money would be on the same people who funded it last time.

We hope that Starbucks will again see the folly of capitulating to these advocacy group demands and organic industry-funded campaigns. Because as we and Starbucks know, milk is milk.

The protection of intellectual property in china has long been high on the list of concerns for innovative foreign companies looking to do business there. What little legal framework existed around intellectual property rights (IPR) has been difficult and time-consuming to enforce. There are signs, however, that the situation may be improving for companies which use trademarks, logos and branding in the People’s Republic.

In a recent case, newly amended Chinese trademark legislation was put to the test when the American speciality coffee retailer Starbucks accused a local Shanghai company of copying their trading name and logo.

Starbucks opened its first Shanghai outlet on Huaihai Road on May 4, 2000, building on the success of its dozens of stores across Taiwan and the rest of mainland China. Shortly prior to this opening, a local company had registered its own business name – Xingbake Coffee Co. Ltd. – with the Shanghai authorities. By 2003, the Chinese firm had opened two outlets in Shanghai using the trade name ‘Xingbake’.

The legal dispute between Starbucks and their local competitor arose because ‘xing’ translates from Mandarin as ‘star’ and ‘ba-ke’ is an approximate phonetic rendition of ‘bucks’. Although Starbucks does not officially use this rough translation in China, the word ‘Xingbake’ has become synonymous with the US firm’s outlets amongst the public.

Starbucks considered that, by trading under a similar name and by the use of a very similar green and white logo, Shanghai Xingbake was competing unfairly. On this basis, Starbucks filed a law suit against Xingbake in Shanghai on December 23, 2003, alleging trademark infringement.

In reply to the accusation, Mao Yibo, General Manager of Xingbake, said that his company has registered its enterprise name with the Shanghai authorities in March 2000, before Starbucks was established in the region. By using the name ‘Xingbake’, he claimed that his company was simply using its legitimate title instead of a trademark.

Mao denied that the name of his company and its logo had been influenced by their Seattle-based rival. “We invented ‘Xingbake’ as our brand when we planned to start a café business in Shanghai and it is just a coincidence that our name is the same with Chinese version of Starbuck [sic]”, he said. “The logo was designed by our own staff. To be frank, I hadn’t heard of Starbucks at the time, so how could I imitate its brand or logo?”

Chen Naiwei, director of the Intellectual Property Research Centre of Shanghai’s Jiaotong University does not accept this, explaining that ‘Xingbake’ has been used as the sole translation of ‘Starbucks’ in Taiwan since 1998. This predates the registration of Xingbake’s enterprise name in Shanghai by two years.

Despite Mao Yibo’s claims and his further assertions that Xingbake’s serving style and target market differ substantially from those of Starbucks, Shanghai No. 2 Intermediate People’s Court found in favour of the American giant on December 31, 2005 – two years after the law suit was filed.

Shanghai Xingbake was ordered to stop using its name, issue an apology in a local newspaper and pay 500,000 Yuan (US$62,000) in compensation to Starbucks.

The basis of the Court’s decision was the relatively newly amended Trademark Laws of the People’s Republic of China, which came into force on October 27, 2001. The amendments form part of a raft of revised legislation introduced to protect the owners of intellectual property in China. Under the new laws, the Court determined that the name ‘Starbucks’, written in Chinese or English, was sufficiently well known to be deemed a famous trademark and was, therefore, entitled to protection.

This ruling is the first of its kind under the new legislation and may be an indication that China is responding to pressure from the European Union and the United States to crack down on IPR infringements and counterfeiting. China is believed to be the source of around 70% of the world’s pirated goods at a cost of around US$250bn each year to US companies alone.

In a statement released on January 18, Jiang Zian, the attorney for Shanghai Xingbake confirmed that the company had already begun an appeal against the judgement in the Shanghai Higher People’s Court. Jiang explained that Xingbake does not use the English translation ‘Starbucks’ and had no plans to counter claim against their competitor for using the same Chinese name. “The problem is they use Xingbake as the brand name in Chinese and we use it as our company name. We just want to keep our company name and run our own business”, Jiang said. A spokesperson for Starbucks later confirmed that it would be defending itself against the appeal.

Starbucks now has 156 outlets in mainland China and has a presence close to some of the country’s most iconic locations, including the Great Wall and the Forbidden City. At up to US$6 per cup, the company’s coffee costs more than the average Chinese worker makes in a day. Despite this, Starbucks coffee is increasingly popular with China’s emerging urban middle class.

Most people when they hear the word Starbucks, they become all ears. Starbucks is known worldwide with their great coffee. Having Starbucks Caffe Verona coffee, makes your stressful day relaxing due to its tasteful coffee with great aroma where you can smell the freshness of it.

Starbucks Caffe Verona coffee is a combination of Latin American and Asian Pacific coffees that blend with a slight Italian roast. It produces a flavorful and great coffee which people love to drink. Starbucks comes with Caffe Verona coffee t-discs. An elegant way to enjoy your favorite drink without the mess and hassle of traditional coffee brewing methods.

This type of blending is not bitter at all but instead you can smell the pleasing aroma of a roast coffee with a smooth taste, interesting flavor which satisfies your craving. No wonder people who have not taste this Starbucks Caffé Verona coffee likes to taste experience tasting it themselves. While for those people who have already taste this type of coffee are coming back for more.

Most people who tasted the Starbucks Caffe Verona coffee said that it has a perfect terrific taste with powerful flavor strongly brew which makes it great. People love to stock this kind of coffee in their kitchen. It has a bold, irresistible aroma and the taste is superb and drinking this makes your day enjoyable.

Well, there are also some people who don’t like the taste of Starbucks Caffe Verona coffee cozy for them, it taste bitter and over roast but that depends on each people’s taste. Some people love to drink bitter coffee and while some prefer to have milk, sugar and cream with their coffee. What is important is the consistency of taste and accuracy of flavors described.

If you are a coffee lover, for sure you can identify which coffee t-discs are great in taste or not. Some people love its taste and some don’t. Usually Starbucks coffee have strong flavor with great aroma. The Starbucks Caffe Verona coffee t-discs comes in a 12 t-disc set with a pack of 2 package to ensure the freshness and protect the precious flavor quality of coffee until it is use.

T-discs will let you experience the coffee that you get in your Starbucks cafe in the comforts of your home. However it is still up to each individual to decide which flavored coffee they loved and which brand of coffee they want.

Starbucks Coffee Company was founded in 1971 by three businessmen in Seattle, Washington who had a love for coffee and tea. It was important to them that the city of Seattle to have access their coffee.

The Starbucks Coffee Company grew slowly but by 1981 had 4 retail stores and a roasting plant that sold whole bean coffee in Seattle only.

By 1983 the marketing manager had a vision of re-creating the magic and romance behind the Italian coffee bar and wanted to test out the concept of selling espresso by the cup. When Starbucks Coffee opened its 6th store in downtown Seattle, the idea had become a hit. Within 2 months the new store was serving over 700 customers a day and it was selling 3 times more than the whole bean locations.

In 1987, the owners of Starbucks Coffee Company decided to sell their coffee business along with the name to a group of local investors for $ 3.7 million.

The new investors were told that they would open 125 Starbucks coffee stores in the next five years. Starting from a base of 17 stores in 1987, the company rapidly expanded to Vancouver, Portland and Chicago.

By 1991 Starbucks had expanded into the mail-order catalog business, licensed airport stores and expanded further into the state of California.

In 1992 the company went public and after the initial public offering, Starbucks continued to grow at a phenomenal pace that no one had ever seen in the coffee world before. By 1997 the number of Starbucks Coffee stores grew tenfold, with locations in the US, Japan and Singapore.

Starbucks initiated several successful product and brand extensions including offering coffee on United Airlines flights. They also be selling premium teas through its Tazo Tea Company and offering people the option to purchase starbucks coffee online to enjoy at home.

They began distributing whole bean and ground coffee to supermarkets through an agreement with Kraft Foods. They also produced premium coffee ice cream with Dreyers. Starbucks even sold CDs in its retail stores.

Starbucks began turning its name into a household word not through advertising but through word of mouth. In fiscal 2004, Starbucks opened a record 1,344 stores worldwide. The once small regional roaster, Starbucks Coffee Company, now has more than 9,000 locations in 34 countries serving over 20 million customers a week.

Copyright © 2005 Best-Coffee-Makers-Online.com. All Rights Reserved.

Almost everyone is familiar with the popular coffee company Starbucks, but do you ever wonder when this brand began? Starbucks is one of the most famous coffee companies in the world, and here is how they started their journey to international fame.

And here is how the humble origin of Starbucks began…

Nowadays, Seattle is seen as the coffee mecca of the United States, and many other popular gourmet coffee brands have come from this city. Starbucks began in 1971 where the first Starbucks was opened at the oldest farmer’s market in the United States, the Pike Place Market in Seattle. The name Starbucks came from a character in Moby Dick, and we are all more than familiar with their mermaid logo, which they say hails from a Norse woodcut.

Initially, Starbucks was a local coffee roaster until Howard Schultz became a part of the company in 1982 to develop their marketing strategy. Schultz then took a trip to Italy where he was inspired by the Italian coffee culture, and he pitched his new ideas to the founders of Starbucks. Starbucks then opened their first coffee bar in 1985, which was called Il Giornale, due to their Italian influence. Needless to say, it was a definite success from the get-go.

By the time that 1987 rolled around, Schultz joined with new investors to purchase Starbucks and open franchises in Chicago and Vancouver. 17 more stores opened within that year alone. There were 165 Starbucks coffee shops in 1992, which was when the company became public with stocks available through NASDAQ. Starbucks introduced their first European location in Zürich, Switzerland, in March 2001. Starbucks is now located in 30 countries worldwide, and they number at over 9000 cafés.

Starbucks hopes to create a positive outcome in the coffee world by donating to charities, yet many people have criticized them because of the amount of waste they create each year with the millions of paper coffee cups they serve. The Starbucks Foundation was introduced in 1997 to fund programs for literacy in Canada and the United States, and they continue to provide support by giving to coffee communities, nurturing young leaders, offering access to clean water, and promoting better education in China. They have also taken the opportunity to set up the C.O.A.S.T. fund to offer assistance to rebuild the Gulf Coast after the devastation by hurricanes Katrina and Rita.

In response to the criticism against Starbucks in the waste that they create, Starbucks has made moves to reduce the amount of waste that their cafés generate by recycling. This is a very important matter to Starbucks and Starbucks customers, and they have taken into consideration all of the criticism they received about recycling their paper coffee cups. They have made the goal by 2015 to have recycling available in all store locations to collect waste and also serve espresso drinks in reusable cups for 25% of their beverages sold. This is quite a lofty goal, and we can only wish Starbucks the best in their future endeavors…

If you’re tired of Starbucks being the master of all coffee shops in your area, Biggby Coffee is your cure. I can’t lie, I do go to Starbucks often, but, sometimes, it’s just hard not to find a Starbucks. They’ve become the Walmart of coffee. And while they do serve good coffee, they don’t serve the best coffee.

Formerly known as Beaner’s Coffee, Biggby Coffee started in East Lansing, Michigan in 1995. The first store had its humble beginnings near Michigan State University in an old Arby’s. They are now a successful franchise with locations in 9 different states.

So, why is it so much better than Starbucks. Here are five reasons…

Taste

I’ll start with the most controversial reason, because it’s the most subjective. Everyone has different tastes in coffee, but every time I hear someone compare it to Starbucks, they mention the taste. They say the coffee is fresher and tastes much crisper.

Environment

Anyone can go to a Starbucks, right? True, anyone can, but can anyone feel welcome. You can walk into an Abercrombie & Fitch, but if you wearing sweatpants and don’t look like a model, you won’t feel comfortable. Biggby Coffee provides a very welcoming, chill environment where anyone can enjoy a good cup of coffee.

Price

Do we need to say more. Starbucks’ prices are a little ridiculous. It’s not like Biggby Coffee is half the price or anything, but saving money is saving money.

Transparency

This one may sound odd to you, but it’s true. Starbucks will try to make you think your drinking or eating healthy in their shop. Biggby has the courage to let you know how unhealthy your coffee habit is. And, in this case, honesty is the best policy.

Punch Cards

Who doesn’t love punch cards at a restaurant? You just look forward getting that last hole before your next free item. You won’t see these at Starbucks.

Of course, when it comes down to it, we all love coffee and we’re going to go wherever is most convenient for us at any one particular time. If you haven’t tried Biggby Coffee, stop by and try them out sometime.

Company Summary

Starbucks Coffee, sometimes referred to as Fourbucks Coffee is the largest coffeehouse chain in the world. It opened its first store in 1971 in Seattle’s waterfront Pike Place Market by three partners: Jerry Baldwin, Zev Siegel, and Gordon Bowker to sell high-quality coffee beans and equipment. In 1982, Howard Schultz, the current Chairman and CEO joined the company as the Director of Marketing. He was impressed by the popularity of the espresso bars in Italy after he traveled to Milan in 1983. Back to the US, he convinced the founders of Starbucks to sell both coffee beans and espresso beverages. However, the idea was rejected so he left the company and founded Il Giornale coffee bar chain in 1985. In 1987 Howard Schultz and Il Giornale bought Starbucks with $3.8M and renamed Il Giornale coffee bars to Starbucks and turned it into the Starbucks you know today. The company went public with the symbol SBUX in June 26, 1992 at $17/share with 140 stores. Since then the stock has split 5 times. As of May 2008, SBUX is traded at about $16, down from the high of $39.43 in November 2006.

Starbucks opened the first overseas store in Tokyo, Japan in 1996. The company currently has about 16,000 stores, employs 172,000 partners, AKA employees as of September 2007 in 44 countries. It has annual sales of over $10B with most recent quarterly revenue being $2.526B. About 85% of Starbucks revenue comes from company-operated stores.

Starbucks does not franchise its operations and has no plans to franchises in foreseeable future. In North America, most stores are company-operated. You may see some Starbucks stores inside Target, major supermarkets, University campuses, Hospitals, and Airports. These stores are operated under licensing agreements to provide access to real estate which would otherwise unavailable. Starbucks receives licensee fees and royalties from these licensed locations. At these licensed retail locations, the workers are considered employees of that specific retailer, not Starbucks. As of 2008 it has 7087 company-operated stores and 4081 licensed stores in the US. Internationally it has 1796 company operated stores and 2792 joint-venture or licensed stores in 43 foreign countries. The pace of expansion is slowing down as the company plans to open 1020 US stores in 2008, less than 400 stores in 2009 down from 1800 stores in2007. In addition, it also plans to close 100 stores in 2008.

Risks to Real Estate Investors

Starbucks coffee buildings remain a popular investment for many investors. When you consider investing in a property occupied by Starbucks, you need to understand the following risks of your investment:

1. Recession-sensitivity: a hungry man can survive with a Big Mac & fries but can live without a four-buck Frappuccino. This means Starbucks is very sensitive to economy downturn as seen in 2007 and 2008 compared to Burger Kings and McDonald’s. This may be the main reason sales at stores in the US open at least a year are expected a mid single-digit percentage decline, the first drop ever. It triggers Howard Schultz to return to the CEO post. The company plans to double its marketing spending to $100M in 2008 to drum up sales. It began an aggressive coupons campaign offering free drinks every Wednesday through May 28, 2008. This may be a sign of desperation. On April 22, 2008 Starbucks cut its outlook for the year citing weak economy.

2. Calorie & Sugar: Starbucks drinks have more sugar and calorie in which consumers are more and more concerned due to explosion of obesity and diabetes epidemic in the US. For example, its Strawberries & Crème Frappuccino® Blended Crème – whip has 120 grams (over 1/4 lb) of sugar, and 750 calorie on its Venti 24 oz size. If it becomes a trend that consumers decide to cut down on the sugar drinks, or stick to low-carb diets then it will have impact on Starbucks revenue.

3. Competition: McDonald’s, Wendy’s and Dunkin Donuts now also offer espresso at lower prices to compete with Starbucks. They will capture some revenue from Starbucks, especially from cost-conscious customers. The current Starbucks prices are already pretty high; it’s very hard for Starbucks to increase the prices in the near future without affecting the traffic to its stores.

4. High-expenses business model: while Starbucks profit margin is high as it pays an average $1.42 per pound for the unroasted coffee, its business is very labor intensive just like any other foods businesses. It takes between 10-20 employees to run one store. All eligible part-time and full-time partners in the US and Canada receive benefit package consisting of stock option plan, 401k with company matching, medical, dental & vision coverage. Starbucks is voted as the 7-th best company to work for in the US in 2008 by the Fortune magazine employee’s survey. What is good for employees may not be good for the employers. These benefits are normally only available to key employees or managers in the restaurant industry. Historically, the costs of these health benefits rise faster than the rate of inflation. In the long run, they may have negative impact on Starbucks bottom line. Should Starbucks not perform well, it may be under pressure as a public company to close more stores.

5. Special-purpose building: Starbucks freestanding building is a special-purpose building designed specifically for Starbucks. Should Starbucks decide not to close or not to renew the lease, it’s hard to re-lease the property. There are few tenants out there willing to pay the high rent like Starbucks. It’s hard to use it as a fast food restaurant due to a relative small square footage. Besides, it does not have a commercial kitchen. Once vacated by Starbucks, the property value will most likely go down.

Starbucks Real Estate Operation

Starbucks divides the US & Canada into 17 real estate territories, each has its own store development office to develop the market in its territory. The developers constructed freestanding buildings about 1800 SF with drive through in a location with high visibility, heavy traffic. Once the location is approved by the territory office, Starbucks typically signs a 10 year NNN lease with 2 five year options in which landlords are responsible for roof and structure. All the leases normally have corporate guarantee which means Starbucks will continue paying rent in the event it has to close the store. The lease often has 10% rent increase every 5 years. The rent is between $1.65/SF in a store in Utah to $5.84/SF in New York. This rent survey is based on the rents at just 30 Starbucks properties, 18 of them are free standing, on the market for sale through out the US as of April 2008.

Starbucks Location with Minimal Store Closure Possibilities

During tough times, e.g. in 2008 when sales are declining Starbucks will attempt to cut costs and close underperforming stores. As a real estate investor considers investing in a Starbucks building, you don’t want to invest in a property that will be closed in the future.

Location—— 1mile——3miles——-AHI/yr—–Size (SF)—-Base rent /yr—Rent/SF/mo –Price—–Cap(%)

Ohio……………296……..2609………$88375….1613………$58,590……….. $3.03……….$868K…….6.75

Florida………..9186……55270……$68595…..1816………$75,000………..$3.44……….$1.2M………6.10

Georgia………5717……57201…..$143936….1750………$74,000………..$3.52……….$1.091……..6.75

Mississippi….188……..4923……..$77372…..1816………$112,184………$5.15……….$1.558M…..7.2

Texas………….5944…..40970…….$75043…..1752………$92,914………..$4.42……….$1,327M….7.00

Table 1: Rent Comparables for Free-standing Starbucks Buildings

Location——SBUX rent/yr—SBUX Size—SBUX rent/SF/mo—Other tenant Size—Rent/SF/mo—Difference

California…….$30096……..1248 SF…..$2.01……………………1245 SF……………..$2.50………….-19%

Kansas……….$43200……..1600 SF….$2.25…………………….1600 SF………………$1.33………….68%

Utah……………$38568……..1950 SF…..$1.65…………………….1200 SF……………..$1.86…………-11%

New Mexico..$92004………2000 SF….$3.83…………………….2500 SF……………..$1.92…………100%

New York…….$125004……1785 SF….$5.84…………………….2819 SF………………$2.75…………112%

Table 2: Rent Difference in Multi-tenant Starbucks Retail Centers

Since Starbucks does not release sales revenue for a particular location, you just need to make an educated guess. Based on annual revenue and numbers of stored operated by Starbucks, the average annual revenue per store is about $1M. In addition, if the annual rent to revenue ratio is less than 10% there is a good chance the location is profitable. For example if the base rent for the Starbucks in Ohio is $58,590 then the annual revenue should be more than $585,590. Besides picking a store at a good location (refer to the article titled “What ‘Location’ Means in Commercial Real Estate” by this author), and the cap rate you should consider the following:

1. Densely-populated area: more people mean more customers size and thus more revenue. The Starbucks in FL, GA and TX on Table 1 are more promising. Note: the author tries to be sensitive by not disclosing the exact locations.

2. Low-rent: the Starbucks in MS pays $112,184 for base rent. To be reasonably profitable it needs to have annual revenue of $1.12M. However, since there are only 188 people within 1 mile and 4923 residents within 3 miles radius from the store, it’s less likely the store ever achieves that revenue. Besides Starbucks pays $5.15/SF which is very high compared to just $3.52/SF in a fast growing, high income, densely-populated in GA where there are 57,201 residents within 3 miles radius and Average Household Income (AHI) of over $143K/year. It’s hard to understand how the Starbucks in MS could be an irreplaceable location in an area with just 188 people within 1 mile radius from the property! While offering the highest 7.2% cap, this property appears to be a good investment but it actually has the highest risk of underperforming and could be closed down in the future. Alternatively, Starbucks could attempt to renegotiate the lease with lower rent during tough times. While Starbucks has not asked for rent reductions yet, it is not surprised if Starbucks will do so to improve its bottom line in the future. In either case, the property value will go down.

3. Rent premium: while most Starbucks properties are freestanding in which it occupies 100%, you may see a Starbucks in a small multi-unit strip center with a few other tenants. It normally occupies the end unit with drive through and thus is expected to pay a premium compared to the adjacent unit. However, most of the time Starbucks pays substantially higher rent. For example, in Table 2 it pays $5.84/SF compared to just $2.75/SF by a tenant in the unit next door in a center in New York or 112% higher. In this strip center should the rent for the unit occupied by Starbucks be reduced (due to closure or lease renegotiation) the value of the center will be reduced substantially. You certainly don’t want to invest in this property.