Dunkin’ Donuts, Tim Horton’s and The Human Bean are among the most commonly recognized coffee franchises. Naturally, this begs the question: why isn’t Starbucks on the list? “Starbucks franchise” is among the most popular Google searches of its kind, yet, these search results can be disappointing for hopeful franchisees. Contrary to popular understanding, Starbucks is not a franchise in the United States.
Many popular coffee retailers chose to franchise But Starbucks CEO Howard Schultz decided against the popular business model.
While other popular coffee retailers decided to take the franchise route, and have experienced much success, Starbucks CEO Howard Schultz has decided against the popular business model. Schultz’s decision-making stems from a desire to retain the original Starbucks company culture and vision, according to his interview with WNYC in 2011. Keeping the original Starbucks vision at the forefront would enable customers and employees to create a stronger relationship with the company. In contrast, a franchise business model allows franchisees to work largely for themselves, especially in the day-to-day.
Retaining a company owned plan entails some key advantages that Schultz considered in his resistance to franchising. As mentioned earlier, a company owned business allows for a high level of brand consistency. Within this model, business owners and leaders, like Schultz, are involved in the day-to-day operations of the business. This enables the owners to establish a coherent and, in some cases, identical image from location to location.
In a franchise business model, different locations are often owned by different franchisees. This means that each location will look a little different than another. While these differences are minimal, as most franchises have strict protocol regarding storefront appearance, certain businesses, like Starbucks, seek to eliminate all potential for variability in appearance and atmosphere.
In avoiding the franchising route, business owners give themselves a higher level of control over the day-to-day operations of the company. This control allows for a higher level of contact with employees. With Starbucks, Schultz values a mutual understanding with his baristas in both vision and company culture.
Control over day-to-day operations is minimized with a franchise. In this business model, a franchisee essentially owns the location and operates the business each day. Employees report to the franchisee, which acts as an agent to the company.
While Schultz’s decision to keep Starbucks company owned has enabled him to instill a higher level of company culture, his profit relies largely on the prices of resources. In this case, the resource at play is coffee beans. Margins are constantly prone to fluctuation and depend highly on the then-current price of the resource. The profitability of the resource, in turn, relies on numerous factors ranging from world trade to weather.
With a franchise, however, a key portion of the business’ profit stems from franchisee’s royalties and fees. Before a franchisee can operate their own business location, they must pay the business various fees in order to bear the company trademark. Throughout the franchise term, franchisees also pay a certain percentage of their location’s monthly earnings to the franchise. In contrast to a dependence on resources, this is a relatively stable and reliable source of profit.
While Starbucks currently does not franchise in the United States, the company has adopted a franchise system for international locations. Due to an inability to control daily operations of international locations regardless of business model, Schultz plans to further expand internationally with franchises. Currently, only one in five locations in the Middle East, Europe, and Africa are franchises. However, Starbucks intends to expands these numbers in the future.
Schultz’s decision against franchising has bred disappointment among prospective franchisees. Currently, the company does not anticipate implementing a franchise business model in the United States. However, for those looking to franchise internationally, Starbucks may be another business on the horizon.