The Economics of StarBucks |


In 1971, Starbucks opened its first store in Seattle’s Pikes Place Market. For about twenty years, it remained a small-scale operation until 1991 when it became the first privately-owned US company to extend stock option programs to its part-time employees. Just a year later, Starbucks IPO’d at $17 per share and closed trading on its first day at $21.50 per share.

In 1996, Starbucks opened its first stores in Japan – the first outside of North America. Just two years later, as part of the dot com revolution, was launched. In 2001, Starbucks launched its own innovative stored-value credit cards for customers to use in store and reload. The next two years saw Starbucks gain valuable acquisitions: Seattle Coffee Company in 2003 and Ethos Water in 2005. In 2008, Starbucks acquired Coffee Equipment Company and its Clover Brewing System.

During these formative 12 years, Starbucks saw many stock splits, raking in massive profits for the company and its shareholders. Yet, Starbucks also remained committed to its policy of responsible environmental practices and coffee innovation. In 2005, when it acquired Ethos Water, Starbucks set a goal of donating $10 million to clean water projects over the following decade. In 2006, they introduced the first paper cup containing post-consumer recycled fiber, which saves more than 75,000 trees each year. And in 2009, when they introduced VIA ready-brew coffee, Starbucks also became the world’s largest buyer of fair trade certified coffee.

So while the expansion of Starbucks as a chain and as a global economic power is intriguing, just how profitable are they per year? Let’s put their profits in terms of cold, hard cash. In 2010, Starbucks generated $10,707,400.00 of revenue, with gross profits of 6.2 billion dollars from just 16,858 stores. In 2011, they plan to open 500 new stores – 400 abroad and 100 in the United States.

Trickle Down Economics

So how are these profits shared? What’s a barista earn compared to the CEO? The average yearly salaries of Starbucks employees are as follows:

Barista $17,260

Shift Supervisor $21,480

Assistant Store Manager $32,274

Store Manager $42,941

District Manager $73,785

CEO Howard Schultz $12,109,792

$643,954 salary with $643,954 bonus

$9,530,162 in option rewards

$953,676 in “other” income

So where do all these employees work? There are 11,131 Starbucks stores in the United States, 60% of which are company operated, compared to 40% which are licensed. Starbucks also has 5,727 international stores, of which only 37% are company operated, while the remaining 63% are licensed.

How does Starbucks do it? With nearly 75% of their retail sales coming from beverages alone, the profits must be made with every grande you order. Only 19% of their sales come from other foods, 4% from whole bean and soluble coffees, and 2% from coffee-making equipment and other merchandise. In other words, the profits are in the cup, not in the inventory they keep.