Starbucks Coffee – What commercial real estate investors should know

Summary of the Company

Starbucks Coffee, sometimes called Fourbucks Coffee, is the world's largest coffee chain. At the Seattle Waterfront Pike Place Market in 1971, he opened his first business with three partners: Jerry Baldwin, Zev Siegel, and Gordon Bowker, who sell high quality coffee beans and equipment. In 1982, Howard Schultz, the current president and CEO, joined the company as marketing director. I was impressed by the popularity of coffee makers in Italy after traveling to Milan in 1983. Back to the United States, convinced Starbucks founders to sell both coffee beans and espresso drinks. However, the idea was rejected, leaving the company in 1985 and founded the Il Giornale café chain in 1985. In 1987, Howard Schultz and Il Giornale bought $ 3.8 million for Starbucks, and Il Giornale cafes were renamed to Starbucks and introduced to Starbucks. The company disclosed the SBUX symbol on June 26, 1992, with $ 17 / share with 140 stores. Since then, the stock is split five times. As of May 2008, SBUX was sold at around $ 16 in November 2006 from $ 39.43.

In 1996, Starbucks opened its first overseas shop in Tokyo. The company currently employs 16,000 businesses, employing 172,000 partners, AKA employees in 44 countries in September 2007. Its annual turnover exceeds $ 10 billion, and its latest quarterly revenue is $ 2,526. 85% of Starbucks revenue comes from corporate stores.

Starbucks is not a franchise and does not plan franchises for the foreseeable future. In North America, most businesses are operating. You can see Starbucks stores between Target, major supermarkets, universities, hospitals and airports. These stores operate under license agreements to provide access to property that would otherwise not be available. Starbucks will receive licensing fees and royalties in places with this license. At these licensed retail outlets, employees are the same retailer, not Starbucks employees. From 2008, there are 7087 business-operated businesses and 4081 authorized stores in the United States. It operates internationally in 1796 businesses and operates 2792 joint ventures or licensed businesses in 43 foreign countries. The pace of expansion will slow down as it plans to sell 1020 American stores in 2008, and in 2009 it will buy less than 400 stores out of 1800 stores in 2007. In addition, he plans to close 100 stores in 2008.

Risk to Investors

Starbucks cafes are still a popular investment for many investors. If you are considering investing in a property used by Starbucks, you must understand the following risks of the investment:

  1. Recession sensitivity : a hungry man can survive a Big Mac and a potato, but he can live without a four-money Frappuccino. This means that Starbucks is very sensitive to the economic downturn as seen in 2007 and 2008 compared to Burger Kings and McDonald's. This may be the main reason why expected sales in stores in the United States for at least one year are expected to be a one-digit decrease in the middle, which is the first drop. He starts Howard Schultz to return to the post of Chief Executive Officer. In 2008, the company increased its marketing expenses to $ 100 million to double its sales. It launched an aggressive coupon campaign offering free drinks every Wednesday through May 28, 2008. This may be a sign of despair. On April 22, 2008, Starbucks lowered its outlook for the weak economy of the year.
  2. Calorie and Sugar : Starbucks drinks contain more sugar and calories in which consumers are increasingly concerned about obesity and diabetes in the United States. For example, the Strawberries & Crème Frappuccino® Blended Crème cake is 120 grams (more than 1/4 lb) sugar and 750 calories per 24 oz of the Venti. If this is a trend that consumers decide to reduce sugar drinks or stick to low carbohydrate diets, this will affect Starbucks revenue.

  3. Competition : McDonald's, Wendy's, and Dunkin Donuts are now running low-priced at Starbucks. They will earn from Starbucks, especially from cost-conscious customers. The current Starbucks prices are quite high; it is very difficult for Starbucks to increase prices in the near future without affecting traffic in stores.

  4. The High Cost Business Model : while Starbucks' profit margin is high, as it pays $ 1.42 per pound on average, the business is very labor-intensive than any other food business. 10-20 employees are employed to operate a shop. In the United States and Canada, all eligible part-time and full-time partners benefit from the 401k Benefit Package of the stock option plan that has corporate fit, medical, dental and visualization capabilities. In 2008, Starbucks was ranked as the 7th best company in the US in the survey of Fortune magazine employee. What is good for staff is perhaps not good for employers. These benefits are usually only available to key employees or managers in the restaurant industry. Historically, the cost of health care services is rising faster than inflation. In the long run, they may have a negative impact on Starbucks' basics. If Starbucks does not work well, it may put pressure on the public to close down more businesses.

  5. Special Purpose Building : The Starbucks freestanding building is a special purpose building designed specifically for Starbucks. If Starbucks decides not to close or not renew the lease, it is difficult to re-rent the property. There are few tenants willing to pay high rental rates like Starbucks. It's hard to use in a fast-food, because of a relatively small square meter. Besides, there is no commercial kitchen. After Starbucks has left, the value of the property owner is likely to fall.

Starbucks Real Estate Transaction

Starbucks 17 distributes real estate markets in the USA and the USA, each with their own department store development office to develop the market. Developers have built free-standing buildings for approx. From 1800 SF with drive, high visibility, high traffic. After the site has been approved by the regional office, Starbucks usually has a ten-year NNN lease with 2 five-year options in which landlords are responsible for the roof and structure. Each lease usually has a corporate guarantee, which means that Starbucks will continue to pay if it closes the shop. The rent often increases 10% rent every 5 years. The rental fee is $ 1.65 / SF in Utah's $ 5.84 / SF New York City. This rental survey is based on the rental of only 30 Starbucks real estate, of which 18 are free to sell on the market in the United States in April 2008.

Starbucks location with minimal storage [19659002] Hard times, eg in 2008, when sales fall, Starbucks is trying to reduce costs and close down bad business. As a real estate investor believes he wants to invest in a Starbucks building, he does not want to invest in a property that will be closed in the future.

Location —— 1mile —— 3miles ——- AHI / year —– Size (SF) —- Rent / Year – – Rent / SF / mo – Price —– Cap (%) [19659017] 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 ….. $ 143,936 …. 1750 ……… $ 74,000 …… $ 3.52 $ 1.091 ………. …….. 6.75

Mississippi …. 188 …….. 4923 …….. $ 77,372 ….. 1816 ……… $ 112,184 ….. .. $ 5.15 $ ………. 1.558M ….. 7.2

Texas …………. 5944 ….. 40.970 ……. $ 75043 ….. 1752 ……… $ 92.914 .. ……… $ 4.42 ………. $ 1.327M …. 7.00

Table 1: Rental Comparison for Available Starbucks Buildings [19659002] Location —— SBUX rent / year — SBUX Size — SBUX rent / SF / mo — Other tenant Size — Rent / month / month — Difference [19659018] 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-Lease Starbucks Retail Centers

Since Starbucks does not sell revenue for that location, it only needs a guesswork. Based on the annual revenue and the number of stores stored by Starbucks, the average annual revenue per business is about $ 1M. In addition, if the annual rent and revenue ratio is less than 10%, then there is a good chance that the site will be profitable. For example, if the Ohio Ohio Starbucks rental price is $ 58,590, then annual revenue must be over $ 585,590. In addition to choosing a store in the right place (see the author's article on "What is the place in commercial real estate assets") and the rate of the premium, the following should be taken into account:

  1. Densely populated area : more people mean more customers, meaning more revenue. In Table 1, FL, GA and TX Starbucks are promising. Note: The author tries to be sensitive by not specifying the exact locations.
  2. Low Rental : Starbucks in the United States pays $ 112,184 compared to the base. To be reasonably profitable, its annual revenue is $ 1.12 million. However, since there are only 1 mile and 4923 people at 188 within 1 mile of the store, it is less likely that the store has reached this revenue. Starbucks pays $ 5.55 / SF, which is very high, just above $ 3.52 / SF, in a fast-growing, high-income, densely populated GA with 57,000 residents within a 3-mile radius, and the Average Household Income (AHI) year. It is difficult to understand that Starbucks can occupy an irreplaceable space in the MS in an area where only 188 people are involved in one mile of the building. While offering the highest leverage of 7.2%, this property seems to be a good investment, but in reality it is the biggest risk of poor performance and future risk. Alternatively, Starbucks may try to negotiate a lease with a lower rental fee in difficult times. Although Starbucks has not asked for rents to be reduced, it is not surprising that Starbucks will do so in the future to improve its fundamentals. In both cases, the value of the property decreases.

  3. Rental Cost : While most Starbucks properties are completely self-contained, where they occupy 100%, Starbucks is visible in a small multi-unit Tape Center, some other tenants. Usually, the end unit is occupied by the drive and is therefore expected to pay a higher charge compared to the adjacent unit. However, in most cases, Starbucks pays a substantially higher rental fee. For example, in Table 2 you pay $ 5,84 / SF, just $ 2,75 / SF. The tenant is next to a tenant in New York City, or 112% higher. Reducing the rental price of a unit occupied by Starbucks in this Tobacco Center (due to renegotiation or leaseback) reduces the value of the center. You certainly do not want to invest in this property.

Source by sbobet

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