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. These products were sold through more than 34,300 stores in 84 markets around the world as of Jan. 2, 2022. Beverages are the biggest revenue generator by product type. The North America segment accounts for the vast majority of revenue for the Seattle-headquartered company.

Starbucks' primary competitors for sales of coffee beverages are other specialty coffee shops. 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 announced in early February financial results for Q1 of its 2022 fiscal year (FY), the three-month period ended Jan. 2, 2022. The company posted a net income of $815.9 million, up 31.1% compared to the year-ago quarter. Revenue grew 19.3% year over year (YOY) to $8.1 billion. Operating income, which Starbucks uses as a profitability metric for its individual business segments, rose 28.9% YOY to $1.2 billion.

Beverages sold within Starbucks' own stores made up the vast majority of revenue or 61%. Food sold within company-operated stores accounted for 18% of company-wide revenue. Other items, such as packaged and single-serve coffees and teas, royalty and licensing revenues, beverage-related ingredients, and ready-to-drink beverages, comprised 21% of total revenue for the quarter.

Starbucks said that its financial results were strong during the first quarter, which coincided with the holiday season. However, the company also noted that it experienced inflationary pressures that were higher than expected as well as a tight labor market. Starbucks opened 484 new stores during the first quarter of FY 2022, ending the period with a total of 34,317 stores globally.

Starbucks' Business Segments

Starbucks operates through three main business segments: North America, International, and Channel Development. The company provides a breakdown of revenue and operating income for each of these segments. It 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 $388.1 million despite net revenue of $25.1 million in Q1 FY 2022. 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.

North America

Starbucks' North America segment comprises company-owned and licensed stores in the U.S. and Canada. Net revenue for the segment rose 22.6% YOY to $5.7 billion in Q1 FY 2022. The segment accounted for more than 71% of total revenue across all three segments. Operating income rose 34.9% YOY to $1.1 billion, comprising about 69% of the total across all segments.

International

Starbucks' International segment includes company-owned and licensed stores in China, Japan, Asia Pacific, Europe, Middle East, Africa, Latin America, and the Caribbean. The segment generated $1.9 billion in revenue in Q1 FY 2022, up 11.5% compared to the year-ago quarter. It accounted for more than 23% of total revenue across all three segments. Operating income rose 5.9% YOY to $299.6 million, comprising about 19% of the total across all segments.

Channel Development

Starbucks' Channel Development segment includes 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 and Doubleshot; and other branded products sold worldwide outside of company-operated and licensed stores. The Channel Development segment generated $417.1 million of revenue in Q1 FY 2022, up 12.3% YOY. It accounted for about 5% of total revenue across all segments. Operating income grew 1.3% YOY to 183.2 million, comprising nearly 12% of the total across all three segments.

Starbucks' Recent Developments

On March 16, 2022, Starbucks announced that President and Chief Executive Officer (CEO) Kevin Johnson plans to retire. Howard Shultz, who has previously served as Starbucks' CEO, was named interim CEO until the company finds a suitable replacement for Johnson. Johnson spent 13 years with Starbucks, including the last five years as the company's CEO. He plans to transition from his current role on April 4, 2022, and continue as a Starbucks partner and special consultant to the company and its board of directors through September. The company's board plans to have a new CEO selected by the fall.

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.