Do We Really Need 1,500 More Starbucks?

And didn’t Starbucks close hundreds of outlets a few years ago? Yes – but the coffee chain seems to have learned some lessons.

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Dhiraj Singh / Bloomberg / Getty Images

Starbucks recently announced plans to open 3,000 new outlets in the Americas — 1,500 of them in the U.S. — and more in China. That may seem like business as usual for the world’s largest coffeehouse chain, which already has more than 18,000 locations around the globe. But just a few of years ago, Starbucks closed hundreds of stores — and it wasn’t just the burgeoning economic crisis that forced the coffee chain to retrench.

At the time, Starbucks seemed to have lost some of its magic, expanding too rapidly (some would say recklessly) while venturing into questionable new products, beverages, and food items. Starbucks seemed off-course, creating an opening for former CEO Howard Schultz  to step back into day-to-day management after an eight-year hiatus and, eventually, revive the brand. Given that history, it’s hard not to wonder if Starbucks’ latest expansion plans — new stores and new products — are just a repeat of past mistakes.

When Howard Schultz returned to run Starbucks in 2008 — he had stepped aside as CEO in 2000 — he inherited a company that had lost its way. Some believed it vulnerable to a takeover. At the time, Starbucks operated about 16,000 stores, having grown at an astonishing pace of 1,300 new stores a year in both 2006 and 2007, according to financial firm Edward Jones. Instead of lauding its coffee, more people seemed to be talking about how many Starbucks stores you could fit in one photo.

As the economy worsened, same-store sales figures fell close to 10% as the company itself seemed to lack focus on the one product that made it successful. Rather than concentrating on coffee, the chain began selling music CDs, breakfast sandwiche,s and frillier and more elaborate drinks alongside other new food items (Strawberries & Creme Frappucino ice cream, anyone?).

But Schultz changed a lot of that. While he didn’t actually get rid of the breakfast sandwich, the recipe was changed so the smell of eggs wouldn’t overwhelm the smell of coffee. He closed down every Starbucks location for three hours on one day to retrain every barista on the art of pulling espresso shots. He upgraded all of store’s espresso machines. Suddenly, it seemed to be all about the coffee again.

Schultz also was forced to close down more stores than he ever thought he would — 900 in all, many of which were in low-performing areas that often competed with, well, another Starbucks down the street.

These moves made Starbucks into one of the true turnaround stories of the last several years. Last month the chain announced fourth quarter revenues of $3.4 billion, up 11% year-on-year. Same-store sales are up in the U.S. and worldwide, and Starbucks shares have risen 10% since fourth-quarter earnings were released.

And now, once again, the chain is expanding — not just locations but the items they sell as well. So it may just seem that Starbucks is retracing its mistakes in the years before Schultz pulled the company back into the black.

This time, however, it does appear that Starbucks has learned some lessons. For one, the chain isn’t growing nearly as fast as it did before the recession. While Starbucks was opening 1,300 new stores a year in the U.S. before 2008, they’re opening closer to 300 a year this time. Edward Jones analyst Jack Russo says Starbucks was opening stores too quickly and too close together, completely misreading how many Starbucks the market could handle. That pace also likely caused problems in properly training the staff (no wonder Schultz shut down stores to retrain baristas).

Plus, while the 3,000 stores it now plans to add may sound like a lot — indeed, those stores would increase Starbucks’ global presence by 13% — the chain is doing it over five years, or about half the pace of its previous expansion.

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Additionally, Starbucks will also likely be much pickier in where it opens those new stores. For years, Starbucks’ primary focus seemed to be adding more and more outlets. But the company now has additional areas of growth outside of U.S. store revenue. Starbucks’ expansion, particularly into Asia, has lessened the company’s drive to grow domestically. And the brand is a growing presence in homes now. In September, the company introduced a single-cup coffee machine to compete with the increasingly popular Keurig K-Cup brewers. Sales of single-cup machines grew by 143% last year alone, and Starbucks is just now beginning to enter the home consumption market competitively.

The one area that may seem like the Starbucks of old is its new emphasis on expanding product offerings, specifically tea and juice. One reason Starbucks appeared off course when Schultz returned in 2008 was the coffeeshop’s focus on sandwiches and elaborate drinks. Russo says the new stores won’t necessarily be traditional coffee shops and could be standalone juice or tea shops. But will consumers go to Starbucks for beverages other than coffee?

“It’s hard to say on the success rate,” says Russo. “Time will tell. These guys are smart and they have bought their way into these businesses, so they must feel like there is long-term potential there.”

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Overall, the coffee chain seems to be taking a much more balanced approach to expansion plans this time around. The uptick in the economy certainly helps, as do lessons learned from its overly adventurous expansion a few years ago. It’s certainly not the halcyon days of 2006, when it seemed as if Starbucks could expand anywhere and make a profit — but that’s probably a good thing.

13 comments
thesafesurfer
thesafesurfer

Terrible headline. It really had nothing to do with what the story was about. 

DennaKatarra
DennaKatarra

McDonalds makes the best Lattes and other coffees in the world and they are great on a budget.

ordcitizen01
ordcitizen01

Considering how many things are made overseas in a Starbucks, this will only hasten America's demise.  The American government needs to reverse outsourcing and bring those jobs back to the United States before it's too late. 

kurakaman
kurakaman

I care these two names 'star' and 'bucks' separately, not together - starbucks. Just simply think how much $ you need to prepare a cup of good coffee and why paying so much to buy this brand. Good luck for your donation to CEO's pocket. 

borisbraun1
borisbraun1

we need more BRAIN!!! not coffe!!! and we need to change our STUPID WAY OF LIFE!!! ALL ABOUT MONEY  and THINGS we really do not need for life....more CARS....more FOOD....more FAT!!! WOW!!!

ChrisGasque
ChrisGasque

Sounds like a lot of jobs.  Why are you all so mad?

JetRanger0007
JetRanger0007

RIDLICIOUS to think/ assume there needs to be 1500 more Star Bucks anywhere and their $7.00 cup of coffee or more !  The Corporate Stupidity & Ignorance is hitting a New High beyound Ridlicious !  Its Obviously Quite Clear that some are living in a very Shallow Bubble full of Illusions if they think people are going to constantly visit a star bucks and pay ungodly prices for a silly cup of coffee or whatever else they call it.  There are hundreds, thousands of other Venues for Coffee at decent convience stores Donut Shops, restraunts etc. Bookstores !  So how many of these does any community really need ??? Next after they build those 1500 coffee shops within time we'll be hearing how they had to close them, lay off people , because they were losing money, or as usual with these OVER-EXPANSIONS , Star Bucks files for Bankruptcy !  it wouldn't surprise me !

BenIncaHutz
BenIncaHutz

American needs 1,500 fitness centers with Americans sweating their large buns in them. We dont need 1,500 more places that server sugary drinks. 

therantguy
therantguy

Since when has Starbucks been about coffee? They serve bitter dreck. I am not a SB hater but it is increasingly silly to see the vast numbers of them. I live within walking distance (i.e. 10 min or less) of 7 of them. I have no idea how they all survive.

siiix
siiix

 @ChrisGasquewould be better if there 3000 independed stores who create middle class jobs and not minimum wage jobs, but yet charge ridiculously high prices ... but i guess its better then nothing

HosagiMatissmoTaishou
HosagiMatissmoTaishou

@JetRanger0007 how about instead of being shocked you should realize that getting breakfast from a Starbucks is alot healthier than going to McDonalds, Burger King, Carl's Jr or Jack in the Crack(I mean Jack in the Box). Or how looking at it as a way to get unemployment below 6%. In a time when more jobs are needed the ideology that you have of preventing companies like Starbucks from creating new venues of employment is just as backwards as the GOP thinking that keeping the Bush Jr Tax Cuts to the rich will help lower the deficit.