Starbuck's Plans Include Building 40,000 Coffeehouses Around the Globe

Remember that movie that came out quite a few years ago that starred ….oh, what's her name…from the Pretty Woman movie…Julia Roberts…yeah that's it…she wasn't in the movie, but her brother was, and his name is…..Eric, that's right Eric Roberts. Anyway the film was about a marketing rep (played by Eric) from Coca Cola. At one point he is sent to check out this small family-owned bottling plant that uses all natural ingredients and has a reputation for making a better product than Coke. He takes a sip of the soda and declares: "It's good, but it's not THAT good!"

Starbuck's recently announced that they intend to have some 40,000 stores worldwide. The chain of coffeehouses is now building some six stores per day on average. The situation sounds strangely familiar. I remember a few years ago 7-Eleven wanted to have a convenience store on every street corner. McDonalds has said the same thing, stating that at one time there was a gas station on practically every street corner in America, why not a hamburger restaurant? Wal-Mart's domain used to be strictly rural America, but now the nation's largest retailer is sprouting stores more and more in suburban and urban areas. Walgreen's Pharmacy wants a store on every street corner, literally, as they are tearing down a lot of their older units and replacing them. The new units are always on the corner, sometimes just a half a block away from where the old one once stood.

Starbucks not only wants to expand into suburban and rural America, but their strategy also hinges on what they call "infill"- which means adding more stores in cities where they already have a strong presence. The company has the demographics of its customers down to a T. They track everything from the direction of traffic that may be going past a potential drive-through location to whether or not people have to walk very far to get to a store. There are some office buildings where there is a Starbucks located up every few floors. There are even some cities where there are two Starbucks directly across the street from each other. The only prerequisite is traffic flow on the street.

Currently Starbucks has some 12,440 stores worldwide with 7,102 of them being company-operated and 5, 338 franchise units. One of the reasons that Starbucks cites for all of the oversaturation is that people will leave the line if they have to wait very much longer than the prescribed three minutes. The danger for a lot of businesses is that opening a new store close to an existing one may cannibalize sales from the older store. This doesn't seem to be the problem for the company. If one store is busy, build another one. It's almost like they want to lose sales, as long as it's to themselves.

So right now it doesn't appear that building all of the new stores has hurt profit or sales growth, like what happened to McDonald's when they tried to expand in the 1990's. So it looks like Starbucks will continue to expand exponentially much to the relief of shaky hands and caffeine addicts everywhere. "That's good, but it's not THAT good!"