Wednesday, January 18, 2006


I own some Starbucks shares, and so I just got their annual report in the mail and just got done going through it. There's some interesting stuff in there.

First off, here's to the little things: Starbucks sends out a card with $3.50 on it to every one of it's shareholders. Does it cost them much? No. (I'm guessing COGS on that coffee is peanuts, that not all of them get used, not all of the $3.50 gets used on those that do, and that in some cases it spurs other purchases), but it's a nice touch of customer service. Kudos.

Back to the report. Interesting things:

  • While they break down their retail vs licensed businesses, and US vs other countries, they do not break down, say, coffee vs music. Or for that matter, how many of those uber-high-end espresso machines do they actually move? This is interesting because I've heard many people leap to the assumption that they've become a major force in music retailing, but I couldn't find anything in there on it. Also telling is that their list of risk factors includes NOTHING related to the music part of their business, but rather is all about coffee-impacting stuff. e.g. nothing about increases in cost of music licensing, competition from digital music distribution, etc. A search online found some estimates that music accounts for less than 2% of their US revenue and less abroad. That'd make it - at most - a $100M business. Not chump change, but I'm not sure Mr Goody's quaking in his boots just yet.
  • The number one risk factor they list is "A regional or global health pandemic could severely affect business". Hmm.... This is interesting for two reasons. (1) Is it really what they are considering their first and foremost risk, or is the bird-flu concern that is so de rigeur today just a convenient pin with which to pop the high expectations balloon (high market expectations, btw, they risk as the number two risk factor), (2) it's an interesting tell because the paragraph that follows it explains their strategic goal, which is to be the number three place (after home and work) where"gather for human connection". Hmm...
  • Reasons #3 and #5 are 'we are highly dependant on our financial performance in the US' and 'we are highly dependant on our financial performance outside the US'. Hmm... I think I've seen this game played before, usually with some walnut shells and a pea. :-)
  • Buried further down the list is an item about "adverse public or medical opinions about the health affects..." which goes on to say that, basically, if someone comes out with a study saying that latte's cause impotence in rats or something, they are screwed. Personally, I think this one needs to be way higher on the list. I'd worry about this more than the bird-flu thing, if I were them.

Anyhoo. Interesting read.

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