171: Starbucks is Quietly Winning — Here’s the $1B Lesson Hidden in Their Financials

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Ever wondered what makes Starbucks so profitable? In this episode, we take a deep dive into Starbucks' business model and financials. Learn how the company generates billions, what their revenue per store looks like, and how they maintain strong profits. We’ll also compare Starbucks to its competitors like Dunkin' Donuts and Dutch Bros to give you a better understanding of what sets them apart. 

By the end of this episode, you'll not only know how Starbucks operates but also how the business’s numbers and strategies align. Plus, you'll gain valuable insights on how you can apply these lessons to your own business or investments. Get ready to dive into the real story behind Starbucks’ financial success and how you can think more strategically about your own financials. 

Disclaimer: 
BYFIQ, LLC is a wholly owned entity of Coltivar Group, LLC. The views expressed here are those of the individual Coltivar Group, LLC (“Coltivar”) personnel quoted and are not the views of Coltivar or its affiliates. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Coltivar has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. 

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendations. The Company is not affiliated with, nor does it receive compensation from, any specific security. Please see https://www.byfiq.com/terms-and-privacy-policy for additional important information. 

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Transcript

Today we're going to talk about Starbucks, how their business model works, what do their financials look like, and how do they compare to competitors. This is going to be a slightly different format moving forward because what I want to do is build off all the episodes that I've done for the last couple years and the Financial Pro Program that I offer for free at BYFIQ, which teaches financial literacy and I want to transform our conversations into winning with finance.

So it's one thing to know how to read an income statement, balance sheet, and statement of cash flows. I've talked a lot about that. I provided a lot of education, videos, training, et cetera, for free about that. And now I want to help you to leverage this information that I provided and apply it to the real world.

So what would mean the world to me is as I'm going through this episode, if this resonates with you, can you leave a comment down below? So if you're listening on Spotify, you can leave a comment down below in the episode notes, and then I'll get the comment and I'll hear from you. Or you could always DM me on LinkedIn and let me know your thoughts. Do you like this format? Should I keep going? Are there other topics that I should include? Okay, that'd be super helpful.

All right, let's go ahead and jump in. The thing that drives me crazy out there is that there's so many people on YouTube or LinkedIn or on other podcasts that talk loosely about financials or business in general. And it's like, Oh yeah, I have a friend and they have a painting business and they make a million bucks a year. And it's like, they make a million bucks a year in gross profit or operating profit. And what about their working capital and capital expenditures? Or there's people like, Oh yeah, you could start this business or you could buy this business and make 400 grand a year. And it's like, yeah, you could do that. But then you have to reinvest 300 of that back into trucks, trailers, equipment, et cetera. Right. Just to get the business going.

So I'm going to break down these businesses. So next time you're with a group of friends, you're with your family, when you're reading something online, you can think more intelligently about these companies, especially from a strategic and financial perspective. And then you can translate the same information to the business that you own, the business that you manage, or if you're up and coming in the world, you're going through school or you're a professional that this will start to sink in. So you could speak the language of business. All right. That's why I'm so excited to do this new format.

All right. So let's talk about Starbucks. Starbucks is a coffee chain that is spread throughout the world. So most people know about Starbucks. I'm going to try to stick with brands that people know widely. But did you know that Starbucks does $36.4 billion in revenue? And this is as of March 31st, 2025 on a trailing 12 month basis.

Now, anytime you hear me use the phrase trailing 12 months or TTM for short, what I'm referring to is the last 12 months. So if you go to their public financial statements, so since Starbucks is a publicly traded company, they have to release their financial statements to the public. And if you look at their 10 Q, their 10 Q represents their most recent quarterly filing, a 10 K is their most recent annual filing, right? So their annual performance, but on their 10 Q as of March 31st, 2025, this is where I'm getting these numbers from.

All right. So, like I said, it's all public information. You could pull it and the world can access it for free.

All right, $36.4 billion in total revenue. As of the end of 2025, Starbucks has 40,789 stores in operations. So if we just take 36.4 billion divided by 40,789 stores, we arrive at an average revenue per store around $892,000. Now, $892,000 in revenue represents their top line. So if I was talking to the general manager of a Starbucks store and I said, how much do you do in sales? And if this was their average number, they would say $892,000 in revenue.

This represents all the income generated from selling their drinks and food, et cetera, in their stores. This is revenue, top line, sales. It's all the same thing. It is not profit, not the same thing. Okay.

Now also keep in mind that actual revenue per store can vary significantly based on location, the store format and regional factors. So for example, some store employees in the U.S. suggest that busy stores can generate between $5,000 and $10,000 a day in revenue, not profit. Okay. Just in revenue, which translates to about $1.8 to $3.6 million annually for high performing locations. But if you just look at this globally, the average is lower due to the inclusion of smaller, low volume stores and international markets. Okay. So we're just talking broadly.

So now you know that the average Starbucks does $892,000. And if the Starbucks in your area is hopping and there are a ton of people there and lines are long, you're going to know that they probably do more than this number. They probably do more than $892,000 a year.

So you can just think in your head, this is the way I like to look at numbers and the way I like to look at businesses, just round it up. So you just say the average Starbucks does about a million dollars a year in sales. Okay.

But sales is not profit. So let's keep going because I want to get into some other numbers. Now, remember you have revenue minus your cost of goods sold. Cost of goods sold include material cost, direct labor costs. So the baristas, the people that are serving you your drinks, all their labor costs are included in cost of goods sold. And then other direct and indirect costs associated with giving you the product.

Okay. So if you take revenue minus cost of goods sold, you arrive at gross profit. Starbucks earns a gross profit of $25.2 billion a year, which is 63.3% of their revenue, which is great. Now, when I was running a construction company, a landscape business back in the day, our gross profit hovered between 40 and 45%. So Starbucks earns a great gross profit, a strong gross profit. I would say if you're a business and you're operating above 50%, that's pretty good.

So Starbucks has 63.3%. I think that's pretty strong. Now, gross profit is not the same thing as operating profit because between gross profit and operating profit, you have to account for operating expenses. That includes their rent, their sales and marketing, their general and administrative payroll, their utilities, their insurance costs, all the other costs associated with running the actual store. Not the cost associated with the product. Remember, those are up above in cost of goods sold, but it's the cost of operating the store. And after you account for op-ex, operating expenses, you arrive at operating profit.

So Starbucks generates $5 billion a year in operating profit. And that equates to 13.7% of sales. Now I've talked about this before, the average company, right? Now this is so generic. So just take it with a grain of salt. The average company that's performing well earns an operating profit at or above 10%. That's just a rule of thumb.

Now for some industries, it's much lower. If you're a general contractor, for example, like when I was a CFO of this billion dollar company, we were happy to have a 2% operating profit. But for other businesses in tech, operating profit may be 20% or even more. So I just say as a rule of thumb, if you're earning above a 10% operating profit, you've got a pretty good business and Starbucks is at 13.7%. Okay. So that's helpful, right?

So you know now that Starbucks does about $36 billion a year in revenue, and they keep about $5 billion after covering all their costs. And you also know that the average store does about a million dollars per year. $892,000 exactly if you do the math, but let's just say a million bucks a year. So if I were to ask you, how much profit does the average store do? And let's just say it's a million dollars. I'm rounding up.

What is their average operating profit? Well, if you just take the million dollars times the 13.7%, then it suggests that the average store, after covering all its expenses, generates about $137,000 in profit. Okay. So that's kind of neat to know now.

So when you go into Starbucks and somebody says, Oh my gosh, Starbucks just crushes it. They make so much money. Now you can speak with more specificity. You're like, yeah, actually an average store does about a million bucks. Good stores probably do three to $4 million. Now, at least you know that it's not 20 million and it's not 50,000. It's about a million on average. And it goes up from there. And then you could just use that as a starting point to understand how they're actually performing.

Now let's talk about three ways Starbucks can increase its profit because it's one thing to know their numbers. It's another thing to know how to influence those numbers. And that's what I want to get into now. And I've come up with three, right? There's multiple ways to increase profit for Starbucks, but I'm just going to talk about three.

Number one is streamline operations and improve efficiency. So what Starbucks is doing is they're rolling out a new in-store prioritization algorithm and mobile ordering sequencing to boost operational efficiency and reduce wait times. So in other words, they're optimizing their staffing, they're simplifying routines, they're investing in assistant managers, they're pouring money into their app. So people come into the store and they order through the app, which just eliminates friction and it reduced cost. And recently Starbucks has laid off 1100 corporate employees in efforts to reduce complexity and to lower their OPEX. Remember OPEX stands for operating expenses. So those are some things that they're doing right now in order to improve operational efficiency. But if you go into Starbucks and you see a push for ordering via the app, or you see fewer employees, or you see other operational changes, it's because they're trying to streamline operations and improve efficiency to boost their profit.

The second thing they could do is simplify and optimize the menu. And you've already seen this, but Starbucks is cutting about 30% of its menu items, including many of the slow selling Frappuccinos to focus on high margin popular products. They're also introducing new drinks. So my wife loves the pink drink. My son likes this other drink with these little boba balls in it. I can't remember what it's called, but that's what they're doing is they're eliminating the menu items that aren't moving to bring simplicity back into their offerings. And the company is also reducing discounting with the target of 40% fewer discounted transactions year over year to protect margins. Because I've talked about this before, pricing is typically the number one lever for companies, but also it works the opposite way. If you're discounting your products and services, it has the same negative effect as a positive effect as a price increase.

So that's the second thing they're doing, simplifying and optimizing the menu. And then the third thing they could do is enhance the customer engagement and the overall experience. So customer experience is known as CX in the world of business. So if you say CX, it's just short for customer experience. So Starbucks is investing in employee engagement. So for example, they have barista championships. They're improving their training. They're doing store upgrades with more seating, more premium touches to create like a more inviting atmosphere and improve the ambiance. And all of these initiatives are designed to increase customer retention and transaction frequency, especially among Starbucks rewards members whose spending now accounts for about 60% of their total revenue, which is great.

I mean, that's like 60% reoccurring revenue. So having a strong brand connection and improved customer experience can help drive greater sales growth and profitability, even in a competitive inflationary environment, which we'll talk about the competitive environment here in just a minute. Right? So those are three things that the company can do.

Now, I want to tie this back to a tool that I built on my website, coltivar.com. So if you go to coltivar.com, I’m doing this right now as I do this podcast live, and you go to Resources and you go to Tools, you’ll find a calculator called the Levers of Profit Calculator. It’s totally free. You don’t have to opt into anything. Just click on that.

And what I’m going to do is plug in two numbers. And those numbers are cost of goods sold as a percentage of revenue and operating expense as a percentage of revenue.

Now, let me walk you through this. I said earlier that Starbucks has a gross profit of 63.3%, which means that revenue, 100%, minus cost of goods sold equals 63.3%. So if I just take 1, or 100%, minus 0.633, their gross profit, I arrive at cost of goods sold of 36.7%.

Also, their operating expenses as a percentage of revenue equate to 49.6%. So on my calculator, I’m going to plug in 36.7% for cost of goods sold as a percentage of revenue, and then 49.6% for operating expense as a percentage of revenue. I’m typing this into the calculator right now.

And here’s what’s interesting — it spits out the four levers of profit, which I’ve talked about before. I’m going to say them again. Price. Cost of goods sold. Operating expense. Volume.

So for Starbucks, guess which one has the biggest impact?

If you’re thinking price, you’re absolutely right.

To be specific — and this is why I love the calculator — a 1% change in price will have a 7.3% impact on their profit. A 1% decrease in cost of goods sold will have a 2.7% impact on profit. A 1% decrease in operating expense will have a 3.6% impact. A 1% increase in volume will have a 4.6% impact.

So when I talk about strategy and finance combining together, this is what is interesting. If I was running Starbucks, I would be focusing on price and volume. Then I would be fixing my operating expenses, and then my cost of goods sold — in that order — because those are the levers in sequence that will have the biggest upside on the company.

So going back to the three ways that I mentioned previously about how Starbucks can increase its profit, you can see how those three recommendations align with the drivers that I just mentioned.

Streamline operations and improve efficiency — we’re talking about operating expenses and cost of goods sold. Simplify and optimize the menu — we’re talking about greater volume and pricing. Enhance the customer experience — this is going to drive better volume and better prices because people won’t want to go to competitors.

So that’s how strategy aligns with the numbers. And hopefully you see this connecting here.

Let’s compare Starbucks' performance with a few of its competitors, specifically Dunkin’ Donuts and Dutch Bros. Here’s what’s crazy. Starbucks does thirty-six billion dollars a year in revenue, and Dunkin’ Donuts does eleven point two billion in comparison. So they’re about a third of what Starbucks does.

Regarding operating profit, Starbucks earns thirteen point seven percent, and Dunkin’ Donuts comes in at sixteen point eight percent. So they do less revenue but earn a higher operating profit. But what’s also interesting is Starbucks, from a return on invested capital standpoint, earns an eighteen percent return, versus thirteen percent for Dunkin’. And with cash flow, Starbucks earns six point six billion in operating cash flow, whereas Dunkin’ earns about two point three billion.

What about Dutch Bros? I don’t know if you’ve ever been to Dutch Bros, but my son really likes it, and he’s always talking about how they’re crushing it. Let’s see if they’re actually crushing it.

Dutch Bros does about one point two billion in revenue, which is still substantial. That’s great. But their operating profit is six point five percent compared to Starbucks at thirteen point seven. And remember what I said earlier — a good business earns at least a ten percent operating profit or more. So Dutch Bros is underperforming here.

Their return on invested capital is eight percent compared to Starbucks’ eighteen. And if you just think about the S&P 500 over the last fifty years, it’s returned about nine to ten percent. So if your return on invested capital is below that benchmark, that’s a red flag.

So in short, Starbucks is the global leader in coffee shop revenue with strong gross profit and operating margins. Its return on invested capital is strong, reflecting efficient capital use. Dunkin’ Donuts has a higher operating margin at the corporate level but earns less revenue overall. Dutch Bros is growing fast but underperforms in both profitability and capital efficiency compared to Starbucks.

All right, so that’s my breakdown of Starbucks. Like I said before, DM me, leave a comment. I’d love to hear your feedback so I know how to tailor this content to serve you best in your personal life and in your business.

All right, that’s what I have. Until next time, take care of yourself.

Cheers.