One of the very first things I noticed when I moved to New York City was the unbelievable amount of Starbucks. I can, right now, think of roughly 7 Starbucks that are within a reasonable walking distance of me, 4 that are within 5 minutes of walking. You know what? They are ALL busy most of the time.
In this morning’s WSJ, there’s an interesting article about why Starbucks are popping up everywhere, when it seems there isn’t room anymore (there are currently 13,000 and they plan on adding another 10,000 over the next 4 years). The reason for so many? It’s simple:
“Where a lot of our growth is, is driving that incremental cup that someone may not have planned to buy,” he said.
They know that, especially in a walking city like New York, the difference between you buying a Starbucks coffee and not is whether or not you have to cross the street. So the more corners they can get on, the more coffee buyers they’ll get, and the more they can grow. For Starbucks 1+1=3:
The new store might take some sales away from the original location, but it could lead to far more sales overall. Jim Donald, Starbucks’ CEO, said one Texas store manager complained that his store’s sales of $1 million a year had flattened because of a new store across the street. But the new store, which had a drive-through, was on track to bring in $3 million its first year. So in the same vicinity, Starbucks was now pulling in $4 million a year from two spots rather than $1 million or $3 million from a single store.
The article also gave a glimpse into what kind of return a Starbucks location can generate for the owner, with sales to investment ratio sitting in the 2.3 to 1 ratio. That’s sales 2.3 times the initial investment within year 1, and sales typically improve in the following years generating even better returns. It’s no wonder that Starbucks’ are popping up off highway exits, inside hotels, and part of gas stations…this name brand addictive beverage thing is one heck of a business.
It’s fascinating to get a behind the scenes glimpse of something you see all the time, everyday, once in awhile..or at least I think. Check out the article.