Starbucks (NASDAQ:SBUX) has been licensing its products profitably for some time now, but given the effect the pandemic has had on physical locations, could there be even more opportunities for the home-based business? In this episode of “Ask Us Anything” on Motley Fool live, recorded on March 18Fool.com contributor Jamie Louko talks about having more Starbucks products at home with colleague Jason Hall.
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Jamie Louko: Before COVID, they were really proud to be that third place. You have your house, you have your job, and then you have Starbucks, where you work, hang out, relax, or make other plans. The fact that they were really trying to sell this and create this place, I would have had questions about where they wanted to focus if they were trying to push there. But now, while I don’t see that necessarily as — clearly, it’s always going to be very important for the company to have that third place and build on that thinking. But I think it’s definitely a more real possibility. Considering that I make 90% of my coffee at home with my Keurigif there was a Starbucks or Starbucks version…
Jason Hall: There are.
Louco: There are. Even if there was a subscription, I would totally consider this. Where if I could get a machine and get my Starbucks K-Cups and get it on a subscription. I really think there’s an opportunity there, that’s what I’m trying to say. It may not be a major market driver. Their brick and mortar will largely be where their main business is. But I see this as a potential opportunity for the company in the years to come.
Hall: I’m going to do a quick screen share here. These are Starbucks’ channel development segments. This exceeds Starbucks policy for items bearing the Starbucks logo that are not in a Starbucks store. They’ve largely gone through licensing with this over the past few years. They made a big deal. I don’t remember, Matt, Dan, maybe you can remind me. They made a deal with one of the consumer food companies that paid a ton of money to Starbucks, and then they’ll get recurring licensing revenue for that. But it’s like the bottled drinks you get at grocery stores or your 7-Eleven or that thing, K-Cups, all that sort of thing. What I wanted to emphasize here is the operating margin. It is a company which turns between 40 and 50% of operating margin. It is a small part of the company’s turnover. Quarterly revenue was $417 million in the time period I showed you, but it generated $183 million in operating revenue. That’s a lot of operating profit, compared, the international segment generated 300 million. Thus, it generated almost half of the operating profit than the international segment on a quarter of revenue. It is a very profitable part of the business. But they defer to that bit of license.
Jamie Louko owns Starbucks. Jason Hall has no position in any of the stocks mentioned. The Motley Fool owns and recommends Starbucks. The Motley Fool recommends the following options: $100 short calls in April 2022 on Starbucks. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.