Starbucks becomes No. 3 restaurant chain

The coffee shop ranks behind McDonald's and Subway in terms of US sales. Updated with earnings numbers.

By Kim Peterson Apr 27, 2011 1:16PM
Updated 4:30 pm EST

Starbucks (SBUX) might have started as a coffee shop, but it now counts as a chain restaurant -- and it's become the third-largest in the U.S.

When measured by sales dollars,McDonald's (MCD) tops the chart, and Subway comes in second. Starbucks is No. 3, according to a study by research firm Technomic. Not bad for a company that closed thousands of stores and went through its own mini-crisis in the economic recession.

Starbucks' rise is certainly bad for Burger King and Wendy's (WEN), which used to round out the top three behind Mickey D's.

Still, all is not well at Starbucks today. The company's share price dropped nearly 2% in after-hours trading after it disappointed analysts with its profit forecast for 2011. Before today, shares had zoomed 30% in the last year to $37.18.

Post continues after this video about how well Starbucks is doing:
Starbucks said that while sales were strong, profit in the quarter was affected by the earthquake in Japan and the bankruptcy of Borders Group (BGP). Profit was $261.6 million, or 34 cents a share, a 20% increase from a year earlier. That 34 cents a share is exactly what analysts wanted to see.

The company reported a 10% jump in revenue to $2.8 billion, above the $2.73 billion analysts were anticipating. Comparable store sales rose 7% -- which breaks down to a 6% increase in traffic and a 1% increase in the average customer receipt.

But earnings for the full year, the company said, would be between $1.46 to $1.48 a share -- lower than the $1.50 a share analysts were expecting.

"Our sales, traffic and customer trends all point to the expanding power of the Starbucks business and brand," said chief executive Howard Schultz in a statement. Chief financial officer Troy Alstead also crowed: "The underlying health of our business has never been better and our fiscal second quarter results continue to demonstrate this strength."

The company is expanding beyond the coffee shop, and it plans to get more products into grocery stores. Starbucks is even joining the K-Cup mania, working out a deal with Green Mountain Coffee Roasters (GMCR) to offer its brew for Keurig machines.

One reason for Starbucks' success is that consumers feel the chain is healthier than other fast-food offerings, a Technomic spokesman told Marketplace radio. Subway benefits from that impression as well.

And what about Burger King and Wendy's? "They've found it harder to compete with the McDonald's of the world, as well as what we're seeing in the better burger segment with fast, casual giants like Five Guys Burgers and Fries really coming up the ranks and kind of chomping at their heels in terms of the burger market and what they're able to offer," said the spokesman, Darren Tristano.

Starbucks gets about 70% of its revenue from the U.S. and is expanding quickly overseas.

The economy has recovered to the point where stores catering to higher-income people are doing well, one analyst told Reuters. Starbucks falls squarely into that category. "I think the trade-up is on again," the analyst added.

Starbucks has raised prices as the cost of coffee has gone up. The price of its packaged coffee sold in supermarkets has gone up by an average of 12%, Reuters reported.
Apr 27, 2011 3:06PM
I like the posts on here from people talking about the "stupidity of Americans" for buying Starbucks yet the people posting these comments don't know the difference between week and weak or pray and preying:

" Starbucks prays on the stupidy of Americans who pay big bucks for a stupid cup of coffee"

I didn't know Starbucks was religious; what form of religion is stupidy anyways?

"Interesting, that one assumes that a successful corporation is "praying" on the week. "

What instead of coffee of the week it'll be a prayer of the week? (At least this guy got the concept somewhat correct.)

I've found on the internet people who bash a company or article or call people stupid usually lack proper grammar, spelling, and a basic grasp of word meaning.

Oh we were talking about Starbucks?

It's decent coffee, decent food. I go there multiple times a week, enjoy Clover brewed coffee, and get free drinks quite often thanks to the Starbucks Rewards program. Maybe they "price" stupid people out by charging the same for a cup of coffee as most places?

Apr 27, 2011 2:26PM
starbucks is just a business. you can choose to go there or not. don't want to spend much on coffe, make it at home. want a treat, go out. nobody is forced to purchase coffee from starbucks. i cannot recall a single person i know who has been "forced" to purchase from any coffee shop.
Apr 27, 2011 2:52PM
Although I do feel some beverages at Starbucks can be a bit overpriced, it also has a lot to do with convenience. There is a Starbucks everywhere you look and is a nice, relaxing meeting area for parents, teachers and students. It's more than just a "coffee shop" , but more like a "pleasant, relaxing get away". I am a stay at home mom but still don't mind treating myself to the "Starbucks retreat" once in awhile.
Apr 27, 2011 5:52PM
I don't get why everyone has their panties in a bunch over Starbucks. It was a small store that marketed well and became a huge corporation. Yes, the coffee is a bit pricy, which is why I only treat myself to it once in a while. If people are willing to pay the higher price, that's their choice, and why ruin their coffee moment? What I like the most about Starbucks is the consistency. No matter where I go in the US, I can stop at a Starbucks and know that my coffee will taste the same as it does back home.
Apr 27, 2011 3:17PM
The manager lawsuit is about as dumb as most lawsuits from lazy people trying to make a quick buck. If you dont like it then quit. I didn't know people were forced to work there. Any management position at a retail establishment carries more than 40 hours and is salary based pay. If you are a good manager you should staff your store well with people who actually work and then you wouldnt have to be there 60 hrs a week. I personally know 5 managers at Starbucks that top at 45 hours a week, most of the time they only work 40. Cutting costs is part of business and its the only thing that can make companies successful. Otherwise they end up joining the long list of failed companies. 
Apr 27, 2011 1:56PM

Prays on Americans "stupidy" (Stupidity)?   Last time I checked each american has the right to select what and what they do not want to purchase or patronize.


Interesting, that one assumes that a successful corporation is "praying" on the week.  Why does there have to be ulterior motive.  We enjoy a good cup of coffee and it turns into a plot.


Apr 27, 2011 2:10PM
I think you mean "prey" instead of "pray" and "weak" instead of "week".   
So, Penahs, I take you do not like coffee.I do and go to Starbucks often, but Penah,
I order a tall drip coffee, not the lattes. and really, Penahs, that is not stupid.
My coffee only costs $1.68 including sales tax. Enjoy the Starvbucks environment..
I have stock in the company and am very happy it has re-energized and is growing.

Apr 27, 2011 6:15PM
Phillip your right about the restaurant part however thinking that you should pay the same as it cost to make at home is ridiculous. You dont have to make it, just like any business people do it for you at your convenience whenever you want and however you want it. Of course its going to cost more, those people have to get paid too and the electricity and rent....etc. There is no business that can sell at the cost of you making it yourself, thats why its a business. Just like cooking at home is cheaper, we all have the choice and sometimes we choose to pay others to do things for us, its the way of society otherwise we can just go back to farming and hunting on our own. I dont understand why people hate businesses so much when they depend on it and unless you grow and hunt your own food, then you probably work at one.
Apr 27, 2011 2:28PM
I knew Howard would turn Starbucks around !!!  As a retired guy I go there most every day and enjoy the drinks and read the paper; it's the total experience you are paying for, not just the coffee--worth every penny.
Apr 27, 2011 2:13PM

Re the below comments doggin each other, it's "prey" not "pray."


I don't give Starbucks my money because I like a certain fast food places coffee.

Starbucks' business success is amazing considering what they sell.


Do we consider Starbucks a restaurant or its own category, "Starbucks."

Comparing Starbucks to McDonalds is strange, except I really like MickeyD's coffee.  But that's me.



Apr 27, 2011 2:06PM
Dunkin' Donuts is kicking everybody's butt at NUMBE ONE!
"Restaurant chain"

Is it even considered a "Restaurant Chain" by its consumers? I most certainly think not. Its a COFFEE SHOP. For me, it has to serve food like steak, soup, hamburgers, REAL food to be considered a "restaurant". So its not a "restaurant", its a "coffee shop chain". The stupid stock market might package it in with the other fast food chains, but it is not the same thing. I just wanted to clear that up. When has someone said "Lets grab Starbucks for lunch!" No... Its "Lets grab McDs or KFC or Subway ECT for Lunch." If they stop by Starbucks for a coffee, its not the bulk of the meal, its just an add on. However paying more then 1.00 for coffee seeing as you can make a whole pot of coffee at home for a fraction of that, is outrageous. I remember when people claimed that Starbucks was a fad. When is it gonna end???
Apr 27, 2011 2:10PM
"praying" on the week..????? Do they pray on the weak every week?
Apr 27, 2011 4:40PM
The way I understand the current class action lawsuit against Starbucks is that the managers were misclassified as salary employees.  In order to be classified as a salary employee the majority of your job must be manager functions.  What the lawsuit comes from is that the managers are the ones out there doing the same job duties as the baristas.  They claim to be doing more barista duties than manager functions.  Should be interesting how this plays out.  It must hold some weight since the judge said it could be a class action ?  I also know that two of the top human resources people were let go after this came out. 
Apr 27, 2011 2:34PM
Penahs you are an ignorant fool if you think Americans are the only ones who buy  coffee, there is coffee shops including Gourmet ones worldwide. In fact America was behind on coffee until Starbucks brought the idea here from the coffee shops in Milan. And by the way since apparently you are not very educated on anything, the price of a cup of coffee at Starbucks is pretty much the industry standard. $1.50 for a cup. 
I once saw the the CEO of Starbucks speak at a convention I attended... I remember he said the actual paper cup (with sleeve) costs more than the actual coffee. When asked how the "Coffee Business" was going, he responded that he had no idea, his business was actually selling a clean, comfortable environment and image. I thought it was an interesting view of his business. BTW, I don't drink coffee so I don't support spending $5.00+ on a fancy coffee drink!
Apr 27, 2011 9:46PM
Apr 27, 2011 3:02PM
I forget about the strong coffee at Starbucks...I order the hot  English breakfast  tea and its a bargain....
Apr 27, 2011 8:06PM
Having recently moved to Ontario, a.k.a. Land of Tim Hortons, the opening of a nearby Starbucks is the only thing that has allowed me to retain my sanity. I will sit in comfort and happily sip my delicious cup of Starbucks coffee. It's not only better, but about half the price of Tim Hortons, or any other coffee chain, if you measure cost per grams of caffeine. If I want a cup of hot water, I'll use my kettle, thanks.
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