Photographer: Daniel Acker/Bloomberg
Starbucks Could Get an Edge Over Dunkin’ Donuts With LeasesBy
Cutting share of owned stores may offset stagnant sales
Retail vacancies could pull rents down, fattening margins
Starbucks has sought every means to fuel its growth while fending off smaller, lower-cost rivals like Dunkin’ Donuts. And a push to lease stores, rather than own them, may be part of the answer.
The two companies have vied for foot traffic to maintain same-store sales growth, which for Starbucks Corp. is at its lowest level since 2009. But given Dunkin’ Brands Group Inc.’s advantage in real gross margin growth since 2016 -- and in return on assets going back even earlier -- Starbucks could use an advantage that Dunkin’ can’t mimic.
Dunkin’ relies on franchisee-owned locations, so fluctuating rents don’t show up in its bottom line. But Starbucks runs its own stores, and with retailers wilting across the U.S., landlords stuck with vacant storefronts are starting to cut rents, Starbucks Chairman Howard Schultz said in a memo last month. That stands to benefit the world’s largest coffee chain, which has more than 14,000 U.S. locations. Dunkin’ has about 9,100 domestically.
Schultz sees landlords being forced to reduce rents sooner rather than later. This may dovetail with the Seattle-based company’s push since 2012 both to add locations and to increase the percentage of leased stores. Starbucks now rents 51 percent of its coffee shops, up from 43 percent in 2007 and 10 percent in 1998, as minimum rent on operating leases retreated to about 6.7 percent of revenue from about 8.4 percent in 2009.
— With assistance by Leslie Patton, David Russell, Marina Girgis, and Karishma Motwani