What Are the Costs of Opening a Starbucks Franchise?
Starbucks is one of the most recognizable brands in the coffee industry. Even those who never grabbed a cup of their java know the name and the iconic green and white mermaid sign. If you love the classic menu or some of the hidden drink specials, you may want to open a Starbucks and wonder how much it costs. Although Starbucks does not franchise its stores, you could operate a licensed Starbucks.
Why Doesn’t Starbucks Franchise?
“To me, franchisees are middlemen who would stand between us and our customer. If we had franchised, Starbucks would have lost the common culture that made us strong,” Howard Schultz, Starbucks’ founder and former CEO, wrote in his 1997 book, “Pour Your Heart Into It.”
That philosophy continues under the leadership of current CEO Laxman Narasimhan, who took over the helm in March. As 2023 began, Starbucks had 35,711 locations in 80 countries around the world — including 16,022 in the United States alone. Of the Starbucks shops currently operating, almost 50% are licensed stores. The rest are corporate owned.
Licensed Shops
If you have your heart set on running a Starbucks, consider a licensed shop. The first of these opened in 1991. Starbucks signed a deal with Host Marriott that allowed the company to open smaller stores under the Starbucks name. As others expressed interest, the company expanded its licensed stores, letting owners open them in schools, stores, hospitals, and other popular spots. The shops you find in Kroger, Target, or a bookstore are licensed stores. That is why they often have a different menu and differ from standard shops in other ways.
How to License a Starbucks
Starbucks is quite selective about who it allows to use its name. Everyone starts the process in the same way when they reach out and say they want to open a licensed store. Starbucks will then give you an application. Fill it out and submit it to show you have a serious interest in starting a store. The application asks for details about your shop, such as your city and where you want to open it. Priority goes to new territories and areas with a lot of foot traffic.
Once you apply, you need to provide both documents and proof of your assets. Starbucks will want to know how much debt you carry, if you have experience working in or running a coffee shop, and the type of assets you own. You should also explain why you picked the location and what makes it a good shop for Starbucks. It can take months until you hear anything back and move to the next step.
Representatives from Starbucks will contact you. They usually perform a site visit to see if the location is suitable. Not only do they want to check the foot traffic and square footage, but they also want to see how much competition you face from similar shops nearby. Starbucks also asks for more details about your finances to ensure you have the capital required to open the shop and keep it running.
How Much Does it Cost to Open a Licensed Starbucks?
Opening a licensed Starbucks is an expensive prospect. The company will not even consider you for one of its stores unless you demonstrate you have at least $700,000 in liquid assets on hand. Liquid assets do not include any properties you own or your investment portfolio. You must have a minimum of $700,000 to cover operational and overhead costs. Starbucks will require proof of your assets, too. You will have to pay a licensing fee ranging from $50,000 to $315,000, which can come from your assets.
Permits and Licenses
Opening a Starbucks will require some of the steps and expenses of opening any other coffee shop. Before you open, you must apply for all required permits and licenses to run a business. This is on top of the fee you pay to license the Starbucks name. Most states require that residents apply for a business license first, which shows they will pay taxes. The license also gives you the right to hire employees. You’ll also need permits to construct a new business inside an existing building. It usually costs less than $100 to get a business license and around the same amount for each permit you need.
Business Insurance
Do not even consider buying a Starbucks without first getting business insurance. Liability insurance is one of the most important types. It covers you when someone sues your business. A customer may slip and break their arm on a wet floor or trip and hurt themselves in the parking lot. Property insurance protects against damage to your coffee shop. It pays for damage to the building and any items inside, such as your inventory.
Some of the other types of business insurance you need include:
- Business interruption insurance to cover a loss of income when you cannot operate your shop
- Umbrella insurance with higher limits that can come in handy when you face a big lawsuit
- Workers’ compensation that pays out when one of your employees has an accident at work
- Auto insurance to protect any commercial vehicles or employee cars used to do work like delivering orders or picking up supplies
The cost of business insurance for your Starbucks depends on your coverage limits and the deductible you pick.
Rent
Starbucks allows owners to open licensed shops in a variety of locations. You may want to open one on a college campus or in a local grocery store. The cost to open a Starbucks will depend on how much you pay for rent. As you cannot open a standalone store, you need to rent space inside an existing business. The average price for retail space is around $23 per square foot in smaller towns. In a big city, you might pay double this amount or even more. We recommend that you check with multiple shops, schools, hospitals, and other locations to compare rental rates.
Outfitting Your Starbucks
Paying the rent for your coffee shop gives you a space, but it is usually just a blank space. This allows you to use the Starbucks colors around the space and design it to match other spaces. Even if you plan to open it in a grocery store, you still need to set aside money for decor and furniture. Starbucks can provide you with catalogs to help you find these supplies. Smaller spaces may need only a few tables and twice as many chairs. If you have a bigger shop, you’ll spend thousands on shop decor and tables and chairs for your customers.
Equipment
You cannot expect to run a Starbucks without having a few coffee machines and other equipment to make all the drinks on the menu. Corporate will help with the costs of your coffee-making equipment, such as machines for making tea, milk dispensers, and roasting machines. Also, Starbucks allows shops to sell branded products that include muffins, cake pops, sandwiches, and baked goods. You will need a large display to show customers those options and both refrigerators and freezers to store the food. Most shops also have shelving units to display bags of coffee, Starbucks coffee, and other merchandise.
Inventory
We also wanted to talk about inventory because it’s a big cost. Starbucks will help you plan your opening day and ensure you have enough supplies for your customer base. Your inventory includes coffee beans, milk, and other creamers, sugar, sugar substitutes, cups, drink stirrers, and napkins. Any food you sell is also part of your inventory. Starbucks typically sends frozen foods that you thaw before serving, but some foods involve a small amount of cooking. Inventory costs can easily reach a few thousand dollars.
Starbucks Support
One of the best reasons to open a licensed shop is to benefit from the help Starbucks gives you. Starbucks wants all its licensed and corporate stores to look very similar. Though it doesn’t have a school or training program like other franchise options do, you will get support with your store design and other factors. Starbucks helps you design a shop that looks like those found in other cities down to the color of the wall and the look of the floor.
The company expects you to learn the full menu. You need to know the names of the drinks and the sizes along with the sweet treats and other foods you sell. Some of the other help given to licensed store owners includes:
- Access to all the equipment needed to make the brand’s drinks
- Vendor lists to help you order food and supplies
- Advertising and promotional materials
- Visits from corporate reps before and after you open
Starbucks vs. Other Coffee Shops
While opening a licensed Starbucks will cost an average of $315,000, it’s cheaper than launching a new coffee shop. The cost of building a new shop from scratch is around $650,000, while a small kiosk costs much less: $80,000 to $200,000. If you want an alternative to Starbucks, there are other top shops that offer franchises. Here are some to consider:
- Dunkin’
- Scooter’s Coffee
- Cafe2U
- The Human Bean
- Aroma Joe’s Coffee
- Tim Hortons
- PJ’s Coffee of New Orleans
The cost of opening each one will vary. For example, Dunkin’ requires an initial investment of $395,000 to nearly $1.6 million. You must also sign a 20-year agreement and pay an annual royalty. Cafe2U offers affordable franchises that cost around $110,000. You’ll also pay a $25,000 franchise fee up-front and a $175 royalty fee per week. The Human Bean doesn’t charge a royalty fee but does have a $30,000 franchise fee.
Why Choose a Licensed Starbucks Store?
Comparing Starbucks to some of the coffee franchise opportunities might make you wonder why you should open a licensed shop over a franchise. While many coffee shops claim they have lower up-front fees, they charge higher fees over time. You need to pay a franchise fee as well as a royalty fee, which is due every week, month, or year.
Other benefits of buying a licensed Starbucks include:
- You get a lot of support from Starbucks.
- Starbucks will help you prepare to open your store and order the right supplies.
- Customers know and recognize the brand, which can help you save on advertising.
- Employees do not need to spend as much time explaining menu options.
Paying for a Starbucks
If you’re sure you want to open a Starbucks, you need to know how to pay for it. Even if you have more than the minimum amount of required liquid assets, you may need some additional funds. You don’t want to deplete your reserves and not have enough cash to pay your employees or vendors later.
Franchise financing gives you a loan and enough funds to pay the costs you don’t want to pay out of pocket. You can get help buying new furniture and equipment, employee uniforms, and inventory. The loans also give you an easy way to pay for the renovations a building needs before you open. Financing is also available for Starbucks owners who cannot afford to lease a building. The owner of the building may demand a lot of money up-front, as much as 12 months’ rent. Paying for a year in advance lets you use your profits to cover other expenses.
A few options you can choose are working capital loans and unsecured business loans. They aren’t tied to your home or vacation property, but they do require a high credit score. A business line of credit is another option. If you have a clean credit report and a score of 600 or higher, you should qualify.
At ABC Biz Loans, we offer financing for anyone who dreams about opening a Starbucks. With the high cost of opening a licensed store, you’ll likely need some help to make your dream come true. Contact us to see how you can get $350,000 to open a new Starbucks store.
