Franchising: Starbucks (NASDAQ:SBUX) didn’t want to go there, but it finally did — in Europe. After struggling for many years across the pond, Starbucks announced recently that it is ready to expand a strategy it has long resisted. Franchising, or letting others run its cafes, has been a system avoided by Starbucks because it requires the world’s largest coffee chain to relinquish control of its brand and allow other companies to manage it in a handful of areas.
Starbucks still does not manage any franchise-owned stores in the U.S., but after being pressured by struggling sales, it opened its first in the British village of Liphook in February, and now has 45 franchise-owned stores in the UK. The Wall Street Journal reports that the chain plans to soon open its first outlet in France, and expand the strategy elsewhere in the region. Starbucks is continuing to struggle in Europe, even after launching loyalty programs and setting up shop in wealthy areas, possibly because it has been criticized by consumers and politicians in the UK for not paying corporate taxes on account of its business in Britain not being profitable.
The other problem with Starbucks’s European locations is that they only populate ritzy areas where the Seattle chain’s executives are familiar. These high-rent shopping areas in big cities aren’t reeling in the profits that Starbucks needs, and now it has no choice but to populate the more unfamiliar locations, and that’s where franchisees come in to play. Franchise operators will help Starbucks make inroads in more remote areas where executives have little familiarity, and that way, both parties win.