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Higher prices of coffee beans, employee’s expenses, and other related costs are likely to impact margins of these restaurants, and the company has witnessed a steady decline in the EBITDA margins for these restaurants in the past few years.This indicates that Starbucks’ model is risky and margins are prone to fluctuations depending on the raw material costs.
The company generated a 21% EBITDA margin from its company-owned restaurants in 2016 (and we estimate a similar figure for 2017) compared to the 19% figure for Mc Donald’s.
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Further, the company’s model is also capital intensive, as it needs significant investment to open a new restaurant, rather than granting a franchisee license.
The company requires more investment for growth under this model.