In the previous article, we clarified what kind of company Starbucks is: a cash cow supported by a brand and high premium from the "third space," which accounts for nearly 70% of its gross profit, can absorb stored value like a bank, and has become a cash cow that buys back itself to a state of negative equity through continuous repurchases and dividends. However, a good company does not necessarily equate to good growth and good assets.
In this article, Dolphin King aims to answer another question: In recent years, with same-store sales in the US turning negative, China's "defeat," and sluggish growth overall, how much is this cash cow really worth?
1. What is the future growth potential of Starbucks?
Before discussing growth potential, it is essential to clarify a core premise: where we should focus our attention to find growth.
In fact, after Starbucks completed the sale of its Chinese business in April (60% of the Chinese equity sold to Hillhouse, with nearly 8,000 stores being authorized and restructured), Starbucks' growth landscape has been completely reshaped—the Chinese market thus bids farewell to its previous position as the second growth curve under consolidated reporting, and now only has the investment income corresponding to the remaining 40% equity, along with a commission income based on revenue proportions, completely "degraded" into a high-margin but low-cap cash flow asset.
The remaining international markets primarily follow an authorization model, contributing stable but non-flexible "brand money." In other words, the only battleground that now determines Starbucks' growth quality and valuation flexibility is the North American region, which contributes about three-quarters of revenue and remains primarily direct-operated with high asset operations.
Growth in North America also includes potential for new store openings and the recovery elasticity of same-store operations. Below, Dolphin King will break this down according to this idea:
Growth Logic 1: Smaller store formats open up store opportunities in the US
Historically, Starbucks stores have typically been about 200 square meters or more, with extremely high construction and site selection barriers, dense on the coasts and relatively sparse in between.
However, in recent years, the consumption behavior of North American consumers has changed significantly: from the chart below, we can see that the share of mobile orders has increased from 17% to 31% over five years, nearly doubling.
This has resulted in traditional large stores of 200-300 square meters having obvious spatial configuration redundancies in consumption scenarios dominated by rapid order pickups.
In this context, Starbucks has chosen a dual-line growth approach: “optimizing existing stores for experience and creating new stores for efficiency.”
For existing stores, as the core renovation action of the “Back to Starbucks” strategy, the company has launched the Coffeehouse Uplift program, aiming to complete light renovations of 1,500 North American stores by the end of 2026, renovating stores to add sofa seating, supplementing power outlets, and reinforcing the "third space" stay attributes to counteract the singularity of consumption scenarios while stabilizing the core loyal customer base.
On the new store front, Starbucks has introduced two types of lighter store formats that cater to a high volume of non-in-store orders: one is Starbucks Pickup, a pure takeout store with almost no dine-in seating, designed for pre-ordering through the app, located in high-density commercial areas and subway hubs in cities like New York and Chicago; the second is Double Drive-Thru, a two-lane drive-thru store targeted at suburbs and highway hubs, featuring a compact layout and equipped with two lanes and dedicated order pickup windows, maximizing vehicle turnover efficiency.
For instance, the new generation of independent small store prototypes disclosed on the company’s investor day (32 seats, equipped with a drive-thru lane, floor area of about 125 square meters) has construction costs that are 20%–30% lower than traditional standard large stores, with the payback period for a single store shortened from four years to about three years, which also means that many locations in small towns in the US that previously struggled to establish stores now have feasible opportunities.
To make a simple estimate, currently, based on population density, Starbucks has about 5 stores per 100,000 people in North America, assuming national density moves towards the middle-high-density states (6.5 stores per 100,000), the corresponding total number of US stores would be approximately 21,800, with an increase of about 4,900; if further benchmarking against California (7.8 stores per 100,000)—considering that small store formats significantly lower the establishment threshold of single locations, the total would be about 26,100, with an increase of approximately 9,300.
This aligns closely with the company's bottom-up guidance—expecting to open about 5,000 company-operated stores (to about 22,000) and up to 10,000 authorized stores.
In Dolphin King's view, the motivation behind Starbucks' bet on smaller store formats lies in:
a. Reducing capital expenditure per store to optimize payback periods: Currently, North American interest rates and construction costs remain high, and models like Pickup and double-lane drive-thru have smaller areas and lower hardscape and support investment. With the same scale of capital expenditure, the company can launch more new stores, dilute the pressure per individual investment, and improve the payback cycle of each store.
b. Once network density increases, it will drive down the marginal costs of digital and delivery businesses: The Chinese market has already validated that “express + dedicated delivery” can achieve a high percentage of online orders.
If the US can fill in its suburban and mid-market small store networks, mobile pre-ordering and drive-thru order throughput will be smoother, and broader store coverage will provide better groundwork for the standardized operation system of Green Apron Service (analyzed later), further releasing the effectiveness of cup-to-order processes.
However, from the official guidelines, the mid-term (2028) expansion vision for US company-operated stores only maintains an annual scale of about 400 stores. Compared to the market estimate of a potential 5,000-10,000 lightweight store types in North America, the current pace of expansion will take over a decade to materialize.
This also indicates that the current core goal of management is not aggressive capture or rapid fill of all potential sites but prioritizing the commercial model of small stores like Pickup and double-lane drive-thru, refining store returns, operational processes, and digital adaptation abilities.
On the revenue side, around 400 new openings of company-operated stores in the US each year, plus the ramp-up cycle of new stores and the naturally lower average sales of lightweight store types, are expected to contribute only about 1%-2% to annual revenue growth.
Therefore, before the company raised store opening guidance and accelerated expansion, the expansion of small stores in North America belongs more to mid-term value options, and is unlikely to become the core driver of performance in the short term.
Growth Logic 2: Open up a "second growth curve" in the afternoon
A set of structural data frequently mentioned in discussions within the company and the industry states that: about 50% of Starbucks' business occurs before 10 AM, and 65% occurs before noon, indicating that the morning rush is quite saturated and squeezing out more orders from the morning rush yields diminishing returns.
But at the same time, it also means that once the afternoon is cultivated into a second peak traffic period, the same revenue placed in the afternoon will be more "cost-effective"—reusing existing store staff and equipment, without needing significant increases in fixed investments, the margin for incremental orders will be higher.
However, considering that caffeine demand is naturally concentrated in the morning, a more reasonable approach is to match new categories to new afternoon demand:
Dolphin King has summarized the new products Starbucks launched in the afternoon in the following chart, showing that the current product layout is primarily focused on the non-coffee category and natural energy supplements.
Based on survey data, Refreshers iced fruit drinks (represented by the popular Pink Drink) have achieved rapid growth, becoming the second-largest beverage category next to traditional coffee.
On this basis, Starbucks further launched Energy Refreshers with added natural plant extracts and rich in B vitamins, along with matcha special offerings, precisely addressing young consumers' desire for an afternoon energy boost without the bitterness of coffee or concerns about excessive caffeine affecting nighttime sleep.
More importantly, Starbucks is compressing the new SKU development cycle from the previous 18 months to 8 months (with a long-term goal further reduced to 4 months); aiming to introduce new products every 3-4 weeks, continuously supplying freshness for the afternoon consumption period. Specifically, this includes:
a. Replacing annual research with real-time data and AI to accurately pinpoint new product directions
Starbucks launched its self-developed AI machine learning platform, Deep Brew, in 2019, which can process about 100 million transaction data points per week, achieving near real-time monitoring of consumption trends across dimensions such as taste, ingredients, and consumption periods, quickly capturing changes in market demand.
In 2024, Starbucks will further embed generative AI into this system for selecting and generating new product formula concepts. New product development will no longer solely rely on subjective judgments by R&D personnel, but shift to a data-driven model that can save months of trial-and-error exploration in the early directional judgment phase.
b. Agile restructuring of the R&D pathway:
Although Starbucks' Tryer Center innovation hub in Seattle has been in place since 2018, much effort has previously been spent on optimizing Siri/App voice ordering, testing cold brew machines, and optimizing delivery packaging boxes rather than concentrating on solving the two most fatal pain points: "core product innovation" and "the pain of baristas during peak hours."
Products tested for a week at Tryer Center require multi-department approvals for market, supply chain, regional operations, and compliance before they can truly reach the market, leading to a lengthy decision-making chain.
Niccol, who was previously the CEO of fast-casual dining Chipotle, after assuming office launched the Starting 5 program where prototypes developed at Tryer Center are immediately tested in five stores to validate core indicators such as new product consistency, employee operational difficulty, and consumer acceptance, completing results validation in weeks.
Once standards are met, products are widely distributed nationally, achieving both double the testing efficiency and filtering out subpar products, safeguarding quality control, aligning closely with SHEIN's "small batch fast response" model.
c. Platform architecture + efficient restocking
No matter how fast the R&D and testing speed is, the ability to frequently launch new products ultimately hinges on the supply chain. Starbucks' boldness in compressing new product cycles to the extremes is fundamentally due to the restructuring of its supply chain system.
Currently, main categories like Refreshers drinks, cold foam, and Cake Pop desserts are built on a set of mature, market-tested universal product bases, with the vast majority of future new product launches essentially just swapping flavors, ingredients, and forms on existing bases, eliminating the need to reconstruct the supply chain, modify store equipment, or retrain employees, who just need to remember the new formula parameters.
More importantly, this greatly reduces innovation risks: since the underlying product base has already seen market success, even if a new flavor sells poorly, it will not impact the stable operation of the entire product line, resulting in minimal losses from a single flavor iteration failure.
Additionally, in the past, the industry commonly used bulk ordering and 72-hour delivery models, leading to new product nationwide distribution taking weeks, with stores often forced to stock up and accumulate inventory. By switching to piece-level restocking and 24-hour daily deliveries, Starbucks has significantly improved both efficiency and flexibility: once a new product is finalized, it can quickly fill nationwide stores, and the release schedule is no longer delayed by the supply chain.
According to the information from the conference call, the afternoon period's same-store customer flow and transaction value at Starbucks have both increased, and significantly, these increments are mostly absorbed by cold drinks and customized products without encroaching on the coffee production capacity during the morning peak.
A simple calculation shows that the afternoon period from 12:00–17:00 currently accounts for about 25% of Starbucks' sales; with an estimated revenue of approximately $27 billion from North American operations, a 10% improvement in afternoon sales could boost overall revenue by about 2.5% (approximately $680 million); if a 20% increase is achieved, the boost would be about 5%—around $1.35 billion—almost equivalent to the total contribution from two to three years of net store openings, clearly the highest "cost-effective" increment for Starbucks at this stage.
2. How to evaluate Starbucks' value?
1. Same-store operation recovery as the core driver
Let’s first look at the profit forecast:
Regarding store opening pace, following the earlier analysis and the guidance from the company's earnings call, Dolphin King assumes that in the North American region, the focus in 2026 and 2027 will be on the transformation of existing stores and the recovery of single-store ROI, with an average of 150-200 new stores opened per year, and from 2028 onwards, once the new single-store model is established, the store type structure will formally shift towards lightweight, accelerating the opening pace with an average of 400-500 new stores each year.
As for Starbucks' franchise stores, due to being highly concentrated in closed or specific scenarios (such as large retailers like Target, airports/stations, university campuses, and hospitals), the penetration rate across the US is nearing its ceiling; Dolphin King assumes that the small number of new high-quality scenario franchise stores each year will offset the closure of inefficient existing stores, and thus no longer grow.
Specific store opening pace can refer to the diagram below:
Based on the assumptions above, by 2030, Dolphin King estimates that the number of Starbucks stores in North America will reach 20,049, which is an increase of about 10% compared to the current figure;
For same-store revenue, although under high inflation consumers have questioned the cost-effectiveness of "a $6 cup" and coupled with congestion from mobile orders impacting store experience, same-store sales in North America are expected to decline slightly for two consecutive years from 2024 (FY2024 -1.5%, FY2025 -1.8%, with customer flows under pressure for seven consecutive quarters).
However, after Starbucks voluntarily initiated a "bone-scraping detox" in 2025—after the new CEO Niccol assumed office and launched the "Back to Starbucks" strategy, substantial optimizations were made to the ordering algorithms, reducing 30% of redundant SKUs, renovating over a thousand stores, and re-adding staff, by Q4 2025, North American same-store sales had already begun to turn positive under a low base, with signs of a customer flow turning point emerging.
Therefore, Dolphin King has made a relatively optimistic assumption for 2026 in North America regarding same-store sales (+5.5%) (partly due to the low base effect after two consecutive years of decline, and on the other hand, the experiential repairs from the "Back to Starbucks" strategy and increased merchandise availability in the afternoon period, as mentioned previously, a mere 10% increase in afternoon sales could uplift overall revenue by approximately 2.5 ppts).
Starting from 2027, as the low base effect fades and store renovations and menu optimizations normalize, we assume that same-store sales in North America will gradually return to +4.5%, stabilizing around +4% for FY2028-2030—returning to the historical normal years of Starbucks.
As for international markets, after the exit from China, with an emphasis on authorized stores, the direct impact of same-store sales on financial reporting has significantly weakened; Dolphin King uniformly assumes modest low single-digit growth (EMEA about +1~2%, Asia-Pacific about +2~3%), and will not be a major source of performance elasticity.
Based on the above assumptions, Dolphin King expects Starbucks’ revenue over the next five years to have a CAGR of about 6.5% from 2026 to 2030.
On the expense side, Starbucks' major expenses come from store operations and corporate management. Due to the “Back to Starbucks” initiative that actively increased labor hours, the store operational expense ratio reached a historical high of 46% in 2025. Dolphin King assumes that future operational leverage from positive same-store performance releases, along with the standardization of Green Apron operations and ongoing improvements in labor efficiency, will gradually lower the store operational expense ratio from 45.9% to 39.8% by 2030, while management expense ratios will decrease from 7% to 5.1% with organizational streamlining and digital efficiency improvements.
Ultimately, corresponding operating profit margins are expected to recover from the bottom 10% to 19%, with a 24% CAGR in profit growth.
2. A good company, but the market has already priced in the recovery of store profitability
Reflecting on Starbucks' historical valuation, it can be found that Starbucks' valuation levels are highly correlated with same-store growth rates;
excluding extreme years, Starbucks enjoys a stable premium as a leading brand (the world’s number one coffee brand, resilient same-store performance, and consistent share buyback dividends).
The current price equates to the fair value of Dolphin King's slightly optimistic profit forecast (a North American operating profit margin recovering to 21.6%, slightly exceeding pre-decline levels) being fully realized. In other words, the market has already priced in the script of "successful margin recovery."
Summary: A good company, but not a good buying point
Combining the analyses of the previous two parts, it can be seen that Starbucks is gradually transforming from a "heavy asset restaurant operator" into a hybrid of "North American cash cow + global brand authorization," heading down a revaluation path similar to that of McDonald's.
Analogous to Gu Ming in the tea beverage sector—Starbucks is also a dual-purpose company in the US: for defense, it has a solid base built up through renovating stores and consumer trust, with an annual buyback dividend base of 4%-5%; for offense, it has the elasticity of same-store sales in the afternoon, the option of expanding into small store formats, and the valuation option of light assetization.
However, a good company does not equate to a good entry point. Considering that the market has already taken into account the complete success of "margin recovery," buying at the current price essentially only allows for earning "unexpected" profits, while facing significant risks of a double whammy from potential confirmation of a failed recovery.
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