Starbucks 2012 Annual Report Download - page 18

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•We face intense competition in each of our channels and markets, which could lead to reduced profitability.
The specialty coffee market is intensely competitive, including with respect to product quality, service,
convenience, and price, and we face significant competition in each of our channels and markets. Accordingly,
we do not have leadership positions in all channels and markets. In the US, the ongoing focus by large
competitors in the quick-service restaurant sector on selling high-quality specialty coffee beverages could
adversely affect our sales and results of operations. Similarly, continued competition from well-established
competitors in our international markets could hinder growth and adversely affect our sales and results of
operations in those markets. Increased competition in the US packaged coffee and tea and single-serve and
ready-to-drink coffee beverage markets, including from new and large entrants to this market, could adversely
affect the profitability of the Channel Development segment.
•We are highly dependent on the financial performance of our Americas operating segment.
Our financial performance is highly dependent on our Americas operating segment, as it comprised
approximately 75% of consolidated total net revenues in fiscal 2012. If revenue trends slow or decline, our
business and financial results could be adversely affected, and because the Americas segment is relatively
mature and produces the large majority of our operating cash flows, could result in reduced cash flows for
funding the expansion of our international business and for returning cash to shareholders.
•We are increasingly dependent on the success of our EMEA and CAP operating segments in order to
achieve our growth targets.
Our future growth increasingly depends on the growth and sustained profitability of our EMEA and CAP
operating segments. Some or all of our international market business units (“MBUs”), which we generally
define by the countries in which they operate, may not be successful in their operations or in achieving expected
growth, which ultimately requires achieving consistent, stable net revenues and earnings. The performance of
these international operations may be adversely affected by economic downturns in one or more of our large
MBUs. In particular, our Japan, UK, and China MBUs account for a significant portion of the net revenue and
earnings of our EMEA and CAP segments and a decline in the performance of any of these MBUs could have a
material adverse impact on the results of our international operations.
Additionally, some factors that will be critical to the success of the EMEA and CAP segments are different than
those affecting our US stores and licensees. Tastes naturally vary by region, and consumers in some MBUs may
not embrace our products to the same extent as consumers in the US or other international markets. Occupancy
costs and store operating expenses can be higher internationally than in the US due to higher rents for prime
store locations or costs of compliance with country-specific regulatory requirements. Because many of our
international operations are in an early phase of development, operating expenses as a percentage of related
revenues are often higher compared to more developed operations, such as in the US. Additionally, our
international joint venture partners or licensees may face capital constraints or other factors that may limit the
speed at which they are able to expand and develop in a certain market.
Our international operations are also subject to additional inherent risks of conducting business abroad, such as:
• foreign currency exchange rate fluctuations, or requirements to transact in specific currencies;
• changes or uncertainties in economic, legal, regulatory, social and political conditions in our markets;
• interpretation and application of laws and regulations;
• restrictive actions of foreign or US governmental authorities affecting trade and foreign investment,
especially during periods of heightened tension between the US and such foreign governmental
authorities, including protective measures such as export and customs duties and tariffs, government
intervention favoring local competitors, and restrictions on the level of foreign ownership;
• import or other business licensing requirements;
• the enforceability of intellectual property and contract rights;