Starbucks vs. Subways

Filed in archive Global Economy on December 23, 2003

Professor Bainbridge thinks about the explanation for the different type of vertical integration for both quite similar fast food chains. Paul Jaminet goes even deeper in the economic theory to resolve the puzzle.

"It's possible that Starbucks and Subway are nearly indifferent as to which structure governs relations with store managers. If Starbucks and Subway were indeed indifferent between structures, it might be very difficult to pin down the specific economic factors which tilted Starbucks toward integration and Subway toward contracting -- which straws, as it were, tipped the balance. Evidence suggests that Starbucks is nearly indifferent between structures: Starbucks currently has 1500 licensed franchises and 5700 corporate-owned stores. However, Subway, which has 17,500 franchises and only one company-owned unit which it uses for research and development, appears Devoted to the disintegrated model."