Starbucks Eyes China for Long-Term Growth
Starbucks (NASDAQ:SBUX) is looking to drive growth through expansion in China. It is working on improving its ‘brand experience’ in China and trying to attract China’s affluent consumer class. The firm has about 400 stores in mainland China and 800 in the Greater China region. Starbucks’ competitors in the broader market for specialty coffee include McDonald’s (NYSE:MCD), Caribou Coffee (NASDAQ:CBOU) and Peet’s Coffee (NASDAQ:PEET).
Our price estimate for Starbucks stands at $30.33, implying a 15% discount to market price.
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The near-term focus of international growth for Starbucks is mainland China. By 2015, it is expected to more than triple to 1,500 stores in 90 cities. According to Annie Young-Scrivner, chief marketing officer, Starbucks stores in China outperform the U.S. in terms of average store profitability.
Starbucks has also adapted many products to suit Chinese tastes, such as Chai Tea Lattes, Green Tea Black Sesame Frappuccinos, Black Bean Muffins and Black Sesame Cookies. In April this year, it introduced its instant-coffee packets in China and expanded beyond coffee stores to sell consumer packaged goods in the region.
It also is setting up a research-and-development center in Shanghai. The research center will focus on creating tea products for sale in China, where tea drinking trumps coffee consumption. In November last year, it set up a coffee farm and processing facilities in China’s southern Yunnan province.
Success in China could drive Starbucks’ future growth prospects.