After announcing big plans to expand internationally in China and Latin America, Starbucks Corporation (NASDAQ:SBUX) is now eying the Nordic countries of Norway and Sweden. Starbucks has signed a deal with Norway’s Umoe Restaurant Group to beef up its presence in the region. Not only do these two countries have one of the highest per capita coffee consumption in the world but their economies are much healthier than the rest of Europe. Moreover, their GDP per capita is comparable to that of the U.S.
However, labor costs might be a detriment as they are higher than those in the U.S. and Western Europe. On the brighter side, consumers there are used to paying higher prices for coffee, usually in the range of $5-$6 and can go as high as $10 for a latte. This is something which might work in favor of Starbucks since its prices are generally on the higher side compared to traditional coffee shops.  Currently, the EMEA (Europe, Middle East and Africa) region contributes less than 10% to the company’s $12 billion annual revenues and accounts for less than 1,800 of its 17,000 stores worldwide, so there is plenty of scope to expand.
Developments in the U.S.
In the U.S., Starbucks is expanding its food offerings by testing a new range of croissants, muffins and loaf cakes. The move is a natural extension of Starbucks’ acquisition of La Boulange, a San Francisco-based bakery chain, for $100 million earlier in the year. Food now contributes more than $1.5 billion to Starbucks’ total revenues and is becoming an increasingly important revenue stream. Right now, the items are being tested in the Bay area but the company has plans to roll out the menu items nation-wide eventually.  Starbucks will also allow users to pay through their mobile phones beginning November through a technology developed by Square. Starbucks formed a $25 million strategic agreement with Square in August.
These developments highlight how fundamentally different Starbucks’ approach is domestically and internationally. In the U.S., where the coffee chain has a significant presence, expansion opportunities are limited and the focus is on generating higher sales per store. Internationally, it is all about leveraging the strong brand name to grab a foothold of the coffee market and expand the menu gradually. The word Starbucks has become synonymous with coffee today and the company wants to use its brand to open new stores and position itself as an upmarket coffee destination.
We have a $54 price estimate for Starbucks, which is about 10% higher than the current market price.Notes:
- Starbucks Aims to Invade Nordic Region, September 27, 2012, wsj.com [↩]
- Starbucks testing new baked goods in San Francisco cafes before eventual rollout nationwide, October 5, 2012, washingtonpost.com [↩]