Starbucks (NASDAQ:SBUX) has big expansion plans in Asia especially China. According to its Asia-Pacific President Jinlong Wang, it plans to operate 1,500 outlets in China by 2015 from a current 470. It also expects to open 700 coffee shops in South Korea by 2016 up from 370 now. It looks like Starbucks is betting heavily on the coffee industry in China for its future growth. 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 $37, implying a 5% downside to the market price.
International Expansion Plans
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In fiscal year 2010, Starbucks generated approximately 21% of its revenues from international operations. With its massive expansion plans in Asia, we believe this share will see a significant boost. We are also very optimistic about the growth opportunities in developing countries like China and India. We perceive there is immense untapped demand in these markets. The large middle class is the key driver behind this pent up demand. The expansion plans would also provide Starbucks a geographically diversified revenue base.
At present, it derives 70% of its revenues from the U.S.. However, the growth in developed markets like the U.S. has stalled. The emerging markets show signs of robust growth ahead. Starbucks opened its first store in China in 1999. It has presence in 42 cities; ten new ones were added this year. It also has plans to launch its first outlets in India next year and in Vietnam in 2013.