Can Starbucks Capitalize on This Trend?
With China’s coffee shop market predicted to grow 55 percent to 4.5 billion yuan, or $720 million, by 2015, Starbucks (NASDAQ:SBUX) has announced that its workforce in the country will more than double in the same period. As Bloomberg reported on Wednesday, the Seattle-based chain is increasing its staff from 12,000 to 30,000 in order to take advantage of what will soon be the largest coffee-drinking market outside the United States.
Has China Grown into a Nation of Coffee Drinkers?
On November 27, Starbucks opened its 100th store in Beijing, and the company now has more than 700 locations spread across mainland China. While the chain’s presence in that country is far smaller than it is in the United States, where Starbucks operates close to 11,100 stores, the company’s revenues are growing at a much faster rate in China. According to Bloomberg, China and Asia Pacific revenues rose 23 percent in the fourth quarter to $198 million. In comparison, sales in the Americas increased by only 9 percent.
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“The Starbucks business here is in its infancy in terms of development and growth,” said John Culver, head of Starbucks in China and Asia Pacific, in an interview on Wednesday.
With the growing workforce, Starbucks has made plans to increase the number of stores it operates to 1,500 by 2015; more than double its current amount. Even though the company will be pressured from rising costs and wages as its expansion continues, Culver said that Starbucks’s business in China is healthy, and the chain will be able to maintain its traditional margins.
CHEAT SHEET Analysis: Is this a Positive Catalyst for Starbucks’ Stock?
One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. In this case, Starbucks’s stock price will likely benefit from its expanding operations in China as the company has forecast that these new stores will be a primary growth driver for the next year, and their sales will account for two-thirds of the region’s sales growth.
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