One Day its US Market Business would be Overtaken by China Business, says Starbucks

One day, its U.S. market would be eclipsed by its fast-growing China business, Starbucks said.

Taking the chain to a total of about 37,000 outlets, it plans to open 12,000 additional stores globally in the next five years, the company said. Half of the new units will be in the U.S. and China.

“Our core business has never been stronger in the U.S. and around the world,” Starbucks Chairman and CEO Howard Schultz told analysts at the coffee retailer’s investor day event in New York.

The CEO also emphasized something he’s said before: “These are the early days of the growth and development of the company. If Starbucks was a 20-chapter book, I still think we’re in chapter 4 or 5.”

“Demand is there, and our ability to deploy capital and get the return on invested capital is very strong,” Starbucks President and COO Kevin Johnson told attendees. Succeeding Schultz, who will continue as the Seattle-based company’s chairman, Johnson will become CEO of Starbucks in April.

Both the higher-end Reserve Roastery and Tasting Room outlets for future growth and its flagship Starbucks stores are the focus of the company, executives during presentations highlighted. By 2021, about one-fifth of total outlets would be represented by the Reserve Roastery stores, which will sell premium coffee at around $10 a cup, which is the target of the company.

Princi, a high-end Italian bakery the company invested in over the summer, would be used to set up new stand-alone outlets, Starbucks plans. With locations in major markets such as New York, Seattle and Chicago by 2018, the bakery will serve pizza. Moreover, Princi food is expected to be offered at all of the company’s new Roastery locations.

Starbucks targeted “mid-single digit” comparable-store sales growth and presented a five-year strategic plan to grow earnings per share between 15 and 20 percent. At an annual growth rate of 10 percent, the company sees retail revenue growing during this period.

“I know some of you are concerned about the slowdown in U.S. comps, which candidly I don’t share,” Schultz told analysts.

Schultz said that the new store performance on a sequential basis has been “better than the year before and the retailer continues to open 500 to 600 stores annually. There’s no better evidence of the health, the strength, the equity of the brand and the relevance of the Starbucks business.”

China is one market that remains particularly attractive for the retailer on the international front, Schultz said.

“Not only will China one day be bigger than the U.S., but our business in China will demonstrate that we will be one of the…most significant winners in terms of a Western consumer brand,” he said.

The management sees revenue and operating income nearly tripling there over the next five years and China remains the company’s fastest growing market. The chain will soon reach 2,500 stores in 118 cities and is opening a new Starbucks store in China about every 15 hours.

“Despite our early success, we are only in the beginning chapters of our growth story,” Starbucks China CEO Belinda Wong told analysts Wednesday. “In the next five years, we’re well positioned to double our scale to 5,000 stores in over 200 cities.”

(Adapted from CNBC)


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