Friday, 28 July 2017 10:40

Starbucks Doubles Down On China, Targets 5,000 Stores By 2021

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Starbucks yesterday announced plans to dramatically expand its presence in Asia, while cutting back its retail presence in the U.S., closing 379 “consistently underperforming” Teavana stores. Rather than aiming to drive more sales at home, the company will now focus on expansion outside the U.S.,

particularly in China, where Quartz reports that the company is opening more than a store a day. According to statements made yesterday during an earnings call, Starbucks plans to buy out the 50% share of its Chinese partners JV partners Uni-President Enterprises Corp and President Chain Store Corp for $1.3 billion in cash, bringing to an end a joint venture that was first established in the early 2000s.

“Unifying the Starbucks business under a full company-operated structure in China reinforces our commitment to the market and is a firm demonstration of our confidence in the current local leadership team as we aim to grow from 2,800 to more than 5,000 stores by 2021,” said Chief Executive Kevin Johnson.

The deal is expected to be completed in early 2018, and will see all Starbucks stores across China owned and operated wholly by Starbucks. Conversely, the company will divest its 50% stake in its 410 outlets across Taiwan, granting its JV partners full ownership of those stores, similarly to its operations in Hong Kong and Macau.

Coffee culture is exploding in China, and clearly Starbucks expects this trend to continue. In a country that has the world’s largest market for tea, consumer behaviors are slowly shifting. According to FreshCup Magazine, Starbucks already controls more than 60% of the cafe market in China, and has strived to integrate its brand into the local market, incorporating eastern-style architecture, green tea frappuccinos and red bean scones.

In 2016, China accounted for less than 2% of the world’s coffee sales, but coffee consumption in China almost tripled between 2012 and 2016, and that number is set to grow. Given the potential size of the market, Chinese consumers could revolutionize the industry entirely.

Echoing this sentiment, Johnson called the opportunity for growth in China “unparalleled [for Starbucks], and our purchase of the remaining 50% of our East China JV is a significant milestone, reflecting our long-term commitment to China and our unwavering optimism about our future in that key long-term growth market.”

The markets have reacted with trepidation to the announcements, with share prices falling by 6% in the wake of the report. Starbucks’ U.S. retail stores failed to meet earnings targets, meaning its investment in China is a gamble that must pay off if the company is to win back the confidence of investors.

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