Starbucks eyes China growth

03 April 2012

BEIJING: Starbucks, the coffee house chain, plans to more than double the size of its store network and target new categories as it seeks to drive growth in China.

The company opened its first Chinese store in 1999, and now runs over 570 branches in 48 different cities throughout the country, where rising affluence and changing tastes are fuelling increased demand.

"We continue to see strong growth in China giving us even greater confidence in achieving our goal of building China as our largest market, outside of the US, by 2014," John Culver, president, Starbucks China and Asia Pacific, said in a statement.

To further encourage this process, Starbucks will boost the size of its store network to 1,500 coffee shops, in 70 cities, by 2015. It established a presence in 13 cities in the last fiscal year, unveiling an average of one new branch every four days.

"We see tremendous opportunity to continue to grow in cities that we are currently in – those tier one, tier two cities," said Culver. "And also, thoughtfully to expand to tier two, tier three, tier four cities."

Such a strategy could be especially profitable given that the firm's operating margins in Asia stand at 34.6%, beating the 21.8% logged in the Americas. Within the overall total, China provides the "highest financial return", Culver revealed.

According to figures from Euromonitor International, the research group, the Chinese coffee market was worth RMB6.3bn in 2011, a 20% improvement on 2010 and up by 92% measured against 2006.

The China Coffee Industry Association, the trade body, has also reported that the typical Chinese consumer drinks three cups of coffee per year, compared with a global average of 240.

"We see opportunities to continue to expand our retail footprint and capture the demand that has currently existed for Starbucks," said Culver. "We are ramping up investments in … staffing, training, development and systems."

More broadly, Culver argued Starbucks has a "big opportunity" to reach shoppers in new ways, with possibilities under consideration including its Verismo single-serve coffee machine and Refreshers energy drink, both soon to be launched in the US.

"While we have an ambitious plan to accelerate our pace of growth, we will make sure we are growing the brand in a holistic way; delivering the highest quality espresso, locally-relevant product and store design innovations, as well as elevating the special connection we have with our customers and the local communities where we do business," Culver said.

Data sourced from Wall Street Journal; additional content by Warc staff