Cart (0)
VIDEOStarbucks Says "Frappuccino" in Mandarin
By
Josh Lipton Apr 14, 2010 1:10 pm
What the push into China will mean for the coffee giant.
 |
|
Starbucks (SBUX) plans on finding out.
Today, the Wall Street Journal reports that the coffee giant is planning a big expansion in China. CEO Howard Schultz told the paper that China is set to usurp Japan as its biggest market outside North America.
The Seattle-based powerhouse, Schultz said, plans to open “thousands of stores” in China over time, and is also eagerly looking to crack money-making markets in fast-growing India and Vietnam.
“Asia clearly represents the most significant growth opportunities on a go-forward basis,” said Schultz.
A few weeks back, Starbucks made headlines when it introduced its first-ever cash dividend, a move that we detailed in our story, Why Dividends Are Back.
At the time, there was some chatter that the decision implied that the company’s executives clearly weren’t all too interested in accelerating store growth anytime soon.
Turns out, the company is obviously still very interested in dotting as many street corners as possible with its stores, but overseas is where it sees the most opportunity for retail growth, looking ahead.
Already, there are about 16,600 Starbucks around the world: 11,000 domestic stores and the rest scattered among more than 50 countries including Austria and France as well as China, Hong Kong, and Taiwan. The company added Portugal, Bulgaria, and Poland in fiscal 2009.
The last couple years have been tough for Starbucks as the economy weakened. All of a sudden, making coffee at home sounded a lot more appealing to caffeine freaks across the country.
For the first time, CEO Schultz told shareholders in his annual letter, the company actually began to see traffic in US stores slow. Strong competitors also entered the business and, perhaps most troublesome, said Schultz, Starbucks just got fat and lazy.
“[W]here in the past Starbucks had always been forward-thinking and nimble in its decision-making and execution, like many fast-growing companies before us, we had allowed our success to make us complacent,” the CEO wrote.
So the company put a game plan in place to turn business around: closing 800 underperforming locations and taking steps to try and get leaner and meaner, removing $580 million in costs from the business in fiscal 2009.
Morningstar senior analyst R.J. Hottovy, who covers the company, tells us that the moves have helped.
“They shed a lot of unnecessary costs,” the analyst says. “They also expanded the food assortment, offered healthier products, and Via, its instant coffee, exceeded my expectations.”
As for China, specifically, Hottovy thinks the decision to ramp up store growth over time in that area of the world makes sense.
“It is a smart move for them,” he says. “Competitors like McDonald’s (MCD) have committed to sizable expansion in China. Starbucks sees it as a country where they need to be.”
As for whether Starbucks will ultimately prove successful in China, though, Hottovy remains only guardedly optimistic.
Yes, he notes, the Chinese consumer has shown an appetite for US brands. However, competition is increasing in the category at a hard clip.
"A number of US-based restaurant chains are making China a focal point of their growth plans," he tells us. “McDonald’s is making a big push there as well as smaller competitors like CKE Restaurants (CKR), parent company of Carl’s Jr.” See also, Why China Loves Yum Brands.
Regardless, Hottovy thinks the stock is now looking a bit pricey, pegging fair value here at $20. (The stock, as we write here in the late morning, is trading at $24.73.)
What about for those of you out there who focus on price action rather than fundamentals?
Katie Stockton, chief market technician at MKM Partners, points out that Starbucks has been consolidating within its long-term uptrend. Momentum is positive, and Starbucks has exhibited positive relative strength compared to the broader market, she says.
“I would be comfortable owning it, from a technical standpoint, because it is coming off short-term oversold levels,” she wrote us in an email this morning. “The first major resistance on the chart is approximately $27.40, and support is near $23.20.”
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
