Starbucks unveils ambitious China plan
Coffee giant wants to more than triple revenue over five years
SHANGHAI: Starbucks Corp has unveiled a bold plan to more than triple revenue in China over the next five years, at a time when other American corporates worry that simmering trade tensions may disrupt their businesses in the world’s second-largest economy.
Starbucks planned to weather trade tensions by focusing on its Chinese employees and customer base, chief executive officer Kevin Johnson said in an interview in Shanghai.
The coffee giant laid out plans to compete with KFC in the race to become China’s fastest-growing foreign food chain by opening a new store every 15 hours through 2022.
It plans to have 6,000 stores on the mainland then, compared with a previous target of 5,000 by 2021.
“China has a long runway of opportunity for Starbucks,” Johnson said as the chain kicked off a two-day investor conference in Shanghai, the first to be held outside of the US.
“We can’t control what happens in the geopolitical situation. We are not immune to it, but we take a long-term view.”
The vote of confidence comes as 120 US companies and business groups line up to oppose the Trump administration’s plan to slap tariffs on US$50bil in Chinese imports.
A hearing on the levies – where companies including Best Buy Co and General Electric Co as well as lobby groups such as the National Retail Federation plan to testify – began on Tuesday.
Starbucks is increasingly reliant on China, where it has no close rivals, to prop up underwhelming sales growth in the US and elsewhere.
A US$7.2bil deal with Nestle SA earlier this month gives the coffee giant the cash to pursue its goal of accelerating expansion in China, which is set to become Starbucks’ largest market within a decade.
The Seattle-based company also expects to more than double its operating profit in the country by fiscal year 2022. About 15% of Starbucks’ revenue came from its China and Asia Pacific markets – about US$3.2bil – in fiscal 2017, according to company data compiled by Bloomberg.
It currently has 3,300 outlets in China, compared with about 12,000 in the US, including licensed stores. Yum China Holdings Inc, which separated from Yum! Brands Inc in 2016, said it had 8,112 stores including KFC and Pizza Hut at the end of March.
The push in the China market comes as its stores in the US face fierce competition from up-and-coming regional coffee houses and steep discounting from fast-food rivals.
Consumers also are shopping more at home, shunning brick-and-mortar retail for e-commerce.
In China, where cafe culture is less mature but e-commerce more developed, Starbucks cafes have cornered the market on plush but casual meeting spots.
Johnson said that while same-store sales in the US have been weaker than expected, strong performance in new stores state-side meant it’s still on track “to deliver US growth within the targeted range that we’ve given of high single-digits.”
The Starbucks deal, which gives Nestle the right to market Starbucks products from beans to capsules, will also give the Seattle coffee brand access to a whole new market in China.
Switzerland-based Nestle can now sell Starbucks-branded packaged coffee products in Chinese supermarkets, restaurants and catering operations. That’s something Starbucks hasn’t done previously in the country.
Nestle’s relationships with distributors, giving it access to 1.5 million outlets in China, “dramatically accelerates our ability to bring those coffees to market,” said Johnson.
Introducing these products to China would be “one of the priorities that we focus on early” after the transaction closed, he said.