Starbucks Corporation (NASDAQ:SBUX) stock continues to trade near its record-highs, yet Starbucks’ continued international expansion, facilitated by a cultural status approaching the iconic, could easily push SBUX stock to new records well within the $100.00-per-share price range. There is simply no stopping Starbucks in 2016.
Worldwide expansion is the key to Starbucks’ revenue growth and one of the main factors influencing the performance of SBUX stock. Perhaps this may explain why the stock has not flinched, rising 2.5%, even after announcing a 24-hour shutdown of all operations in Indonesia. Of course, Starbucks also unveiled a plan for the significant expansion of its presence in China.
This Is a Big Deal for SBUX Stock
Starbucks wants to gamble on China, opening 500 new stores in the next five years, adding to the existing 2,000. The Chinese adventure is just the beginning, though, as Starbucks, like other international fast food giants, is also expanding in Europe, the Middle East, and Japan.
Starbucks is clearly especially bullish on China, though. Despite slowing growth, China is still growing faster than most other countries and Starbucks can capitalize on its growing middle class.
Unlike other American food sector giants, Starbucks can thrive as it is in China. The company appeals to a different, more upscale middle class market. The chain has long relied on its ability to adapt to evolving cultural backdrops and it’s been successful to this point.
For instance, Starbucks recently opened a new store in Seattle, adapting to the city’s wine tasting culture through a coffee “tasting” shop. This is the first pillar of Starbucks’ evolution, developing an upmarket “Starbucks Reserve Roastery” in Seattle and setting new standards for coffee gourmands in the city. This is the first of 100 such luxury stores to be opened worldwide; a second recently opened in London.
Starbucks can also be confident of its success in China, because it already has 2,000 establishments in the country—and not just in the main cities of Beijing or Shanghai, but in nearly 100 cities. (Source: “Starbucks to Add Thousands of Stores in China,” The Wall Street Journal, January 12, 2016.)
China is the fastest market in the world for the very items that symbolize prosperity, like cars. Indeed, by the time Starbucks opens its 2,500th store in its new five-year growth plan, China will become the market where the company will have invested the most, both financially and in terms of infrastructure.
Starbucks enjoyed its highest ever fourth-quarter earnings globally in 2015. Same-store sales growth in the China and Asia-Pacific region trailed the eight-percent global rise, but the slowdown in Chinese demand for coffee might have more to do with the slower growth of the Chinese middle class in response to lower gross domestic product (GDP) growth. (Source: Ibid.)
“We have confidence in the future of the Chinese economy, despite all the rhetoric, noise and issues… People are looking for reasons not to believe. I’m on the ground, and I see firsthand. I am bullish,” said Starbucks CEO Howard Schultz. (Source: “Starbucks CEO Schultz plans 500 new stores in China in each of next five years,” MarketWatch, January 12, 2016.)
But the American company doesn’t just want the Chinese people to discover its drinks—far from it. If the Chinese are traditionally tea drinkers, the annual increase in people converting to coffee will average 18% by 2020, according to projections by Euromonitor. But Starbucks is targeting China’s southern neighbors as well, including Cambodia, whose young population and fast-growing economy make it an ideal new market, especially for coffee. (Source: “Starbucks sets sights on Asian expansion,” WARC, January 14, 2016.)
The Bottom Line on SBUX Stock
Starbucks stock can rely on the company’s continued drive for growth and the development of new markets, strengthening its position at the international level. Starbucks’ strategy is bold, but it has already yielded rewards, considering where SBUX stock is currently trading. At this time, Starbucks Corporation’s future could be very bright.