New Expansion Big for Starbucks Stock
Starbucks Corporation (NASDAQ:SBUX) has overcome its resistance level of $59.00. Starbucks stock is edging closer to its all-time high price of $62.61, a record set in October 2015. SBUX stock has already been trading at record-highs, climbing steadily from about $40.00 per share to $60.00 per share in just 12 months.
Conservative analyst opinions have SBUX stock reaching about $67.00 within the next year. The more bullish pundits see Starbucks going to $77.00 this year. As for the most bearish price target, it no longer counts. It was $56.00 and SBUX is already well past that level. (Source: “Starbucks Corporation (NASDAQ:SBUX) Price Target & Recommendation,” Uptick Analyst, March 16, 2016.)
Starbucks understands it needs to drive its presence in international markets after reaching saturation in North America. More than half of the company’s new store openings came from the China/Asia Pacific region, showing that the company is definitely gaining overseas market share. (Source: “Starbucks Delivers Record Q1 Revenues and EPS,” Starbucks Corporation Investor Relations, January 21, 2016.)
The reason Starbucks can grow internationally is that coffee is just one of the products it sells. In fact, it’s not even the main product. Therein lies the strength of Starbucks stock. Like McDonald’s before it, Starbucks is resilient to varying tastes, always leaving room for adjustment to local preferences and habits. What is permanent is the atmosphere.
As Wired explains, Starbucks “doesn’t simply offer its customers buckets of coffee, but also a kind of neutral, inoffensive space that’s familiar enough to be comforting, yet blank and generic enough to lend itself to whatever meaning people want to project on it.” (Source: “Why Starbucks Will Win Over Italy: It Doesn’t Really Sell Coffee,” Wired, March 4, 2016.)
After embarking on the ambitious plan to open in Italy, Starbucks is also breaking ground in Africa. If that seems odd, the major news outlets have done a poor job of explaining that there is an emerging African middle class. It is growing quickly in such countries as Kenya, Nigeria, and Ethiopia, the very places where the first coffee beans originated—not to mention South Africa and Namibia.
The new African consumers can offer a vastly underutilized new market for multinational consumer goods. Starbucks can tap into this demand.
Starbucks will open its first cafe in April Saharan Africa in Johannesburg through a partnership with local South African distributor Taste Holdings. Two cafes are scheduled to open in late April of this year. The cafes will be located in shopping malls in upscale neighborhoods of the South African business capital. (Source: “Taste brews big goals,” IOL, March 6, 2016.)
Having learned from its international forays, Starbucks will enhance its chances of success in Africa by using local products. This is good for Starbucks stock, because the strategy has a much better chance of setting the roots for expansion throughout the continent, reaching a population of more than a billion people.
This could double by 2050. The working age population is the fastest-growing segment and this means that personal consumption and demand will soar. Meanwhile, African consumers are becoming ever more aspirational and brand-conscious, which is said to be a result of increased Internet access and travel. (Source: “African Retail Business Prospects remain Positive,” BizNis Africa, March 15, 2016.)
Starbucks will offer coffees from Africa for its espresso and other varieties from around the world for other products. Starbucks has some local competition. However, that’s a good thing because the popularity of such long-established South African chains as Seattle Coffee Company and Mugg Bean have built the market and created the demand.
Founded in 1971, Starbucks has more than 22,000 cafes around the world but its presence on the African continent has been limited to 27 stores in Egypt and seven in Morocco. (Source: “Starbucks Will Open Its First Shop in South Africa Next Month,” Fortune, March 3, 2016.)
Starbucks has already established a major presence in Europe. Yet, the competition with local establishments and beverage/food habits has limited its success in the old continent. Starbucks first entered Europe in 1998, via the U.K.
North America remains Starbucks’ fortress with about 90% of its total number of cafes. Still, Starbucks now has some 2,400 stores in Europe, the Middle East, and Africa. These account for 10% of its total turnover. The fact that international expansion has only just started to accelerate leaves considerable upside for Starbucks stock, meaning SBUX stock could set new record-highs in 2016.