Thu, May 17, 2018 - Page 10 News List

Starbucks unveils ambitious plan for growth in China

SWISS FUNDING:A US$7.2 billion deal with Nestle has given the US coffee giant the cash to accelerate expansion in China, which is to become its biggest market

Bloomberg

A man walks past an advertisement for a new Starbucks Corp store in Wuhan, China, on Oct. 29, 2013.

Photo: Reuters

Starbucks Corp has unveiled a bold plan to more than triple revenue in China over the next five years, CEO Kevin Johnson said in an interview in Shanghai on Tuesday.

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 in China 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 came as 120 US companies and business groups line up to oppose a plan by the administration of US President Donald Trump to slap tariffs on US$50 billion of 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$7.2 billion 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 percent of Starbucks’ revenue came from the Chinese and Asia-Pacific markets — about US$3.2 billion — in fiscal 2017, company data compiled by Bloomberg showed.

It has 3,300 outlets in China, compared with about 12,000 in the US, including licensed stores.

The push in the Chinese 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 are also 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.

While same-store sales in the US have been weaker than expected, strong performance in new stores means the firm is still on track “to deliver US growth within the targeted range that we’ve given of high single-digits,” Johnson said.

The coffee giant is also to announce in a few months a new program for mobile ordering and delivery in China, Starbucks China CEO Belinda Wong (王靜瑛) said.

Currently, 60 percent of transactions in its China stores are through mobile payments.

The growth is helping the coffee chain create 10,000 jobs per year in China, where the company is keen to set itself apart by offering generous employee benefits, including health insurance for the parents of employees in a country where children often care for aging family members.

“We have built a business here in China over 20 years,” Johnson said. “We have built that business in China, for China.”

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