China’s ‘nascent and growing coffee culture’ is a massive opportunity for Starbucks

Starbucks has been ambitious about its expansion plans in China.

The company says it will double its number of stores in the country by 2021. And the enthusiasm was palpable when Starbucks CEO Howard Schultz spoke to Business Insider
last year.

“I am quite convinced that, over time, China will be larger than the US and larger than any market we have in the world,” Schultz said.

According to a recent report by UBS analysts Dennis Geiger and Lauren Silberman, the coffee giant may well be right to bet big on China.

They begin their thesis with an estimate of Starbucks’ growth opportunity in China. “At just 2,543 units in China at the end of F1Q17, we expect Starbucks will likely double its current footprint over the next five years, including at least 500 net new stores per year,” the report said.

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The bullish view is based on the huge market for coffee in China where coffee consumption has tripled in the last few years, which Starbucks hopes to exploit. “Our surveys highlight a nascent and growing coffee culture, with consumers indicating increased purchase intent across all channels and affinity for the Starbucks brand,” the report noted.

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More importantly, they stated, Starbucks is already well-positioned in China compared to competitors. “Our survey indicated SBUX maintains the strongest loyalty base vs. the comp set, with nearly 50% of consumers indicating they would find another Starbucks if their usual store was closed, compared to ~30-35% for competitors.”

Given their estimates, the analysts concluded that Starbucks’ ambitious store expansion and other targets may well be achievable. “Targets to double stores to >5K units, and increase revenue and op income 3x in China over the next five years appear achievable,” they wrote.

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