Determined to expand in the fast growing Chinese markets,
Starbucks Corp.
(
SBUX
) has planned to triple its store count in that region. Starbucks
believes that China will become its second-largest market by
2014.
Starbucks, which had opened its first Chinese store in 1999,
currently runs more than 570 outlets across 48 Chinese cities. In
fiscal 2011 alone, the company opened approximately one store every
four days on an average, and opened stores in 13 new cities. Now,
the company is confident to take the store count beyond 1,500 in
China by 2015.
The retail giants are getting attracted to the emerging markets
of China and India among others, owing to the challenging
macro-economic conditions and the saturated markets of developed
nations like US and Europe. The economic outlook of these fast
growing nations is at present much better than the developed
markets due to the improving standard of living of the middle
class.
Separately, Starbucks is also looking to revive the company's
sluggish business growth in Europe by enhancing its presence in the
continent. As part of this strategy, the company will increase its
number of stores operating in the UK from 760 to 1,060 over the
next five years. Earlier, the company's business had suffered in
the European region, as management's focus to bring US business on
track caused them to neglect this region. However, the growth in
Europe has now become a much bigger priority for the coffee
chain.
Our recommendation
We currently have a Neutral recommendation on Starbucks. The
stock looks more appealing for the near term with a Zacks #2 Rank,
translating into a 'Buy' rating.
Continuous product innovation and expansion into new geographic
territories have always helped the company to maintain decent
earnings growth. However, intense competition from peers like
Dunkin Brands
(
DNKN
),
McDonald's
(
MCD
), and
Green Mountain Coffee Roasters, Inc
(
GMCR
) coupled with high coffee prices on account of bad weather
conditions and an abnormal increase in farming costs induce us to
maintain a sideline view on the stock.
DUNKIN BRANDS (
DNKN
): Free Stock Analysis Report
GREEN MTN COFFE (
GMCR
): Free Stock Analysis Report
MCDONALDS CORP (
MCD
): Free Stock Analysis Report
STARBUCKS CORP (
SBUX
): Free Stock Analysis Report
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