After announcing big plans to expand internationally in China
and Latin America, Starbucks Corporation (
SBUX
) is now eying the Nordic countries of Norway and
Sweden. Starbucks has signed a deal with Norway's Umoe
Restaurant Group to beef up its presence in the region. Not
only do these two countries have one of the highest per capita
coffee consumption in the world but their economies are much
healthier than the rest of Europe. Moreover, their GDP per capita
is comparable to that of the U.S.
See full analysis for Starbucks Corporation
However, labor costs might be a detriment as they are higher
than those in the U.S. and Western Europe. On the brighter
side, consumers there are used to paying higher prices for coffee,
usually in the range of $5-$6 and can go as high as $10 for a
latte. This is something which might work in favor of
Starbucks since its prices are generally on the higher side
compared to traditional coffee shops. Currently, the EMEA (Europe,
Middle East and Africa) region contributes less than 10% to the
company's $12 billion annual revenues and accounts for less than
1,800 of its 17,000 stores worldwide, so there is plenty of scope
to expand.
Developments in the U.S.
In the U.S., Starbucks is expanding its food offerings by
testing a new range of croissants, muffins and loaf cakes. The move
is a natural extension of Starbucks' acquisition of
La Boulange
, a San Francisco-based bakery chain, for $100 million earlier in
the year. Food now contributes more than $1.5 billion to
Starbucks' total revenues and is becoming an increasingly important
revenue stream. Right now, the items are being tested in the Bay
area but the company has plans to roll out the menu items
nation-wide eventually. Starbucks will also allow users to pay
through their mobile phones beginning November through a technology
developed by Square. Starbucks formed a $25 million strategic
agreement with Square in August.
These developments highlight how fundamentally different
Starbucks' approach is domestically and internationally. In the
U.S., where the coffee chain has a significant presence, expansion
opportunities are limited and the focus is on generating higher
sales per store. Internationally, it is all about leveraging the
strong brand name to grab a foothold of the coffee market and
expand the menu gradually. The word Starbucks has become
synonymous with coffee today and the company wants to use its brand
to open new stores and position itself as an upmarket coffee
destination.
We
have a $54 price estimate for Starbucks
, which is about 10% higher than the current market price.
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