Starbucks serves up bigger plans for China

Starbucks' Reserve Roastery store in Shanghai. The coffee giant plans to have 6,000 stores on the mainland by 2022, compared with a previous target of 5,000 by 2021.
Starbucks' Reserve Roastery store in Shanghai. The coffee giant plans to have 6,000 stores on the mainland by 2022, compared with a previous target of 5,000 by 2021.PHOTO: BLOOMBERG

It aims to open a new store every 15 hours until 2022, with cash from Nestle deal

SHANGHAI • Starbucks unveiled a bold plan to more than triple revenue in China over the next five years, at a time when other American corporates worry that simmering trade tensions may disrupt their businesses in the world's second-largest economy.

Starbucks plans to weather trade tensions by focusing on its Chinese employees and customer base, chief executive officer 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 until the end of 2022.

It plans to have 6,000 stores on the mainland then, compared with a previous target of 5,000 by 2021.

"China has a long runway of opportunity for Starbucks," Mr Johnson said as the chain kicked off a two-day investor conference in Shanghai, the first to be held outside the United States.

"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 comes as 120 US companies and business groups line up to oppose the Trump administration's plan to slap tariffs on US$50 billion (S$67 billion) in Chinese imports.

A hearing on the levies - where companies including Best Buy and General Electric, as well as lobby groups like 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 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 per cent of Starbucks' revenue came from its China and Asia-Pacific markets - about US$3.2 billion - in fiscal 2017.

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

Yum China Holdings, which separated from Yum! Brands in 2016, said it had 8,112 stores including KFC and Pizza Hut at the end of March.

The push in the China market comes as its US stores face fierce competition from up-and-coming regional coffee houses and steep discounting from fast-food rivals.

Nestle's relationships with distributors, giving it access to 1.5 million outlets in China, "dramatically accelerates our ability to bring those coffees to market", said Mr Johnson.

The 8.1 billion yuan (S$ 1.7 billion) ready-to-drink coffee market in China is currently dominated by Nestle with 71 per cent market share, according to data from Euromonitor International.

Starbucks has 3.1 per cent.

The coffee giant will also announce in a few months a new programme for mobile ordering and delivery in China, said Starbucks China CEO Belinda Wong.

Now, 60 per cent of transactions in its China stores are through mobile payment.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 17, 2018, with the headline 'Starbucks serves up bigger plans for China'. Print Edition | Subscribe