The promise of a massive Chinese customer base hasn’t necessarily delivered huge numbers for every company doing business in Asia’s most populous country, but try telling that to Starbucks (SBUX).
Last month, the coffee retailing giant revealed that quarterly revenue in China and the Asia-Pacific region jumped 28% from a year ago to $214.1 million.1 That was easily the company’s best-performing region, as overall company revenue rose 11%.
And Starbucks is betting on even more growth: It plans to have more than 1,500 stores open in China by 2015 (double its current amount), and the company expects to more than double its employee headcount to 40,000 in the next five years, according to the Wall Street Journal.
Starbucks’ China strategy parallels what it’s also doing in the rest of the region. It entered India last fall with seven stores and just this month opened the first of hopefully hundreds of outlets in Vietnam.
As enviable as the company’s position is, with more than a quarter of the region’s coffee sales, we may also be witnessing a secular change that could benefit other players in the space. The Journal cited data from Euromonitor International that found consumer spending in Asia-Pacific coffee shops has jumped 66% in the past five years to $9.3 billion.
While tea has traditionally been more popular in countries like China and India, coffee consumption is clearly on the rise as Western companies flood in, said the Journal. That premise is the theory for the Caffeine Fix motif, a portfolio of coffee-related stocks. It’s up 6.8% in 2013, and has risen 11.8% in the past 12 months. The S&P 500 has also gained 6.8% year-to-date, and is up 13.9% in the past 12 months.
Of course, Asia is no panacea for Starbucks or other coffee retailers. Hand in hand with the boom are retrenchment and/or uncertainty in other parts of the globe. Starbucks’ revenue in Europe fell 1% in its latest quarter, and the company’s chief financial officer said the environment there and in the US is “still shaky.”2
1Kathy Chu, “Starbucks Bets On Asia-Pacific Growth,” WSJ.com, Feb. 18, 2013.
2Leslie Patton, “Starbucks Profit Meets Estimates on Americas Sales Gain,” Bloomberg.com, Jan. 25, 2013, http://www.bloomberg.com/news/2013-01-24/starbucks-profit-meets-estimates-as-european-sales-slide.html,” (accessed March 12, 2013).