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Starbucks sees China business one day overtaking US market

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Starbucks said it expects its fast-growing China business could one day eclipse its U.S. market.

The company said Wednesday it plans to open 12,000 additional stores globally in the next five years, taking the chain to a total of about 37,000 outlets. Half of the new units will be in the U.S. and China.

“Our core business has never been stronger in the U.S. and around the world… If Starbucks was a 20-chapter book, I still think we’re in chapter 4 or 5.” — Howard Schultz, Starbucks Chairman and CEO

“Demand is there, and our ability to deploy capital and get the return on invested capital is very strong,” said Starbucks President and COO Kevin Johnson. Johnson will become CEO of Starbucks in April, succeeding Schultz, who will continue as the Seattle-based company’s chairman.

Reserve Roastery and Tasting Room

Executives during presentations Wednesday highlighted how the company is focusing on both its flagship Starbucks stores and the higher-end Reserve Roastery and Tasting Room outlets for future growth. The company also has targeted the Reserve Roastery stores, which will sell premium coffee at around $10 a cup, to represent about one-fifth of total outlets by 2021.

SEE ALSO: Starbucks’ Roastery coming to Tokyo

Also, Starbucks plans to open new stand-alone outlets under Princi, a high-end Italian bakery the company invested in over the summer. The bakery will serve pizza and have locations in major markets such as New York, Seattle and Chicago by 2018. Moreover, Princi food is expected to be offered at all of the company’s new Roastery locations.

Starbucks presented a five-year strategic plan to grow earnings per share between 15 and 20 percent and targeted “mid-single digit” comparable-store sales growth. The company sees retail revenue growing during this period at an annual growth rate of 10 percent.

Schultz said the retailer continues to open 500 to 600 stores annually and the new store performance on a sequential basis has been “better than the year before. There’s no better evidence of the health, the strength, the equity of the brand and the relevance of the Starbucks business.”

China market

On the international front, Schultz said China is one market that remains particularly attractive for the retailer.

“Not only will China one day be bigger than the U.S., but our business in China will demonstrate that we will be one of the…most significant winners in terms of a Western consumer brand,” he said.

SEE ALSO: Starbucks China finally joins WeChat payments

Indeed, China remains the company’s fastest growing market and management sees revenue and operating income nearly tripling there over the next five years. The chain is opening a new Starbucks store in China about every 15 hours and will soon reach 2,500 stores in 118 cities.

Starbucks China CEO Belinda Wong said urbanisation and an emerging middle class in China will help drive the rapid expansion of the specialty coffee market. Management also sees a “huge potential” in China with Teavana, the company’s tea brand.

According to Wong, more than 230 million people in China have been lifted into the middle class in the past decade due to the Asian nation’s booming economy, and over the next six years she said another roughly 300 million people will also attain middle-class status.

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