Starbucks Will Expand Their Business in China

The world's largest coffee shop franchise, Starbucks Corp., will increase their investments in China within three years. They will boost business in the downstream sector by increasing the outlet three times than current amount.

According to Director of Starbucks China and the Asia-Pacific, John Culver, it will build more than 1,500 stores in 70 cities in China in 2015. Starbucks currently has 500 stores located in 48 cities. "We will explore small towns that have potential high growth," he said in an interview with Bloomberg, Monday, April 2, 2012.

The expansion of sales network, according to Culver, taken to encourage Starbucks development outside the United States. The shops were also designed to catch China's high demand opportunities for coffee.

Euromonitor International data shows, the demand for coffee in China will jump 55 percent, from 2.9 billion yuan (U.S. $ 460.9 million) last year to 4.5 billion yuan(U.S. $ 714 million) in 2015. "This growth will occur not only in big cities, but also to the second tier cities and beyond," he said.

For Starbucks, China provides largest contribution to their income. In the first quarter of this year, the income of the branch in China and the Asia-Pacific region reached U.S. $ 166.9 million or 34.6 percent achieved total sales of the recorded enterprises. This figure beat even a branch in the U.S. contribution could be accounted for 21.8 percent of total revenue from Starbucks. "China offers the highest financial return," said Culver.

Euromonitor also said Starbucks dominated coffee outlets market in China with a market share of 66.3 percent in 2010. They compete with Whitbread Plc, which has a network of Costa Coffee outlets, and McDonald's Corp. Whitbread with market share 8.9 percent, while McDonald's has 8 percent.

To sustain their business, Starbucks will build a series of infrastructure. Culver said it has signed an agreement to form a joint-venture with China coffee producers, Ai Ni Group. The company will be providing supplies arabica coffee from Yunnan region as well as export to the world.