Starbucks Betting on China for the Future

Starbucks on Thursday announced new plans to dramatically increase its presence across Asia, while at the same time cutting back retail presence throughout the U.S., closing 379 Teavana stores that were consistently underperforming.

Instead of having a goal of driving more sales in its backyard, the coffeehouse company will be focusing on its international expansion and in particular China, where it now is opening on average more than one store per day.

Starbucks officials during a conference call for earnings said that the company is planning to buy out the 50% of its partners in China for $1.3 billion bringing an end to its joint venture that was established during the early 2000s.

Unifying the business under one full structure that is company operated in China reinforces the company’s commitment to the Chinese market is a strong demonstration of the confidence the company has in local leadership team in the goal to move from the current count of stores of 2,800 to over 5,000 by 2021, said CEO Kevin Johnson.

The deal will be done by 2018 and all the Starbucks throughout China will be owned as well as operated wholly by the company.

The company will also divest its stake of 50% in its over 400 outlets in Taiwan granting its joint venture partners complete ownership of the stores, similar to its Macau and Hong Kong operations.

Coffee culture has exploded across China and Starbucks clearly expects the trend to keep growing. In a nation with the largest market in the world for tea, consumer behaviors shift slowly.

An industry magazine said that Starbucks already holds over 60% of the Chinese café market, and had pushed to integrate its brand throughout the local market, by incorporating architecture that is eastern-style, red bean scones and green tea frappccinos.

In 2016, 2% of the coffee sales worldwide were from China, but coffee consumption there nearly tripled from 2012 to 2016 and the number is expected to continue growing.

Given the market’s potential size, consumers in China could help to revolutionize the coffee industry.

Starbucks CEO called the growth opportunities in China unparalleled for Starbucks and the purchase of the rest of 50% of its East China JV is a big milestone, reflecting the commitment over the long term for the company in China.

Financial markets reacted to the announcements with trepidation with Starbucks shares falling 6% after the report. Part of that was due to U.S. retail stores for Starbucks failing to meet targets for earnings.