Starbucks Corp. (NASDAQ: SBUX) shares trade near their 52-week low, off 12% from the same period last year. The coffee company faces a group of challenges that are relatively new.
One of the latest pieces of news out of Starbucks is that it will aggressively increase its footprint in China. This has been part of the fast-food industry’s game plan for years. In addition, Starbucks management says it will build 1,000 of its Reserve Cafes, upscale versions of its current locations. Starbucks announced:
“These stores are designed to have coffee craft be the center of conversation, where the coffee bars are interactive and customers can lean in and talk to our partners (employees) about how coffee is brewed on a siphon or made on a Black Eagle (manual espresso machine),” said David Daniels, managing director for Starbucks Design. “The theater of coffee is the first thing you see when you walk in the door and it says, ‘Come here, sit down, learn more.’”
Tailored for customers in each unique market, Starbucks plans to open up to 1,000 Starbucks stores with a Reserve coffee bar experience by the end of 2017. Twelve exist today, located in New York, Chicago, Atlanta, Baltimore and Boston.
An argument can be made that Starbucks’ 24,000 retail stores around the world may head the company toward a market saturation level. The new 1,000 stores and efforts in China would say management thinks otherwise.
However, managements of other fast-food companies have looked to China and the addition of stores worldwide before. McDonald’s Corp. (NYSE: MCD), most analysts would say, has trouble adding aggressively to its store count worldwide, although it still sees China as a growth market. Yum! Brands Inc. (NYSE: YUM) has learned about China the hard way. Sales of its primary brand, KFC, have slowed in China, just as it prepares to spin off its business there.
The risks as Starbucks expands are considerable, and its shares trade to reflect that. They closed most recently at $53.15, within a 52-week range of $52.59 to $64.00.
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