Starbucks turning to China for growth

Putting cost cutting in the rear-view mirror, Starbucks hopes to open thousands of stores in China over time.

By Jamie Dlugosch Apr 13, 2010 3:49PM

They say a tiger cannot change its stripes.

 

In the case of Starbucks (SBUX), it was only a matter of time before Chief Executive Howard Schultz would lose patience with the slower-growth, cost-cutting strategy that the company embarked upon in response to the global recession.

Starbucks is set to turn up the heat on the competition with a bold goal of opening thousands of stores in China.

 

 

I thought Starbucks ran into trouble by carpet-bombing markets with stores on every street corner. Apparently the company did not learn its lesson.

 

Or did it?

 

Starbucks is what it is today because of bold leadership. There is no question that aggressive growth allowed the company to far outpace the competition. Starbucks operates close to 10,000 units.

 

The next-closest competitor is not even close to that number.

 

The saturation strategy entails securing prime real estate in advance of your competition. By establishing a foothold in neighborhoods across the country, the company grew to become a household name.

 

No matter that during the recession the company was forced to step back and trim underperforming locations. Such cutting was most likely part of the strategy to begin with.

 

It is far easier to abandon locations once your lead in the industry has long been established.

 

So with the cost-cutting phase complete, the company can turn its attention back to its roots. China, for all the obvious reasons, is an attractive candidate for expansion.

 

Since opening its first store in Beijing in 1999, Starbucks has only opened 376 units. Compare this to the 878 stores in the less-populated Japan market.

 

Interestingly, Schultz, perhaps aware of the risks of overexpansion, stated that the goal for China of thousands of stores would happen over time, requiring discipline and thoughtfulness.

 

The move abroad after a period of consolidation in America makes sense for Starbucks, but the company would be wise to keep true to its past.

 

Go to the market and dominate. In that way the thousands of stores will come sooner and prevent others from benefiting from your efforts.

 

Shareholders will cheer your success.

 

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