Starbucks (Nasdaq: SBUX ) has conquered North America and seen success in England, Asia, and elsewhere, but it has not yet placed a cornerstone in several premiere "cafe countries," including Italy and France. That's about to change.
By early 2004, Starbucks will start to open stores in France, placing initial roots in the upscale Opera section of Paris. Some view the move as bold, others as misguided, still others as brilliant. We call it logical.
Paris, city of 2,000 cafes, can certainly stand a few more, especially ones that are different from all those already in operation. Parisians are famous for sidewalk cafe lounging, but Starbucks is apt to find a large market serving urban professionals on the go, all those who are looking for much less than hour-long sips of latte in a wicker chair. Plus, for those longing to lounge, Starbucks will offer the option.
Some analysts decry the whole notion as foolhardy, arguing that Parisians' high-cafe society and distaste for America will sour Starbucks' success, but McDonald's (NYSE: MCD ) continues to host long lines at its many Paris locations, and, although not scientific, recent surveys demonstrate that most of the French continue to like America and Americans; they simply dislike American leadership. Either way, such feelings are fickle and Starbucks is here to stay.
The chain made its debut in Spain in 2002, another tough country where it's seeing success, and management projects that Starbucks' 1,600 international stores as a whole will turn profitable in 2004. It operates 5,400 locations in North America, but longer term, international stores are likely to account for a majority of locations.
In France, Starbucks is partnering with Grupo Vips, a European food service and retail operator. On the Nasdaq, Starbucks has been buzzing to new highs. It remains a strong growth story and will likely be so for years, while it's also increasing same-store sales by double digits this year (a feat hard to maintain). At $30, the stock has a forward P/E estimate of 35, a premium of nearly twice its earnings growth rate.