September 8, 2011
Starbucks (Nasdaq: SBUX ) is reiterating its dedication to Asian expansion, talking up plans to triple its number of Chinese locations by 2015.
Right now, the coffee giant only has 470 coffee shops in populous China. Within four years, that number is expected to surge to 1,500. South Korea's also on Starbucks' Asian itinerary; Starbucks plans to expand from 370 cafes to 700 cafes in that country by 2016. The moves follow Starbucks' reorganization in July to sharpen its focus on international expansion and better address specific geographic regions like Asia.
It's more obvious than ever that China should be a highly coveted market for companies like Starbucks. Forbes recently cited the UN Population Division and Goldman Sachs, revealing the mind-blowing prediction that within just one generation, China's middle class will have grown to four times the size of the United States'. That translates to about 1.4 billion consumers by 2030, compared to 365 million here in America. The prospect that more than 1 billion people might get hooked on Starbucks' coffee represents a massive opportunity for the java giant.
U.S. companies like Yum! Brands (NYSE: YUM ) and McDonald's (NYSE: MCD ) have shrewdly targeted China in their own expansion efforts. Starbucks' more aggressive expansion helps it offset any coming U.S. weakness, and gives the company an additional edge over coffee rivals like Green Mountain Coffee Roasters (Nasdaq: GMCR ) , which so far relies solely on consumers in North America.
Starbucks is trading at 22 times forward earnings, which probably doesn't sound particularly "cheap" to many investors. It's still quite a bargain compared to the aforementioned Green Mountain, which trades at a shocking 41 times forward earnings. And don't let Starbucks' forward multiple scare you: The coffee chain's increasingly aggressive expansion plans for lucrative markets indicate plenty of caffeinated growth still to come.