Coffee Czar to Conquer New Frontiers

Saturation in the U.S. market led Starbucks (Nasdaq: SBUX  ) to trim its number of stores during a yearlong downsizing. The global recession also forced many of its customers to curb their spending and shift to less costly competitors like McDonald's (NYSE: MCD  ) and Caribou  (Nasdaq: CBOU  ) .

But Starbucks needn't worry. The company has created a niche for itself as a premium, high-quality coffee provider with a strong customer base. It dominates the segment and has no close rivals. Starbucks has 17,000 outlets all over the world, with almost 11,000 domestically, and now the company has decided to open 200 new stores and remodel 1,700 old ones at home, with sales from its U.S. business growing at a decent 8% clip. But perhaps even more importantly, Starbucks is planning to expand its reach in untapped foreign markets, catering to potentially lucrative niches in Asia and Europe.

Now what?
Starbucks has around 6,000 stores outside the United States -- having added 334 in the past three quarters -- and they're growing at a 5% rate. But these stores contribute only 20% to the company's total revenue, so there's ample room for growth here. Initially, Starbucks plans to focus on the growing Asian market before gradually moving its focus to the European continent, where places like France and Germany drink a lot of coffee but remain underserved. Germany, in fact, ranks second in the world in coffee consumption. Of course, the challenge for Starbucks will be to cater to the varying tastes and needs peculiar to each region, and its success will depend a lot on how well it adapts.

Foolish takeaway
With its huge success in the U.S., Starbucks is well poised to go all guns blazing into the rest of the world. Should the company get its finger on the pulse of the markets it enters, the opportunity will be immense.

Fool contributor Abantika Chatterjee owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (6)

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  • Report this Comment On October 22, 2011, at 11:44 PM, adcmelb wrote:

    Starbucks came blazing into Australia and feel flat on its face the local coffee scene is cheaper and far far better tasting

  • Report this Comment On October 23, 2011, at 1:55 PM, swagv wrote:

    Except Starbucks is being eroded from both ends -- the cheaper, mass-produced fast food shops and the artisan shops that are giving coffee customers are far superior product that isn't as push-button-automated at what Starbucks cranks out at over 10,000 outlets.

  • Report this Comment On October 24, 2011, at 2:20 AM, harpersmith wrote:

    McDonalds is and has been doing an excellent job expanding their "McCafe" upgrades across Germany and now have started the same in the USA.

    No more waiting in a Starbucks line for me !

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