Starbucks (Nasdaq: SBUX) continued its foray into international markets with word that it will increase its stake in a venture in China. It's not too surprising, considering the fact that Starbucks CEO Jim Donald recently told our own David Gardner that the company expects the Chinese market for Starbucks to be second only to that of the U.S.
According to the company's press announcement, Starbucks is increasing its stake in Coffee Concepts (Southern China) Ltd. to 51% from 5%. (Coffee Concepts is a joint venture between Maxim's Caterers subsidiary Mei-Xin and Starbucks.) Maxim's will snap up a 30% stake in the operations in the southwestern city Chengdu.
Terms of the deal weren't disclosed, although it's of utmost interest to investors, of course, just how much Starbucks paid for this strategic move. The deal is expected to close in 30 days.
It's obvious the intent is to bolster Starbucks' position in this country, where it already has 300 locations. And if you read the earnings release back in April, you knew that the buzz about Starbucks in China clearly signaled that there was plenty afoot in terms of the company increasing its presence.
The specter of "slowing growth" ("is it or isn't it?" many investors have asked over recent months, as the stock price has begun to strengthen again) has been haunting Starbucks shares recently, and international success is essential to Starbucks' long-term growth. And there's no argument that Starbucks succeeding in a country as populous as China would be a huge boon to its future growth prospects. Meanwhile, in the interview I mentioned earlier, Donald said, "China is ramping up very quickly on becoming a coffee culture."
However, that's not to say that there aren't other companies that are seeking to provide coffee in China. There are plenty of rivals trying to capitalize on the coffeehouse growth trends expected for the country, including a concept called McCafe from McDonald's (NYSE: MCD).
There is nothing unusual or surprising about today's news. For now, investors can see it as an inevitability given the recent caffeine buzz about China. Soon, we'll know more about the terms of the agreement, and look forward to watching carefully for signs of how the company's Asian foray is faring.
For more on Starbucks, take a look at the following Foolish writings and resources:
Alyce Lomax
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