Starbucks Is Looking Very Bullish

The world's largest coffee purveyor, Starbucks (Nasdaq: SBUX  ) , is pursuing growth in many avenues. Last month it entered into a strategic partnership with the maker of Keurig brewers, Green Mountain Coffee Roasters (Nasdaq: GMCR  ) , to help deliver daily caffeine fixes to the fast-growing single-serve coffee market. Now, looking at the early success and popularity of Starbucks VIA instant coffee, the coffee companies have decided to expand VIA abroad.

Early this month, Starbucks launched the VIA ready brew in its Chinese stores. VIA's success in China will give Starbucks the impetus to go ahead and increase distribution across the globe, and that is exactly what it is planning to do. It has also announced its intentions to continue international expansion, earmarking Brazil as a focus this year. Investors should take note.

Starbucks switchover
Starbucks is in the middle of a transition at the moment. It recently ended its licensing agreements with Kraft Foods (NYSE: KFT  ) , wherein Kraft distributed Starbucks products. For some time, it was rumoured that Starbucks would acquire rival coffee provider Peet's (Nasdaq: PEET  ) to expand its retail presence, but these plans seem to have been shelved for the time being, anyway. After a few years of less-than-inspired performances, it seems Starbucks has a renewed strategy and a focus and is not messing around. It's good to see.

Furthermore, the initial success of VIA comes as a positive sign that it's gaining traction. So Starbucks can continue to expand and innovate with a certain level of confidence.

Starbucks in China
Starbucks currently has locations in 35 cities in China, and CEO Howard Schultz said the company plans to double this number soon, according to a Bloomberg report. And yet with even this relatively tiny share of the Chinese market, Starbucks is at the forefront of the domestic market, having a staggering market share of 73.5% (in 2009), according to Euromonitor International.

The success of VIA in those Chinese stores exceeded expectations, and the company plans to introduce more instant beverage and food products in the next year and a half. If you combine this early traction with the fact that Starbucks is planning to open nearly 1,500 stores in China in the next four years -- more than tripling the number of stores there -- you can see the strong semblance of a bull case for this stock. Estimates project Chinese consumption of Arabica at 15% per year, making it a major player in the years to come, at least when it comes to coffee.

Closer to home
The company is also planning to expand its coffee line back in the U.S., where it sees a potential $377 million market for flavored coffee. You can just add that to your growing bull thesis.

Along with expanding its instant coffee business, Starbucks has also started a mobile payment plan in about 6,800 Starbucks stores and close to 1,000 Starbucks' at Target (NYSE: TGT  ) owned stores. Through this payment plan, Apple iPod touch and iPhone users and select Research In Motion BlackBerry users can make purchases at the stores through their smartphones. All users would have to do is to download the Starbucks app from the stores in order to use this service.

The Foolish bottom line
Starbucks looks all set to expand its business lines and boost its share in the emerging Chinese market. And not to mention Brazil, which is the second largest coffee-consuming country in the world. These proposed expansion plans bode well for the company's future, and it looks set to regain lost ground after a few disappointing performances. Things look good ahead for the Seattle-based coffee maker.

Shubh Datta doesn't own any shares of the companies mentioned above. Peet's is a Motley Fool Big Short short-sale recommendation. Green Mountain is a Motley Fool Rule Breakers recommendation. Apple and Starbucks are Motley Fool Stock Advisor picks. Alpha Newsletter Account, LLC has opened a short position on Green Mountain. Motley Fool Options has recommended a bull call spread position on Apple. Motley Fool Options has recommended a lurking gator position on Green Mountain. The Fool owns shares of Apple and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.


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  • Report this Comment On April 30, 2011, at 11:57 AM, wayfarer37 wrote:

    I love starbucks. but they were already here once 4 years ago. they were expanding and expanding and then shut it all off, right at the edge of inside destruction. they closed hundreds of stores. do we think they could do it this time around? if they don't, someone else will get that brazil market. I have already seen it, they are copying the starbucks logo with a couple of modifications.

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