Starbucks (SBUX 0.53%) rang in the New Year with tremendous momentum after near-perfect execution in 2015. The stock finished the year up as much as 48%, compared to a 0.07% decline in the S&P 500. However, 2016 has brought fresh turmoil to the markets as volatile oil prices and worries about the health of China's economy have already erased $1.5 trillion in net wealth so far this year.
As a result, investors want to know whether a high-flying growth stock such as Starbucks can continue to thrive in a declining market. For those of you considering selling shares of Starbucks, here are three predictions for the stock in 2016 that might change your mind.
The Chinese market will set Starbucks apart from competitors
Unlike most U.S. companies tr-ying to survive in China, Starbucks is not only getting by in the Asian market but also thriving there. The specialty coffee retailer spent the past decade building a special relationship with the Chinese market, and those efforts are finally starting to pay off. Management says it is now on track to operate 3,400 stores in China by 2019.
The coffee giant achieved this success during a time when many multinationals were pulling out of China. Consumer electronics giant Best Buy (BBY 0.20%), for example, pulled the plug on its Chinese operations in 2014 after struggling with slumping sales for eight years in the Asian market.
Rooted in local tastes and Chinese culture, Starbucks has expanded from just 200 locations across Mainland China in 2005 to around 2,000 stores throughout 100 cities there today. The company achieved the impossible by convincing a mostly tea-consuming market that drinking coffee has its perks. Nonetheless, it is still in its early days in terms of China's coffee consumption compared to Starbucks largest market, the U.S.
China, for example, currently consumes around 4.5 billion cups of coffee per year, which is child's play compared to North America's consumption rate of 134 billion cups per year, according to Euromonitor. This gives Starbucks a head start in a massive market that has only recently begun to crave the taste of coffee.
Starbucks plans to add 500 locations annually in China over the next five years, thereby achieving a growth rate of 125% in the region. Chinese consumers and Starbucks' employees there respect the coffee retailer. Therefore, Starbucks' strides in the most populous region on the planet should fuel revenue growth for the company in the year ahead.
India will also become a growth driver
The year ahead will be all about international expansion. Coffee might be Starbucks' core product, but it is only one category of the company's money-making portfolio of winning brands. Teavana is also fueling profits for the Seattle-based coffee retailer. Starbucks will bring its Teavana-branded teas to India this year. However, investors shouldn't bank on overnight success as it will take time for Starbucks to prove it has staying power in the Indian market.
Starbucks already has a partnership with India-based Tata Global Beverages, which it launched in 2012. However, it now plans to open stand-alone Teavana stores to capitalize on the lucrative tea culture in the region. Tea represents more than a $100 billion opportunity for Starbucks in India, therefore entering the market in 2016 with stand-alone Teavana stores is a no-brainer for the java giant.
This will be a two-stage rollout, with Starbucks first bringing its Teavana products to the company's 79 Starbucks locations in India, followed by the buildout of separate Teavana stores later in the year.
Making his own predictions for the rollout, CEO Howard Schultz said, "Starbucks will have a major business in India and the number of stores here will rival many of the large markets we have around the world." Bottom line: China will remain Starbucks' fastest-growing in 2016, though India will be close behind.
Growth in mobile transactions will set new records
Starbucks' mobile ambitions will continue to set the bar for U.S. retail chains in the year ahead. The specialty coffee retailer launched its Mobile Order & Pay platform in 2014 and expanded it nationwide last year to great fanfare. The service, which enables customers to order and pay in advance of pick-up from their mobile devices, is now available in more than 7,400 Starbucks stores across the United States.
In 2016, the ongoing success of Starbucks' digital and mobile platforms combined with the international rollout of the technology should help increase in-store transactions and boost margins for the company. Mobile payments, after all, are more profitable for Starbucks versus traditional credit card transactions due to lower processing fees.
Mobile transactions accounted for nearly 21% of total Starbucks sales during the fourth quarter. Moreover, investors should only see this percentage grow as the company continues to aggressively expand its Mobile Order & Pay initiative in the quarters ahead. Starbucks is already in the process of expanding the service to 150 London locations as well as 300 stores throughout Canada.
A promising year ahead
Starbucks has weathered some devastating storms in its 44-year history. Make no mistake, this company knows how to roll with the punches and end up on top. 2016 shouldn't be any different. Despite turmoil in the stock market and uncertainty overseas, Starbucks should accomplish another year of solid growth both for the company and its shareholders.
