Sunday, November 14, 2010

Economic Recovery is in the Beans

My wife introduced me to coffee shops when we met 10 years ago. I never had a $5 cup of coffee before.

In Fort Wayne, we saw plenty of locally owned and operated shops open and close since 2000. We still have a few mom & pops, but Starbucks arrived and they were a game changer.

At one point, we had a full size Starbucks in a parking lot outside of a Meijer SuperStore where inside they had a Mini-Starbucks!

Both of those stores survived the downsizing that Starbucks went thru a couple years ago, but some in outlying towns were shuttered.

I've come to believe that Starbucks is a good company to watch to predict the state of the economy. Because of their size worldwide, they have research in every market they are in or planning to expand to.

Also because they are an experience and not just a food product, they are less flexable with their prices than, say, McDonalds (one of my clients). McDonalds tries to be more than food, but if they doubled their prices, Ronald McDonald would be homeless.

Check out this story on Starbucks future plans:

Starbucks to Double Store Openings on Economic Recovery

Starbucks Corp., the world’s biggest coffee chain, plans to more than double the rate at which it opens stores to an average of more than one a day as the global economy recovers.

“Our ability to navigate through the financial crisis and come out much stronger gives us reason to start growing the company again,” Chief Executive Officer Howard Schultz said in an interview in China’s Yunnan province today. He plans to open 500 stores in the fiscal year that began in October, with 400 outside the U.S., he said.

China, which offers the best opportunities for investment over the next year according to a Bloomberg survey, will be Starbucks’ biggest growth market in two years, Schultz said. Jinlong Wang, the restaurant operator’s China chief, said outlets in the world’s most populous nation will exceed 1,000 in the “near future.”

Coffee chain operators are expanding in the world’s fastest-growing major economy, as increasingly affluent consumers buy more beverages in coffee shops. Starbucks seeks to boost coffee consumption in China, which is at an annual 22 grams per person, compared with an estimated 3.3 kilograms in Japan, according to data from roaster Key Coffee Inc.

Still, Schultz said “one needs to continue to be mindful of the fragile nature of the global economy.”

Opportunity ‘Underestimated’

While 39 percent of 1,030 investors in the latest Bloomberg Global Poll said they were “seeing opportunity and taking more risks,” 35 percent said they were “still hunkering down.”

China topped the list of markets that offered investors the best opportunities over the next year, followed by Brazil, India and the U.S., according to the survey.

“I think the opportunity that we have in China -- we’ve underestimated it in terms of the number of stores and the reach that Starbucks is going to have,” Schultz said.

The restaurant chain’s planned store-opening rate will be the highest since the 2008 fiscal year, when it opened 1,669 stores, according to its website. The Seattle-based company closed 45 stores in fiscal year 2009 and opened 223 in fiscal year 2010, which ended Oct. 3.

Schultz didn’t specify how many stores he planned to open in China over the next 12 months.

He faces increased competition. Gourmet Master Co., operator of Taiwan’s largest coffee-shop chain, plans to increase its China outlets more than sixfold to 1,000 by 2015. China Resources Enterprise Ltd., which in June said it will acquire control over Hong Kong’s second-biggest coffee chain, last month said it plans to open as many as 1,000 Pacific Coffee shops in the country.

Market Share

Sales at China’s coffee shops more than tripled to 35 million yuan in 2009 from 11 million yuan in 2004, according to data from Euromonitor International. Starbucks dominated the market with a 69.8 percent share last year, compared with No. 2 player Jiangsu Yueda Group Co. Ltd. which operates Costa Coffee restaurants with 5 percent share, according to the researcher.

The number of specialist coffee shops in the country rose to 613 last year from 220 in 2004. Starbucks outlets comprised 59 percent of the total, while Jiangsu Yueda controlled 6 percent by the end of 2009, according to Euromonitor.

Middle-income and affluent consumers in China will probably almost triple in 10 years, Boston Consulting Group Inc. said Nov. 8. China’s economic prospects remain “sound,” the World Bank said this month. The Washington-based lender increased its estimate for the nation’s growth this year to 10 percent from a June forecast of 9.5 percent.

Schultz was in Yunnan to announce Starbucks’ plans to set up a farm and processing facilities in Pu’er county, where the namesake tea is grown. He said in April he plans to have “thousands” of stores in China.

Starbucks has about 800 stores in the Greater China region. About half are in mainland China, which doesn’t include Hong Kong, Macau and Taiwan. The restaurant chain’s first mainland China store opened in Beijing in 1999.

To contact the Bloomberg News staff on this story: Michael Wei in Beijing at

To contact the editor responsible for this story: Frank Longid at

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1 comment:

Parag said...

The crisis leaves a legacy of high unemployment, which risks becoming long-lasting. Again, structural reforms, such as the reduction of excessively high taxes on labour, are needed to address this problem.
World economic recovery