Starbucks Bets Big On China: Time To Buy?

Coffee drinkers in China rejoice: Starbucks Corp. (SBUX) has big plans for the world’s most populous company. Over the next five years, Starbucks plans to open 500 new locations in China each year. This will bring the total store count to 3,400.

While Starbucks has operated in China for 17 years, its aggressive expansion plans began somewhat recently. Since 2012, the company has nearly tripled its store count. Back in March, Starbucks teamed up with Tingyi Holding Corp. to capture more of China’s $6 billion ready-to-drink coffee market. That represents a lot of Frappuccinos.

And there’s plenty of room left for growth. With a population of over 1.35 billion, China has 675,000 people for every Starbucks location in the country. By comparison, the U.S. has approximately 20,000 people for every Starbucks location.

While other major foodservice players are scaling back in China, Starbucks is doubling down. That’s because Starbucks its expansion plans have been paying off. Last quarter, Starbucks locations in China and Asia Pacific saw comparable sales increase 6% over a year ago. For FY 2015, comparable sales increased 9%, while traffic rose 8%.

In contrast, Yum! Brands‘ (YUM) posted just 2% same-store sales growth last quarter, and same-store sales have fallen 6% year-to-date. Yum Brands operates KFC, which has long been China’s most popular fast food chain; there are currently about 4,900 KFC locations across the country.

However, Starbucks is catching up in the quick service category. And unlike Yum Brands, Starbucks is growing at a good clip despite the economic slowdown. To date, the U.S. is still Starbucks’ largest market, but if CEO Howard Schultz gets his way, China could claim that title before long.

I recommend SBUX as a Buy; you may click here to review its Stock Report page in Portfolio Grader, or here to review its Dividend Grader report.

Sincerely,

Louis Navellier

Louis Navellier

P.S. I will be speaking at the Irvine Marriott in Irvine, California, on Tuesday, January 26; and at the San Diego Marriott La Jolla in La Jolla, California, on Wednesday, January 27. These seminars start at 7 P.M. and you may attend at no cost, but please call 800-454-1395 to register. I will review where investors can achieve the highest yields in both bonds and stocks, as well my current market outlook, favorite stock picks and have an extensive question-and-answer session.

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