Starbucks’ potent China business has been the subject of many growth conversations in recent quarters for the brand, making May 15th’s inaugural Investor Conference a natural step. Even so, the figures Starbucks shared with investors were jaw-drop worthy. No. 1: The fact Starbucks plans to open a China restaurant ever 15 hours for the next five years.
“No Western company or brand is better positioned to evolve with the rapidly expanding Chinese middle class—and we continue to mindfully evolve a coffee culture in China where the reward will be healthy, long-term, profitable growth for decades to come,” Starbucks CEO Kevin Johnson said in a statement.
This amounts to roughly 600 Starbucks per year in China—a growth path that will bring the brand to roughly 100 new cities across Mainland China by the end of 2022. Naturally, such expansion is going to balloon revenue. Starbucks said it expects to more than triple revenue and more than double operating income in China over the next five years. In addition, Starbucks is launching Starbucks chilled cups in June as part of its goal to expand ready-to-drink premium points of distribution to 125,000 in 400 cities.
If Starbucks makes good on these initiatives, the chain will essentially double its store count in China to 6,000 restaurants across 230 cities by the end of 2022 (relative to full-year 2018 levels). Currently Starbucks operates about 3,300 units in 141 cities in China and employs 45,000 people.
“The power of our brand in China, the strength and momentum in our business, and the world-class Chinese leadership team give me great confidence in our ability to capture the enormous growth opportunities ahead in this dynamic market,” Johnson said.
In the second quarter, same-store sales in China increased 4 percent, year-over-year. Net revenues for the China/Asia Pacific segment hiked 54 percent over Q2 2017 to $1,186.4 million, primarily driven by incremental revenues from the impact of Starbucks’ ownership change in East China, incremental revenues from 759 net new store openings over the past 12 months, and favorable foreign currency translation.
Digital will play a leading role moving forward. Starbucks said the number of active past 90-day loyalty members has nearly tripled over the past four years to nearly 7 million in China, and 90 percent of members are actively engaged via Starbucks’ app. In terms of digital payment, China reports more than 60-percent digital tender mix, and 80 percent cashless transactions.
The “Say it with Starbucks” social gifting feature pioneered in China on WeChat less than 18 months ago. Starbucks announced that it’s expanding the platform to Alibaba. Starbucks also first tested augmented reality at the Shanghai Rostery. It tested this technology in core stores February during Chinese New Year.
Starbucks is being deliberate in its growth, despite how rapid and extensive it appears. The chain created what it called “a brand roadmap” to deepen coffee knowledge in the region and curate a “Starbucks Discovery Journey” that shows respect for local heritage specific to China. Locally curated core-store experiences are the key, Starbucks said.
In 2014, the brand built its first Starbucks Reserve Bar to provide immersive experiences beyond just the standard cup. Starbucks plans to have 200 of these by the end of 2018.
“Starbucks is committed to playing the long game in China and is proud to be an integral part of the local community for nearly 20 years. Our company has a strong, healthy, responsible business with purpose-driven values that celebrates our incredible 47 years of coffee expertise in sourcing, roasting, blending and handcrafting some of the world’s finest coffees,” said Belinda Wong, Starbucks China chief executive officer, in a statement. “The strong trusted relationships between our partners and customers give me great confidence in our ability to deliver our long-term growth while continuing to make investments in China, for China.”
A Starbucks Reserve Roastery opened in Shangai about six months ago. Next month, it’s debuting a multi-unit flagship—the Beijing Fun flagship store. Aside from the Roasteries, it will be the largest store globally, and will be located inside the high-traffic Beijing Fun shopping area. Again, the unit will focus on immersive experiences typically showcased at Roasteries through three craft bar experiences: Starbucks Reserve coffees, Teavana Teas, and mixology.
Returning to Starbucks’ plans to expand its ready-to-drink business in China, the chain said it would leverage the recently announced global coffee alliance with Nestlé to provide even more at-home options to the Chinese consumer. The alliance is expected to grow Starbucks CPG presence from 28 to nearly 190 countries worldwide. It will also bring Starbucks Coffee to both the Nespresso and Nescafé Dolce Gusto machine platforms around the world.
Starbucks added that it is committed to using its scale and success to give back to communities as the company continues to grow in China. Undertaking a series of commitments, The Starbucks Foundation and Starbucks China are contributing meaningful and enduring social impact through poverty alleviation by creating opportunities for groups facing barriers, strengthening partner-driven and locally relevant community engagement, and improving the lives of Yunnan coffee farmers and their families through a $20 million five-year commitment.
“As a purpose-driven company, we have a strong responsibility to the future of China—this vision fuels our passion each day and drives us to exceed the expectations of our partners and customers,” Wong added. “These initiatives reaffirm the strategic role of the China market and highlight Starbucks ongoing aspiration to elevate our partners, customers and communities to create an environment where everyone can thrive.”