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How Starbucks plans to wow the booming Chinese middle-class

Nicole Sinclair
Markets Correspondent

On Thursday, Starbucks (SBUX) announced it is bringing its first international Roastery and Reserve Tasting Room in Shanghai, China in 2017. The 30,000 square-foot space will be part of the soon-to-be built HKRI Taikoo Hui Project, Shanghai’s newest premium world-class retail, office and residential area.

The latest Roastery announcement follows April’s announcement that Starbucks will be opening a Roasteryin New York’s Meatpacking district to open in 2018. These new locations build on the original Seattle Roastery opening in December 2014.

Starbucks founder, chairman and CEO joined Yahoo Finance to talk about the importance of the Roastery roll-out particularly its presence in China.

Roastery bolstering retail as an experience

“We opened the Roastery about a year and a half ago and it was designed to create an opportunity for our customers to literally be swept away when they walked into the Roastery a complete immersive experience beyond any other retail experience in the world,” Schultz said.

“This speaks to the growth and development of the company not embracing the status quo and recognizing that to build a great, enduring retail company in the world today, you have to create unique experiences. And I think that’s what Starbucks has been known for.”

Starbucks grew revenue 18% in its most recent quarter as many retailers continue to struggle.

China opportunity

Schultz said Starbucks can capitalize on the growth of the Chinese middle class, which is estimated to grow from 300 million currently to 600 million within the next ten years.

China remains Starbucks' (SBUX) largest market outside the US and it’s one Schultz is focused on for expansion.

The company operates 2,000 stores in Mainland China in nearly 100 cities, and it’s on target to reach its goal of 3,400 stores by 2019. To put this in perspective, Starbucks will be opening 10 stores a week or 500 stores per year for the next five years.

And that might be just the start. Starbucks’ current 2,000 store base in China serves a population of 1.34 billion people. Meanwhile, the U.S. has about 12,700 stores for a population of about 300 million.

 

“Over the last 10 years, I probably have been to China as much or more than any other public CEO in America. And what I’ve seen first hand is the significant growth and development of the middle class,” he said. “We’re starting to develop the morning ritual in China.”

Starbucks will also be opening a retail store in China in what Schultz sees as potentially its highest grossing retail store in the world. The new store will be at the main entrance of the new Shanghai Disneyland, “a destination that may well become the number one tourist attraction in Asia,” Schultz said. “I am more convinced than ever that Starbucks is just getting started in China.”

Schultz said Starbucks is well positioned to win in China, a market he predicts will one day be larger than America for Starbucks. After a recent meeting with Chinese President Xi Jinping, Schultz said he has faith in their government.

“I believe what the Chinese government is trying to do is create economic transformation, and I think they’re taking some bold moves. And I believe over the long term the government will serve its people in a way that will be consistent with Starbucks having an opportunity to grow in that market and grow successfully,” he said.