Coffee giant Starbucks Corporation (SBUX) recently announced that it will open a store in Vietnam next month in partnership with Hong Kong Maxim’s Group.
Starbucks has granted a license to Maxim’s subsidiary, Coffee Concepts (Vietnam) Limited, to run a store in Vietnam’s Ho Chi Minh City, making Vietnam the 12th market to boast a Starbucks store in the China Asia-Pacific (CAP) region.
The Starbucks brand is gaining popularity with consumers across Asia as the company continuously expands its store base outside U.S. Management believes the China Asia-Pacific (CAP) region will drive significantly larger business growth over the next five years.
Following the strong performance in fiscal third quarter 2012, this region has produced strong double digit comps for 10 consecutive quarters now. Specifically, Starbucks' business in China is rapidly growing and the region is expected to become the company’s second-largest market by 2014. The company is looking to take the store count in this region to 1,500 in 70 cities by 2015.
Other than that, the company runs a decently profitable business in Japan and hopes to have more than 700 stores in Korea over the next four years. In October last year, Starbucks entered the lucrative Indian market with its first three store openings in Mumbai. The company-operated stores were opened in joint venture with Tata Global Beverages Limited. The CAP segment is expected to have 4,000 stores by the end of 2013, of which 1,000 will be in Mainland China, 1,000 in Japan and 500 in Korea.
We currently have a long-term Neutral recommendation on Starbucks. However, the stock carries a Zacks #2 Rank (short-term Buy rating).
Starbucks is gaining momentum following the solid results in fiscal 2012; regular product innovations like the at-home coffee machine, Verismo; and great strategic deals like La Boulange, Evolution Fresh and Teavana.
Starbucks competes with McDonald’s Corp. (MCD) which carries a Zacks#3 Rank (short term ‘Hold’ rating).
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