Starbucks goes big on China with new $220 million facility

Starbucks (SBUX) shares are trending slightly lower after the opening of its new $220 million manufacturing and distribution center in China. The "China Coffee Innovation Park" is part of the company's bid to expand its presence in China, which also includes plans have about 9,000 stores in the country, about 2,500 more than it currently has. Yahoo Finance's Brooke DiPalma discusses the likely risks and advantages of of Starbucks efforts to break into China's coffee market.

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Video Transcript

- Starbucks the company announcing today the eagerly anticipated opening of its China Coffee Innovation Park. Now Brooke, you've been keeping an eye on the company's investment in China. So what can you tell us about this?

BROOKE DIPALMA: Yeah, well shares under pressure this morning after the company made a big announcement in China. They've been planning the launch of this center, this manufacturing and distribution center for nearly two years now. And shares falling a bit in early trading here. And they're ultimately saying that they're betting big on China.

They recently announced a new Co-Chief Executive Officer, Molly her name. She comes in October 2nd. And the company really betting big here with this China Coffee Innovation Park that is opening today, on Tuesday. But. Ultimately. This has once again been a long time coming for China's Starbucks ramp up in China. They plan to open 9,000 stores in total. They currently have nearly 6,500.

But many experts that I spoke to both say it's an opportunity, but there are challenges, as well, that Starbucks faces as they make a play into China. One of those challenges include, China headwinds are likely to get stronger rather than weaker, as consumers move past the impact of COVID-19 lockdowns. And Leland Miller, who's a friend of the show, also said there is no immunity to US-China geopolitical tensions, despite Starbucks really trying to outweigh the odds here.

But some opportunities here is a potential to franchise. We know that former CEO, Howard Schultz, was against franchising. They do own their stores there, previously they had licensed stores there. And so perhaps with Howard Schultz stepping down from the board last week, there could be a potential opportunity to franchise the business there, like we saw with other fast food giants.

But, ultimately, at the end of the day, the opportunity here that Belinda Wong, who is the Chairwoman there for Starbucks Chinese business, is just a potential coffee market that is yet to be tapped in China. We know that Chinese consumers only drink about 12 cups per year, which is why it is so--

[INTERPOSING VOICES]

- My God, that's insane.

- 6,500, stores simply amazing. Another 15,000, if 16,000 in the US. Thank you for that Brooke DiPalma.