Starbucks Expands at Breakneck Speeds in This Market

Starbucks (NASDAQ:SBUX) is in a rush to emulate the success Yum! Brands Inc. (NYSE:YUM) reaped from its early bird advantage by expanding into China.

“The No. 1 opportunity for the entire company is China,” Starbucks Chief Executive Howard Schultz said at a company meeting in Beijing recently. “This is where we want to invest, where we want to grow.

In fact Starbucks management expects that China is likely to surpass Canada as its second-largest market behind the United States by 2014. Some analysts go a step further and suggest that China may eventually rival the maturing U.S. market. The company currently operates 570 stores in 48 Chinese cities, and is aiming to have over 1,500 stores open across 70 cities by 2015.

But Starbucks’ breakneck expansion into China is beset with its own peculiar problems, not the least of which is the comparatively puny size of the market – at $358 million in 2010 the Chinese market is a far cry from the $8 billion that Starbucks garners from sales in the U.S. This may have something to do with the fact that the Chinese have not yet cultivated a significant coffee habit.

Another hurdle is that the coffee chain’s prices are high in comparison to the disposable incomes prevailing in China, but CEO Schultz brushes this away, saying income levels hace so far not been a barrier to Starbucks’ growth in the country.

Starbucks would also be competing with other entrants in the market to find and retain skilled and quality employees, according to market research firm Mintel.