I explored Starbucks (SBUX) in November and mentioned its growth prospects in China. As 2013 continues to unfold, the coffee company is expanding into another Asian country with great promise - Vietnam. With the growth potential I see, the company looks like a dependable long-term investment. Here is a summary of the company's growth right now and what it expects in 2013. If you read about the approach it is taking in Vietnam, one would understand why it will succeed and attain the double-digit levels it is looking at.
- 11,128 stores in the United States, driving sales of $8.8-billion (U.S.) in fiscal 2012.
- Its operations in China are small, with just 700 stores and sales of $721-million.
- Starbucks' U.S. revenues are 12-times larger than Chinese revenues.
- Yet, so far, Starbucks seems to have been met with strong demand for its products.
- It plans to ramp up the number of stores in China, to 1,000 by the end of this year, and to 1,500 by 2015.
- China will be its largest market outside of the United States.
- Starbucks has grown its earnings by an average of 19.3 percent over the last five years.
- It sees revenue growth of 10 to 13 percent in 2013.
- 2013 earnings per share growth of 15 to 20 percent
Starbucks in Vietnam
As Starbucks journeys into the Vietnamese market, what type of challenges does it have to deal with? There are cultural tastes to contend with, local brands and corner shops, and international competition. Do most Vietnamese think that Starbucks coffee is too light? Many of them like black, dark and strong coffee. As Starbucks opens its first store in Ho Chi Minh City early this year, it hopes to capitalize on the growing interest in coffee.
As it has done in China, the company will cater to the Vietnamese culture but also bring its own unique experience and products to the market to set itself apart. There should be trademark drinks, but also flavors tailored to the country's taste. Coffee Concepts (Vietnam) Ltd., a Hong Kong Maxim's Group subsidiary, will operate Starbucks stores in Vietnam.
One ally Starbucks will have on its side is a young population interested in Western Culture. Of the 90 million people in Vietnam, 60% of the population is under 35. The growing economy has helped the country become classified by the World Bank as "lower-middle income" in 2009 and this raised the interests in the young culture for Western trends. Starbucks should be able to use this to its advantage. Local companies that have experience with Vietnamese tastes will also attempt to grow; this includes Trung Nguyen Coffee that focuses on traditional (gourmet) Vietnamese style and flavor. Starbucks will price itself at the premium level competing with metropolitan chains like Highlands Coffee. But when push comes to shove, it may be the "trendy" factor that allows Starbucks to succeed as young Vietnamese become more and more interested in trendy western culture.
Brent Kenwell from Seeking Alpha wrote an article recently about the company and he asked the question whether Starbucks growth was real or not. It is a good article that I would suggest anyone interested in the company should read; it is very informative. Toward the end of the article he concludes:
"The brand recognition is huge, and its global outreach is expanding. I don't expect this trend to change anytime soon. People love the drink they order at Starbucks and don't mind paying up for both the status and the flavor."
I know Starbucks is not known as an income stock, but with the expectations of double digit earnings growth, I believe it is a good dependable stock to own. It will continue to grow and produce for those who own the stock now, it is expensive now, but will continue to expand and produce for years to come.
There is no doubt that Starbucks is moving in a bullish direction, but it looks to be at a critical juncture too. It was bounced off a resistance point that could define its move up. It has remained bullish in both the RSI indicator and the MAC MAs as they continue in bullish territory and do not look like they are ready to give up any room. As it has moved up, the middle Bollinger band appears to be the support line (or just below it), so I would expect this stock to continue to move up.