- Starbucks has made major headway in expanding its international business.
- However, there is still much more room for international growth.
- A comparison of Starbucks and McDonald's will provide insight to Starbucks's potential for international growth.
In the summer a year ago, when I visited Guangzhou, China, I had walked by a Starbucks (NASDAQ:SBUX) store. It was a pleasant surprise, I didn't know then that the coffee chain had already made its entrance to the country.
When I walked in the store, it was packed with people, many of them teenagers. I was surprised by how popular it was in China, and even more so when I looked at the menu - Starbucks was charging American prices for their coffee in China.
Despite charging "outrageous prices" for their coffee though, Starbucks was able to get the Chinese youth hooked because of what it symbolizes in Asia - luxury and status. And right there, I knew that Starbucks would make it big in Asia.
The Rise of Starbucks in Asia and Europe
At this point in time, the premium coffee chain already has quite a few strongholds outside of America.
As showed in the above graph, Starbucks has 284 stores in Seoul, 256 stores in Shanghai, 202 stores in London, and 137 stores in Beijing. These numbers are even higher than that of many major US cities. (You probably didn't know that Seoul has more Starbucks coffee houses than even New York City. Did you?)
Now, while it is clear that the coffee giant is doing quite well internationally, I believe that it still has plenty of room for overseas growth. And this is because that even though Starbucks has made major headway into foreign metropolises, the number of US stores still vastly outnumber the number of international stores.
At the moment, Starbucks has over 11,000 stores in United States, but only around 8,000 stores in all other countries combined. Even though it has been growing its international presence steadily, the number of foreign stores still hovers around just 40% of the total.
How much is 40%? Well, it's really not a lot...
A comparison with McDonald's (NYSE:MCD) shows Starbucks' potential for international growth.
To estimate how much more room the coffee giant still has for international growth, I have compared the geographic distribution of its stores to that of McDonald's. In my view, the current geographic distribution of McDonald's restaurants can provide valuable insight to investors as to where Starbucks's international business could stand a few years from now.
As of 2013, McDonald's have around 14,000 stores domestically and around 21,000 stores in foreign locations. This means that roughly 60% of the world's Golden Arches are located outside of US.
Here, we can see that the fast food giant has a much stronger international presence (60% of its stores) in comparison to our premium coffee chain (40% of its stores). But that is to be expected, as McDonald's has been actively expanding its international businesses much earlier than Starbucks has.
Now, if Starbucks can manage to grow its international presence to the same extent as McDonald's in the short future, it can look to have at least 6,000 more stores to bring in extra revenue. And looking at how fast the number of Starbucks stores has been rising internationally, this is actually very plausible.
Based on the data, Starbucks has been growing its international store count by around 14% every year for the past 8 years. Even assuming a more modest growth rate of 10%, it will only take only 6 more years before the coffee giant will hit 14,000 stores internationally.
Along with a moderate increase in the number of domestic stores and year-to-year sales, Howard Schultz's vision of Starbucks becoming a $100 billion dollar company may not be so far-fetched after all.