Starbucks to Expand Further in China, Won’t Enter India Soon

By Kyung Bok Cho

July 29 (Bloomberg) — Starbucks Corp., the world’s biggest coffee-shop operator, will keep China as a key part of its Asia growth strategy and has no immediate plans to enter India, the head of the company’s international unit said.

“China clearly is a huge opportunity for us, today and into the foreseeable future,” Martin Coles, president of Starbucks Coffee International Inc., said in an interview in Seoul. “We certainly have aspirations to have operations in India, but this is not something that is on the front burner and about to happen.”

Starbucks is focusing on growing in existing markets after years of entering two to four new countries annually. While the international unit expands in China, Russia and Brazil, the Seattle-based chain expects to save as much as $550 million this year by cutting labor costs and reducing leftover food and coffee at its stores.

Starbucks opened its first store in China in 1999 and had an outlet in the Forbidden City until it was closed in July 2007, after an anchor at state broadcaster China Central Television spurred popular protest by criticizing the shop on his blog. The company now has 690 outlets in China and Taiwan, according to its Web site.

“We are nowhere near any degree of saturation in the markets that we serve internationally,” said Coles, who helms the company’s operations outside the U.S. “We will enter India when we are ready to enter India.” Canada, Japan and the U.K. also provide “solid growth prospects” for Starbucks, he said.

The company’s Chief Financial Officer Troy Alstead said in March that talks with possible licensees and joint venture partners in India “didn’t come together.”

16,700 Cafes

Starbucks had more than 16,700 cafes as of the end of June, including about 5,460 locations outside the U.S. The company plans a net addition of about 380 stores overseas in the fiscal year ending in September, compared with a net reduction of more than 400 locations within the country, according to a July 21 statement.

The company gets about one-fifth of its revenue from its international operations. Sales at overseas locations open at least a year fell 2 percent in the quarter ended June 28, compared with a 6 percent decline at U.S. locations, it said in the same statement.

Currency fluctuations were mostly responsible for an 11 percent decrease in quarterly overseas revenue, compared with a 6.5 percent decline for the U.S. market, Coles said. Still, the international business is “robust” as operating margins expanded to 7.2 percent from 6.6 percent, he said.

Coles denied an Edaily report yesterday that said Starbucks would introduce its Via instant coffee in Asia next year. The company plans to start selling the blend across the U.S. in a year, he said.

Starbucks began offering Via in Seattle and Chicago area shops in March to tap the $17 billion global instant-coffee market, which accounts for 40 percent of all cups. In the U.K. and Russia, instant represents more than 80 percent of all coffee made.

To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net

Last Updated: July 29, 2009 06:15 EDT