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Starbucks a China Star

Starbucks estimates that 41% of its Chinese customers are between the ages of 19 and 25. Seventy-five percent are under age 35, Wang says.

By comparison, the average age of a Starbucks customer in the U.S. is now 42.

"There's a huge demographic advantage" in China, says Wang.

In giant first-tier cities such as Shanghai, Beijing and Guangzhou, Starbucks plans to expand into more neighborhoods in addition to commercial shopping and office areas. The coffee chain also has started opening stores in a handful of the less affluent, so-called second-tier cities such as Dalian and Qingdao.

For now, with sales of less than 10% of Starbucks' 2005 revenue of $6.4 billion, China doesn't yet rank among the company's top three international markets (currently Japan, Canada and the U.K.).

Starbucks' "China story is exciting, but will likely not be a significant contributor to the company's 20%-plus total revenue growth over the next few years," writes UBS analyst David Palmer in a recent note. Still, China could "become a meaningful growth driver in the next decade as unit deployment there could approach 500 or more units per year, and as unit growth in the U.S. slows," he adds.

It's also not clear whether the mainland stores are making a profit. "I suspect people walk around thinking they're making very good money here because they see lots of stores, but they never tell you how much money they're making," says Paul French, an analyst for the retail and consumer market research firm Access Asia.
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