Judging by the reception to a new store opening in France, Starbucks (SBUX) may want to consider more aggressively expanding across Europe.
On April 8, the first Starbucks in Strasbourg, France, swung open its doors to throngs of caffeine-seeking Europeans. The lines resembled the ones reserved for the latest Apple iPhone introduction, not something as standard as overpriced lattes and pastries.
— Pokaa (@PokaaTeam) April 8, 2016
Prix d'un expresso à Strasbourg : 2€ et 3 heures d'attente ☕️
(Ouverture de Starbucks, fermeture de l'amour propre) pic.twitter.com/Qo1ZQwslY6
Still, the fanatical interest in the Strausberg store opening underscores the likelihood that Starbucks remains under-penetrated in several key European markets.
For example, Starbucks now operates (company-operated and licensed) a mere 110 locations in France, 106 in Russia and 11 in Portugal. It makes sense, then, that when a household name from the West such as Starbucks comes to town consumers are willing to line up for hours and fork over their euros. Starbucks may finally be sensing a bigger opportunity in Europe -- it recently announced it will enter coffee snob capital of the world in Italy with a store in Milan in early 2017.
Starbucks' top-three European markets are the United Kingdom (865), Germany (160) and Spain (91). In total, Starbucks operates 2,441 company-operated and licensed locations in its European, Middle East and Africa segment (EMEA) compared to more than 12,000 in the U.S. and 1,963 in China.
Europe has become more lucrative for Starbucks following a decision several years back to close under-performing locations and focus on a licensing model, instead of directly operating stores in traditionally high cost European regions. For the fiscal year ended Sept. 27, Starbucks sales in its EMEA segment fell 6% year over year to $1.2 billion, but profits surged 41.1% to $168.2 million.
Starbucks is a holding in Jim Cramer's Action Alerts PLUS portfolio.