Starbucks Corporation (SBUX) may be in a tough spot, but it's got a honeypot in the making—in China.
The China-Asia Pacific region saw 8% comp growth in the fourth quarter, the company said in its earnings call Thursday, Nov. 2. In fiscal 2017, more than 550 stores opened in China, bringing the total count to 3,000 in 135 cities. Next year, China will account for half of the coffee brewer's global growth.
No other major American restaurant chain is expanding in China as aggressively as Starbucks, according to John Gordon, restaurant analyst at Pacific Management Consulting. Dunkin Donuts—under Dunkin Brands Group Inc. (DNKN) —and McDonald's Corporation (MCD) both have a presence in China, along with KFC under Yum! Brands, Inc. (YUM) , but these chains are all franchised there.
"Starbucks can move faster without relying on franchisees to develop," Gordon told TheStreet. "It's the only big U.S. multinational really coming [into China]."
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Starbucks CEO Kevin Johnson introduced a game plan to streamline the company and refocus priorities, under which long-term growth in China is fourth. Other priorities include mobile development, innovation in food and beverage, investment in roasteries and gaining share of at-home coffee.
"China is the second-largest and fastest-growing market for Starbucks," CEO Kevin Johnson said during the call. "[It] was a standout in fiscal 2017 [with] strong revenue growth, and another year of record [average unit volumes] and strong profitability."
While the Chinese may not have the same coffee-dependence as their American counterparts, Starbucks is an attractive brand, seen as upscale, among a growing class of upwardly mobile young consumers. Luxury brands have fared especially well among Chinese nationals. Gucci, for instance, under parent company Kering SA, has a customer base that is 34% Chinese.
Johnson, in fact, may be underselling the importance of China to Starbucks' vitality in the earnings call. In July, chairman and former CEO Howard Schultz told the New York Times that Starbucks' presence in China could be larger than the U.S. "When people ask me how much can you really grow in China, I don't really know what the answer is, but I do believe it's going to be larger than the U.S.," he said.
Starbucks' fixation on China isn't new, according to Gordon. "China has always been their No. 1 lead on Wall Street," he said. "In investor days, other calls, it's always China first."
Starbucks has also made exceptional efforts to cinch its presence in China and convince consumers that it's there to stay. In April, the company announced a surprising offer to provide Chinese employees with health insurance for their parents, as Chinese children often care for their ailing elders.
For China or not, investors seem to be happy about Starbucks' plans. After tanking immediately following the earnings release, shares are up more than 3% Friday afternoon. Wall Street seems convinced by its ability to attain long-term goals, as 14 of 16 analyst's positions on Starbucks in the past two days are either buy or hold.
"We believe there are a number of reasons SBUX can regain momentum," Deutsche Bank analyst Brett Levy wrote in a Friday, Nov. 3, note, including the "integration of the East China operations."
J.P.Morgan's John Ivankoe said Starbucks is expanding in China "undoubtedly with major fanfare," citing the opening of a Starbucks Roastery in Shanghai.
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Editors' pick: Originally published Nov. 3.