Starbucks Corp — the dominant coffeehouse chain in China's growing coffee market — posteda 26 percent jump in second-quarter profits and raised its full-year earnings outlook, helped bystrong sales growth in China and Asia Pacific.
Sales at stores open at least a year rose 8 percent in the region. However, operating earningsremained flat and the profit margin shrank as the United States-based company, whosespecialty coffee drinks are popular with China's increasingly wealthy upper and middle class,spent to step up new cafe openings in what has become one of its key segments.
As Starbucks faces more competition globally in the coffee market from fast food chains suchas McDonald's, Burger King and Wendy's, it is trying to maintain its appeal to consumers andboost profits by expanding the line of products it sells in its cafes.
To that end, the Seattle, Washington retailer recently acquired the Teavana tea-shop chain,the La Boulange bakery chain and the Evolution bottled juice company. The new productscombined with an international expansion plan have boosted profits and produced a string ofquarters of double-digit revenue growth.
Starbucks recently opened a food-experience store in Beijing's Oriental Plaza, a premiumlocation. The store serves freshly made food, including beef lasagna, cream of mushroom soupand smoked chicken salad.
"The new store, decorated as a coffee shop in Paris, is targeting Chinese high-end consumerswho work nearby and would like to have a nice lunch, afternoon tea or just for a coffee break,"said Lory Lu, manager of the store.
Lu added that the company has opened several similar shops in Hong Kong.
Starbucks, which has about 61 percent of the coffee market in China, and expects the country— known for its love of tea — to become its largest market outside the US next year, opened147 stores in China and Asia Pacific during the latest quarter, a net increase of 64 storescompared with the previous year.
The company's revenue in the region surged 22 percent to $213.6 million, the result of 516 netnew store openings in the past 12 months.
Operating income in the region remained flat at $68.3 million, while the operating profit marginfell to 32 percent from 39.1 percent a year ago amid increased investment to "supportcontinued growth in China" and the company's efforts to develop company-owned stores,Starbucks said.
Several chains now crowd the coffee market in China. Since Starbucks' arrival on the Chinesemainland in 1999, other cafe chains such as the United Kingdom's Costa Coffee and HongKong's Pacific Coffee Co have tried to snatch market share away from the American leader.
As it expand in China, the number of cafes in the country has doubled to nearly 32,000 in thepast five years, according to Mintel Group.
