Starbucks Corporation (SBUX) announced its plans to boost its presence in Europe. As part of this strategy, it intends to increase its number of stores operating in the continent from 700 to 1,000 by the next three to five years.
The coffee giant has plans to open new outlets in service stations, and drive-throughs. The company will also consider opening stores at airports, stations and hotel lobbies.
According to The Sunday Telegraph, Starbucks’ management plans to make the brand as popular in Europe as it is in Manhattan.
The expansion drive is expected to create 5,000 jobs across U.K. With the American market getting saturated, Starbucks is looking to follow peers in the food and beverage industry like McDonald’s (MCD) and Yum! Brands (YUM) that are spreading all over the world through their stores.
Starbucks opened its first store in the Europe, Middle East and Africa (EMEA) Region in the UK in 1998. The retail chain has grown in the region throughout the years and at present offers the unique Starbucks Experience to customers in 29 countries throughout continental Europe, the UK, Ireland and the Middle East.
However, investors are skeptical about the outcome of the aggressive expansion plans of the retail giant. In prior years, Starbucks had resorted to aggressive expansion and investors had termed it as ‘growing too big too fast’. It resulted in the closure of 600 Starbucks shops in the U.S. and 12,000 layoffs in 2008, followed by 300 more store closures and 7,000 layoffs about a year later.
Even in its latest reported quarter, where the company managed to beat analyst expectations, the sales from cafes operating for more than a year inched up just 2% in Europe, Middle East and Africa region. The coffee chain had been underperforming internal targets in Europe. The soft results were aggravated by debt worries and high unemployment prevailing in the region that weighed heavily on consumers.
The recent plans of expansion may be an effort to strengthen its position in Europe as the coffee giant has also been reported to extend its global partnership with Autogrill Group to develop new business in Europe. Autogrill and Starbucks started their co-operation in the United States in 1991. As per the new agreement, Autogrill will introduce the Starbucks Coffee brand for the first time at its points of sale in French railway stations, Marseille Airport and on Dutch motorways. In the coming days, the partnership also intends to operate in the travel channels of other cities of Europe.
Currently, we prefer to be Neutral on Starbucks’ for the long term. Starbucks holds a Zacks #2 Rank, which translates into a short-term Buy rating.
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