{"id":26948,"date":"2012-01-29T20:29:23","date_gmt":"2012-01-30T01:29:23","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/01\/29\/starbucks-expands-into-the-land-of-tea\/"},"modified":"2012-01-29T20:29:23","modified_gmt":"2012-01-30T01:29:23","slug":"starbucks-expands-into-the-land-of-tea","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/01\/29\/starbucks-expands-into-the-land-of-tea\/","title":{"rendered":"Starbucks Expands into the Land of Tea"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

\"\"<\/a>If there has been one recurring theme in my investment recommendations over the past two years, it is this: If you want growth, you have to look to emerging markets.\u00a0 With the United States, Europe and Japan burdened with high levels of debt and aging demographics, growth in the developed world will be hard to come by.\u00a0 But in markets like China, Brazil and Turkey, living standards are rising and a new middle class is rising.\u00a0 This is a long-term investment theme that is ripe for the picking.<\/p>\n

There are different ways to skin this cat, of course.\u00a0 You can buy the shares of individual emerging market stocks (see Charles Sizemore\u2019s top emerging market stock for 2012<\/a>), or you can buy the shares of American and European companies that get a large and growing percentage of their revenues from emerging markets.\u00a0 This latter theme has been a specialty of the Sizemore Investment Letter<\/em><\/a> and the source of some of our biggest investment successes in recent years.<\/p>\n

Today, let\u2019s consider the case of an American icon: Starbucks (Nasdaq: $<\/span>SBUX<\/a>).<\/strong>\u00a0 Starbucks is a well-run company that also happened to be at the right place at the right time.\u00a0 Starbucks exploded in popularity in the 1990s, a time when incomes and lifestyles were on the rise in the United States.\u00a0 The company benefitted from what financial writer David Brooks called the rise of the \u201cBobos<\/a>,\u201d<\/strong> or bourgeois bohemians: white-collar knowledge workers who shun the trappings of wealth yet think nothing of spending $300 for a pair of rugged hiking boots or $5 on a cup of coffee.<\/p>\n

Starbucks is one of the great American success stories of the past 20 years.\u00a0 But it\u2019s also a company that now faces a saturated market.\u00a0 Starbucks gets 70 percent<\/a> of its revenues from the United States, and virtually every corner of every street in every major city in America already has a Starbucks or a competing coffee shop.<\/p>\n

Not surprisingly, Starbucks has had to get creative in searching for new ways to grow.\u00a0 The company has begun experimenting with beer and wine sales in select markets, effectively transforming itself from an American coffee shop to something more resembling a European caf\u00e9.<\/p>\n

For Starbucks shareholders, this should be welcome news.\u00a0 The transformation turns a saturated market into a growth market again, at least for a while.\u00a0 But if Starbucks wants to enjoy sustained growth, it\u2019s going to have to look outside U.S. borders, and that is exactly what the company is doing with its partnership with India\u2019s Tata Coffee (see \u201cStarbucks, Tata Coffee Closing in on Retail Deal<\/a>\u201d).<\/p>\n

Starbucks is finalizing its retail partnership with India’s Tata Coffee Ltd, a subsidiary of the Tata Group, one of India\u2019s largest conglomerates, to expand Starbuck\u2019s retail presence in the country.\u00a0 For Starbucks, India will be a tough nut to crack. India is not traditionally a coffee-drinking country; but it is one of the world\u2019s largest producers and consumers of tea.\u00a0 Tea is served with breakfast and throughout the day, usually with milk and sugar. The iconic Tetley Brand, formerly British and one of the largest, is now owned by Tata Coffee\u2019s sister company, Tata Tea Limited.<\/p>\n

For Starbucks, success in India will mean creating a market for coffee where none previously existed.\u00a0 It\u2019s hard to compete with centuries of tradition, and Starbuck\u2019s Indian venture may or may not work out.\u00a0 Only time will tell.<\/p>\n

But regardless of what happens in India, Starbucks has the right idea.\u00a0 The company is planning to expand its presence in China from 470 shops as of late last year to 1,500 by 2015.\u00a0 It similarly plans to roughly double its stores in South Korea.\u00a0 And, on an anecdotal note, I wrote a recent InvestorPlace article<\/a> from a Starbucks shop in Trujillo, Peru of all places.<\/p>\n

Starbucks is currently priced a bit richly for my liking; it trades for 21 times estimated 2013 earnings and yields just 1.4 percent.\u00a0 That\u2019s a bit expensive for a company that gets 70 percent of its revenues from a saturated market.<\/p>\n

Still, the stock warrants watching. \u00a0If its transformation to a full-fledged caf\u00e9 is successful and its emerging market expansion plans work out as expected, earnings growth could take a lot of investors by surprise in the years ahead.<\/p>\n

If you liked this article by Sizemore Insights<\/em>, you\u2019d probably enjoy The Sizemore Investment Letter<\/em>, our premium members-only newsletter. Click here<\/a> for more information.<\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter If there has been one recurring theme in my investment recommendations over the past two years, it is this: If you want growth, you have to look to emerging markets.\u00a0 With the United States, Europe and Japan burdened with high levels of debt and aging demographics, growth in the developed world … <\/p>\n

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