The Starbucks Reserve Roastery in Shanghai is not just any old coffee shop. It's a 30,000 square foot caffeinated wonderland that stands as a hulking symbol of the company's ambitions in China. It's only one of 6,000 mostly smaller locations that Starbucks plans to roll out across the mainland by 2022.
But in 2019, those plans could run up against different competition and trade war pressure. Local backers could be what preserve Starbucks' Chinese dynasty. I'm Jeff Goldfarb, Asia Editor for Reuters Breaking Views in Hong Kong. Cracking China has been tough for outsiders, even in fast food. McDonald's sold off a controlling stake in its greater China restaurants to a state-owned conglomerate in 2017.
For now, Starbucks is touting its independent growth ambitions in the People's Republic. Starbucks has forecast that in five years it will triple its revenue. Though it doesn't show its China figures, Morningstar says the top line would hit $6 billion by then. Investors aren't convinced yet. Starbucks is trading at almost 24 times anticipated earnings for the next 12 months.
And that's a lot lower than where it has been. Its premium over McDonald's for the last decade is almost gone now, too. That suggests that Chief Executive Kevin Johnson isn't getting credit for his great leap into China. Home grown rival Luckin Coffee is expanding rapidly with deep pocketed backers, and geopolitical risk is growing for American brands in the middle of the trade war.
Mergers have been caught in the crossfire, and economic retaliation has been a weapon that China has used before. Starbucks founder Howard Schultz's dream of becoming US president remains a distant hedge for now, too. Starbucks has already forged some partnerships in China, including with Alibaba, which is helping it out with deliveries.
But it could use some stronger financial ties as well. With local partners that could give it a little more cover amid all of this turmoil. Starbucks recently bought out its Taiwanese partners in an East China venture. That should clear the way for a venti-sized deal to start brewing in 2019.