$Starbucks(SBUX)$ $Invesco QQQ(QQQ)$  $DJIA(.DJI)$ $NASDAQ(.IXIC)$  

Founded in 1985, Starbucks is the premier roaster, marketer, and retailer of specialty coffee, operating in 86 markets, with over 37,000 company-operated & licensed stores worldwide. Starbucks purchases and roasts high-quality coffee beans to create handcrafted coffee, tea, other beverages, and food items through company-operated stores. The company also sells coffee and tea products and licenses its trademark through other channels including a Global Coffee Alliance with Nestle S.A. Aside from the Starbucks Coffee brand, the company sells goods and services with proprietary brands including Teavana, Seattle’s Best Coffee, Ethos, Starbucks Reserve, and Princi.

Investment Overview

Placing strong efforts in China, against macroeconomic headwinds. Accounting for 18% of stores worldwide, Starbucks expects that through rapid store expansion, investment in digital ecosystem and supply chain, extension in brand occasions should enable Starbucks to capture the enormous market potential. China’s coffee consumption per capita averages at ~12 cups (Source: Euromonitor, Starbucks), where Shanghai’s per capita consumption is much higher, thanks to early penetration in the area. This, compared with Japan's 200 cups and US' 380 cups, reflect strong opportunity for expansion. The Company targets to deliver 1 new store per every 9 hours, and targets to deliver 9,000 stores, entering over 300 cities in China by 2025E. In FY23-25E, annual forecast on net new store expansion reflects China’s growth is expected to be approximately 13%, versus Global at about 7% and US at 3-4%. However, against growing economic headwinds, and keen competition from fast growing local coffee and tea chains that seem to undercut in pricing, Starbucks would likely face pressure on achieving sustainable profitability in the medium term.

Rejuvenating store productivity. US market remains the core focus, accounting for >40% of total store count. Starbucks aims to deliver an improvement in store productivity through product mix, customization, and food attachments. With the introduction of Clover Vertica brewer, Starbucks sees opportunities to develop food offerings and create new innovations for the product and the equipment. However, with growing labour pressure and keen competition from niche coffee chains, Starbuck’s margin could see some pressure ahead.

Delivery Services & Digital Membership. Starbucks' partnerships with delivery service operators, such as MeiTuan and Doordash, act to strengthen sales. Moreover, there has also been significant growth in its digital membership, as the 90-day active customers have grown to 75mn globally. The Starbucks Reward members are also buying more and buying larger sizes, as well as increasing the stored value credit in their Starbucks card, showing growth potential for the future.

Better than expected comparable sales in core markets. Better than expected reception of Starbucks, and recovery in the macro-economic environment would serve to support an improvement in transacting volume and pricing.

Sustainable margin trend from emerging market. Sustainability in margin trends from new growth markets such as China and Mexico, would support diversification in profit contribution and expand profitability for the Group in the medium term.

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