In the video below, Motley Fool CEO Tom Gardner sits down with Starbucks CFO Troy Alstead during a recent visit to Starbucks headquarters in Seattle. In this portion of the video, they discuss the massive international opportunities for Starbucks, particularly in China and India. Alstead says that China will be Starbucks' second biggest market within the next couple of years, and that stores in India have seen huge demand after opening two months ago.
A full transcript follows the video.
Starbucks is one of Tom Gardner's favorite stocks, but you can never have too many great companies in your portfolio. If you're looking for more ideas, our chief investment officer has selected a different stock as his favorite for this year. Find out which stock it is in the free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.
Tom Gardner: Let's talk about international. You were very involved in international as part of your journey here to becoming [CFO] at Starbucks, and very involved in China. So let's start with China. What is the potential market size? I know you call it your second home, your future second home, your future second home market at Starbucks is China, so what do you see as the potential and where, for example, do you think operating margins can go for the Chinese locations?
Troy Alstead: China, as you've heard us say, and as we've articulated publicly, is a huge opportunity. We'll have thousands of stores there at some point. How many specifically? Hard to say. We have put out a public target to say a few years from now we'll hit 1,500 stores on mainland China and at about 700 or 800 stores today, we're well on the pace to get there. But that's just a milepost to what is a much, much bigger opportunity, and that is even before we start talking about going outside of the Starbucks store with our products in other channels that has been so powerful for us in our more mature markets over time.
So China is a tremendous opportunity. What's interesting about China, and I think this is an important reflection as we look at the whole world, coffee consumption in China is very, very low. Coffee consumption before we entered and the whole idea of this Starbucks store, this coffeehouse environment that we offer, was unknown, it was unheard of to a large extent.
Starbucks coming in and now a few others coming in around the edges, has really introduced to that consumer this experience, a place, all the things that other customers in other markets around the world have come to embrace over time, we are seeing that happen rapidly in China, and adopting our beverages, the innovation, and the experience in-store.
People are using it for business meetings, they're using it for dates, they're using it for a place to be and work. It is becoming a part of the habit of and the fabric of life in China just as it has here over the years. It's the depth of that connection point that gives us the most confidence of all. But we have, again, thousands of stores to be had at some point in time on the right scale, on the right frequency, but at some point in time, big business to be had for us.
Tom: I mean, do you anticipate that there is a point in the next quarter-century where China is driving more revenue than the U.S. for Starbucks, all in?
Alstead: Well, that's an interesting big question. I believe because we are so predominantly ahead here in the U.S., that the U.S. likely leads in that, for as long forward as I can think about, because we aren't stopped here. We have lots more to do here. But it won't take long before China is our second largest market in the world. We, within the next couple of years will get to that point, and it's the No. 2 and will firmly be No. 2 in size and scale and profitability we believe for a lot of years to come.
Tom: What about India?
Alstead: India, we've just opened two months ago. What's interesting about India is we had never had a store in India until just recently, and yet when we've opened up in that marketplace, we're serving so many customers, the lines are around the block. We can barely process people quick enough through the store. It's been quickly embraced in Mumbai and in Delhi overnight, and with the opening of the first stores. Not unlike what we've seen in China, not unlike what we saw in Vietnam that we just opened a month ago.