Investors Cool to Starbucks Expansion Plans

Earlier today, Starbucks Corp. (NASDAQ: SBUX) announced an accelerated expansion plan that would add 3,000 new stores in the company’s Americas division over the next five years and growing its China store numbers to 1,500 by 2014. The company made the announcement at its annual investor conference.

Howard Schultz, the company’s chairman, said:

Starbucks business and brand have never been healthier, and as a company we have never been better positioned to execute against our global, multi-channel growth agenda. Starbucks will have more than 20,000 retail stores on six continents by 2014 and more than 200,000 points of global [consumer packaged goods] distribution by 2015.

Rapid growth and expansion aside, any company that is as exposed to commodity risk as Starbucks is living dangerously. But Starbucks has been able to raise the prices for its coffee drinks to keep its margins up, and it never lowers those prices again because it doesn’t have to. Customers will pay whatever the company asks. That’s the power of Starbucks’ brand.

Another possible problem is the recent Teavana acquisition, which is a big bet that the stores can attract tea drinkers in the same numbers that it attracts coffee drinkers. Under the plans announced today, Starbucks says it will “grow and expand” Teavana’s 300 mall-based stores and add a “high-profile neighborhood store concept” as well. Neither of those will come cheap.

Shares of Starbucks are down about 0.5% today at $50.90 in a 52-week range of $42.67 to $62.00.

Paul Ausick