Starbucks thrives on consumer coffee habit

By Chris Mercer

- Last updated on GMT

Related tags: Starbucks

Starbucks is fast becoming the new embodiment of the American dream
with a 27 per cent rise in profits on the back of aggressive
expansion that may soon see the group moving into Russia.

Move over Coca-Cola and Mcdonald's, America's coffee culture icon is barging its way to the front.

Starbucks' net profits reached $494m for the year ended 2 October. McDonald's made almost $2bn in profits in its first nine months, yet there is no question where the momentum lies. Ronald's third quarter profits slipped six per cent.

Starbucks has opened 735 self-owned coffeehouses worldwide in the last 12 months, helping it to a 23 per cent sales rise compared to 2004, if the extra week in last year's results is excluded.

And the group announced it planned to open another 1,500 outlets, including 700 company-owned ones, over the next year as part of its aggressive international expansion programme.

There are now more Starbucks coffeehouses in London than on coffee-guzzling Manhattan Island, and the firm has partly managed to beat down competition in the UK from Costa Coffee and Café Nero through shear numbers.

One source connected to Costa Coffee said Starbucks' strategy was to go all-out in new markets, opening stores quickly and putting pressure on rival firms there.

All three UK chains are doing well, however. And the UK's expanding coffee market continues to break new ground, with instant coffee sales overtaking standard tea sales in Britain for the first time.

Michael Casey, Starbucks chief financial officer, said Starbucks would expand at a loss if necessary and the group confirmed it was prepared to enter a range of emerging markets, including Russia, China and India. No dates were given.

The group won back the right to use the Starbucks brand in Russia earlier this year, after getting bogged down in legal battles, and has reportedly got backing from the head of the country's intellectual property agency.

Starbucks registered its name in Russia in 1997. But the country's tradename authority, Rospatent, cancelled the registration for the 'mineral and fruit drinks' and 'restaurants and café services' in 2002, because Starbucks had not actively used the name for more than three years.

The Starbucks trademark was subsequently registered by a Russian company of the same name.

The US group's eventual victory has set it up well for growth on the international market.

The firm still has no coffeehouses in Russia, although has been supplying a couple of hotels in Moscow.

Market research group Euromonitor​ recently said Russia's fresh coffee market grew 10 per cent last year thanks to a "burgeoning coffee culture"​.

Instant coffee still makes up 90 per cent of the market, propped up by a lack of filter coffee machines in many Russian households. But, Euromonitor predicts fresh coffee will grow by 36 per cent in volume and 41 per cent in value up to 2009.

Related topics: Tea and Coffee

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