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Starbucks eyes China's 2nd-tier cities

By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) -- Starbucks Corp.'s pinning its future growth strategy on an aggressive expansion into China's lesser-known cities, according to Chairman Howard Schultz.

"The No. 1 priority of our company in terms of new growth is in China," Schultz said in a Beijing interview, according to reports in the Asian Wall Street Journal.

Seattle-based Starbucks recently opened stores in the second-tier cities of Qingdao, Dalian and Chengdu, bringing its total number of stores in China to 209 from 152 at the end of 2004, according to Journal reports.


"The opportunity we have in China is like no other," he said, adding that China was the company's most important market outside of North America.


Starbucks has been actively purchasing its equity back from local partners. That equity was issued before 2004, but Beijing has since abolished rules prohibiting foreign companies from wholly owning stores.

About 120 Starbucks outlets are located in Beijing or around Shanghai. The coffee company has 400 stores in greater China, which includes Taiwan and Hong Kong.

Coffee drinking is relatively new in China, but it's quickly catching on among newly affluent consumers who are rapidly adopting western fashions and habits.

Starbucks faces growing competition from new coffee chains and have frequently been the target of copy-cat retailers. Company executives said they were heartened by a recent court decision in their favor regarding a long-running trademark dispute.

The company operates about 11,000 stores in 37 countries.

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