McCafe tries to eat starbucks’s lunch

in Japan. I read this news from MSN that McDonald is going to open McCafe stores in Japan. Quote the news:

“The Japan unit of U.S.-based McDonald’s Corp. will launch 15 pilot “McCafe” stores in the Tokyo area on August 29, according to a company release. The stores, the burger chain’s first foray into the coffee shop business, will offer low-priced beverages to lure more families, the release said. McDonald’s said it will consider opening McCafes across Japan in the next fiscal year.

The cafe business in Japan has been shrinking and stood at 1.052 trillion yen ($8.61 billion) in 2006, down 5 percent from the previous year. Still, sales at specialty coffee shops like Starbucks have soared. The Seattle-based coffee chain, which first opened a store in Japan in 1997, has almost 700 stores across the country and saw sales jump 16 percent last year to 78.9 billion yen ($646 million).”

My comments: it appears McDonald has done well with their “gourmet coffee” in the US, I think they may have taken away some of Starbucks’ sales. This is one of the reasons account for Starbucks’ recent stock drop (not the key one). But from my own experience, McDonald consumers and Starbucks consumers are two different groups, especially in China: I saw lots of high school kids at McDonald; white collars people in Starbucks. I don’t know things in Japan because I have not visited there.

More importantly, as I was reading some Starbucks materials lately (I need to read that because I added 50 shares today), I was surprised to learn that Starbucks spends more money on employees’ (partners exactly) health care than the coffee beans in the US. From annual report we know Starbucks derives more than 70% sales from the US.

I was thinking: what if the Democrats win the white house in 2008 and the universal healthcare becomes a reality? What will happen to SBUX’s cost then?

Seriously, when I bought the Starbucks stocks, I did not count that the favorable outcome from politics arena (a near term catalyst). I was thinking about the China oppertunity. That’s why I sold Home Inns (HMIN) shares, and added Starbucks. Because I think SBUX is a better China play. Just think a regular coffee costs CNY 16.00, assuming 7.60 rate, that’s $2.10.

It seems “coffee index” says Starbucks has more pricing power than “Big Mac”, isn’t it?

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