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Whitbread extends Western deal wave in China's coffee market

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Whitbread is buying out its partner in Chinese coffee chain joint venture, in the latest of a series of investments by Western groups in a market that Starbucks believes will grow bigger than that of the US.

Whitbread revealed that its Costa coffee business paid 310bn yuan (£35m, $46m) to buy Yueda out of their southern China partnership, after 10 years.

The deal will leave Costa with 100% ownership of the business, which operates 252 stores in the south of China, including 93 in Shanghai.

Costa is also a 50:50 partner with BHG in a northern Chinese coffee retail business, operating 156 stores.

Target market

Tuesday's deal also extends an expansion drive by Western coffee groups into China, in which JAB Holding's Jacobs Douwe Egberts gained a firm foothold through the $1bn purchase last year of Singapore-based Super Group.

In July, Starbucks, in a $1.3bn deal, its biggest ever acquisition, bought out its joint venture partner in an east China coffee store tie-up.

Starbucks said it was opening 500 stores a year in China, "a rate of new store growth that will accelerate over time", and achieving 20% revenue growth a year in the country, where its business aims to be "as large or bigger than" that in the US.

Nestle last month told investors that coffee drinkers in China, and India, were consuming fewer than 13 cups of coffee a year, compared with an average of 100 cups annually in the rest of the world, a gap it said flagged the potential yet for expansion in the market.

The group claims Nescafe is already the "number one coffee brand" in China.

'Significant step'

For Whitbread, the expansion also has extra significance, in underling the group's view of Costa as a potential source of growth.

Waning growth by Costa in its core UK market, where it runs 2,300 outlets, has prompted some investors to call for the business to be spun off.

Alison Brittain, the Whitbread chief executive, said on Tuesday that "one of our three key strategic priorities is to focus on our strengths to grow internationally, and today's announcement marks a significant and exciting step in our ambitious growth plans for China.

"This acquisition gives us full strategic and funding flexibility to unlock Costa's potential in China," a market she termed "highly attractive" and offering a "compelling opportunity" for growth.

Whitbread shares stood 1.3% higher at 3902p in midday deals in London.

By Mike Verdin

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