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Company perks $650M to open cafes

Starbucks, the world's biggest coffee company, is planning to add at least 1,500 cafes in the U.S. over the next five years.

The plan, which would boost the number of Starbucks cafes in the country by about 13 per cent, was announced at the company's investor day in New York Wednesday.

In addition, the Seattle-based company says it will eventually serve a new brand of tea in its cafes. Rather than its Tazo tea, Starbucks is turning its attention to Teavana, which it announced it would acquire last month.

Worldwide, the company says it will have more than 20,000 cafes by 2014, up from its current count of about 18,000. Much of that growth will come from China, which the company says will surpass Canada as its second-biggest market.

Although Starbucks has been intensifying its growth overseas and building its packaged-goods business back at home, the majority of its revenue still comes from its more than 11,100 cafes in the United States.

In an interview ahead of its investor day, CEO Howard Schultz said the U.S. expansion plans are based "on the current strength of our business"

Just a few months ago, the company had predicted it would open just 1,000 new cafes in the country over the next five years.

The upbeat expansion plans mark a turnaround from Starbucks' struggles during the recession. After hitting a rough patch, the company brought back Schultz as CEO in 2008 and embarked on massive restructuring effort that included closing 10 per cent of its U.S. stores.

Cliff Burrows, who heads Starbucks' domestic business, said the problem wasn't that Starbucks was oversaturated, but that the company hadn't been careful about its store openings. In the years leading up to the downturn, the company was opening well over 1,000 stores a year. That led to cafes in locations where signs or traffic might not be optimal, he said.

Burrows said Starbucks has gotten more sophisticated, and noted that the cafes opened in recent years are among the company's best performers.

Sales at new cafes are averaging about $1 million a year, for example, above the company's target of $900,000. It costs about $450,000 to build a new cafe, or about $650 million to open the new coffee shops.

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