Coffee Chain in Crisis
Starbucks has reported declining sales for the second consecutive time. Inflation is hitting the coffeehouse chain particularly hard.
The latest quarterly figures from Seattle fall significantly short of analysts’ expectations. In the previous quarter, Starbucks’ sales had dropped by four percent. In the current reported quarter, they have fallen by another 3 percent, landing 0.6 percent below the Financial Times’ forecasts.
Sales are decreasing on comparable sites in all major markets. The details of Starbucks’ performance differ between countries: in the United States, Starbucks managed to increase average receipts by 4 percent, while they fell by 4 percent in Europe and by 7 percent in China. In China, a key growth market, Starbucks is struggling with increasing competition and a sluggish economy.
Focus on Loyalty
At least in the digital channel, Starbucks is gaining more customers in its home market. There is good news from the loyalty program in the United States. The number of users who have been active in the system for 90 days or more increased by 7 percent to a total of 33 million. The recently announced cooperation of the loyalty program with Marriott Bonvoy and Hilton Honors is expected to make this offer even more attractive in the US and China.
The management attributes the overall poor figures to the difficult market situation. Not only has the price of coffee beans increased by nearly a third this year, but several US states have also raised minimum wages. In California, it increased by 4 dollars to now 20 dollars per hour. With 3,352 units, the Golden State is the most important market within the US. By comparison, Germany operates only 153 units for more than twice the population of California.
Investors opinions
The situation is also challenging for CEO Laxman Narasimhan because shareholders are increasingly interfering in the business. In addition to the legendary ex-CEO Howard Schultz, who remains the sixth-largest shareholder and regularly comments publicly on the company, Starbucks is now also in negotiations with Elliott Investment Management. The activist investors are demanding significant changes in corporate governance.
A Starbucks share is currently worth 72 euros. In the summer of 2021, the price was 106 euros, and it is now back to its pre-COVID level. Despite this, the company remains on a growth path: the quarterly report notes 526 new openings. Slightly more than half of the stores remain company-operated. The two most important countries are the US and China, with 16,730 and 7,306 stores, respectively.
