Starbucks plans 3,000 new China stores despite sinking sales from covid policies
Summary
- The coffee giant targets 9,000 stores in China by 2025 even as sales dropped sharply this year amid Covid-19 lockdowns and weakening consumer spending
Starbucks Corp. plans to increase its China store count by 50% over the next three years, a vote of confidence in its largest market outside the U.S. despite Covid-19 lockdowns and weaker consumer spending that has damaged its sales.
Starbucks set a China store target of 9,000 by 2025 at an investor meeting during which executives outlined a wide-ranging revamp. The company previously said it would operate 6,000 stores in China by the end of this year.
The company also said it expects sales to nearly double in China over the next three years, adding that it plans to experience outsize growth in same-store sales starting in fiscal 2023 following this year’s slump.
The company’s optimism about the China market comes despite a brutal year for consumer-facing companies. Last month, the Seattle-based chain said its same-store sales in China fell 44% during the quarter ended July 3 compared with a year earlier, compared with a 3% rise in same-store sales world-wide. The drop marked an acceleration from the 23% slide in same-store China sales during the company’s previous quarter.
On Tuesday, Starbucks executives expressed optimism that the Covid-driven downturn would be temporary, adding that they expect a jump in sales next year as sales rebound from depressed 2022 levels.
“Coffee is emerging as the choice of beverage for the younger consumers in China, and we are positioned to capture share," interim CEO Howard Schultz said Tuesday. “We’re investing now for the long-term growth aspects of the country."
Starbucks said China’s coffee market remains in its infancy and still has room for growth. The average Chinese consumer drinks 10 to 12 cups of coffee a year, up from fewer than three cups as recently as 2014, Mr. Schultz said.
The threat of persistent and repeated Covid lockdowns continue to weigh on China’s economy and multinational companies have borne a significant share of the pain. The lockdowns have hurt spending on everything from coffee to sneakers, with some Chinese consumers saying that they have cut back on spending on some nonessential items.
Starbucks generated 13% of its fiscal 2021 revenue from China, making the country its largest market outside the U.S.
The company’s targets for China come as it undertakes a far-reaching overhaul of its business, with plans to spend hundreds of millions of dollars to update its stores to improve customer service and reduce employee turnover spurred by the Covid-19 pandemic.
A major challenge for the company’s China plans is whether the country’s aggressive Covid policies linger longer than expected. Recent weeks have seen new stay-at-home orders for residents of large cities such as Chengdu, which has a population of more than 21 million, and the provincial capital of Guiyang following new outbreaks. Beijing has indicated little appetite for relaxing its “dynamic zero-Covid" policy of aggressively squelching outbreaks as they emerge.
Starbucks also faces challenges from a host of local and regional competitors. Its biggest is Luckin Coffee Inc., the once scandal-plagued Chinese coffee chain that is in the midst of a turnaround effort. It also faces competition from lower-priced brands such as Manner Coffee, said Yuwan Hu, associate director of Daxue Consulting in Shanghai.
“Both Luckin and Starbucks are quite ambitious about their expansion plans, especially in lower-tier cities," she said, noting that major coffee brands already have a large presence in China’s largest cities like Beijing and Shanghai. “The competition is very fierce between those leading brands."
This story has been published from a wire agency feed without modifications to the text
