Starbucks’ first-quarter net profit dropped by nearly 30% but is bullish on the Chinese market

Affected by the global epidemic, the Chinese market has become a “life-saving straw” for Starbucks (SBUX.US).

On January 27, Starbucks, the world’s largest coffee chain company, released a performance report for the first fiscal quarter of 2021 (October 2020-December 2020). The data showed that Starbucks’ revenue for the first fiscal 2021 quarter was US$6.749 billion, a year-on-year increase. A decline of 4.9%, less than the market expected 6.92 billion US dollars. The net profit attributable to the company was US$622 million (approximately RMB 4 billion), a year-on-year decrease of 29.8%.

In addition, in the first fiscal quarter, Starbucks’ global same-store sales fell by 5%. However, the Chinese market recovered strongly. Starbucks China’s same-store sales increased by 5%, showing positive growth for the first time since the epidemic.

The most interesting aspect of Starbucks’ recovery in China is the rapid increase in-store opening speed. The Changjiang Business Daily reporter noted that in the first fiscal quarter, Starbucks opened 278 new stores, a year-on-year increase of 4%. Among them, the Chinese market opened 157 new stores and entered 15 new cities.

Starbucks predicts that the Chinese market will pick up more significantly in the second fiscal quarter. Same-store sales in the United States will increase by 5% to 10%, and same-store sales in China are expected to nearly double.

Performance decline, COO announced his departure

The financial report shows that Starbucks’ global revenue for the first quarter of fiscal 2021 was US$6.749 billion, down 4.9% from the same period last year and lower than market expectations of US$6.92 billion. The net profit attributable to the company was US$622 million, a year-on-year decrease of 29.8%.

In addition, same-store sales are also not optimistic. Starbucks said that same-store sales in the United States fell by 5% in the first quarter, while in China, Starbucks’ second-largest market, same-store sales showed positive growth for the first time since the COVID-19 pandemic. Same-store sales in the quarter increased by 5%, although transaction volume still declined compared to the same period last year.

In the first fiscal quarter, Starbucks China’s revenue was US$911.1 million (approximately RMB 5.896 billion). In its financial report, Starbucks stated that the increase in the performance of the Chinese market was mainly due to the popularity of incentive programs and the return of consumers. In addition, customers in the Chinese market also spent more money on each order, making up for the loss of the decline in order volume.

In fact, in the past two years, the Chinese market is slowly becoming the backbone of Starbucks.

The Changjiang Business Daily reporter noted that in 2019, Starbucks China carried out an important business adjustment, reorganizing its Chinese business into two units: Starbucks retail and digital innovation. At the same time, in 2019, it launched the mobile ordering service “Starbucks Now”, and in July 2020, “Starbucks Now” will be fully integrated into Alibaba business systems such as Taobao and Alipay. In April 2020, Starbucks announced that it will join hands with Sequoia China to carry out strategic investment and commercial cooperation in the new generation of catering and retail technology to accelerate Starbucks China’s digital innovation.

However, it is worth noting that after the release of this unobtrusive financial report, Starbucks chief operating officer Roz Brewer announced that he would leave. Affected by the above two bad news, Starbucks stock fell 2% after the market that day. As of the close of trading on January 28, Starbucks stock continued to fall, down 6.51%, recording $97.87 per share, with a total market value of $115.2 billion.

Although the overall financial report was lower than expected, it also showed some good news. In the financial report, Starbucks stated that it expects to have revenues of US$28 billion to US$29 billion in fiscal 2021, with global comparable store sales increasing by 18%-23%. Among them, Starbucks has the highest expectations in China, with comparable store sales expected to increase by 27%-32%.

157 new stores opened in the Chinese market in the first fiscal quarter

In the context of the 2020 epidemic, how does Starbucks China hand in high-scoring answers? Online business is an important starting point.

It is understood that through Starbucks Club, Starbucks continued to significantly expand customer digital relationships in China. The number of active 90-day members increased to 15.4 million in the first fiscal quarter, a record increase of 51% compared with the same period last year. A quarter-to-quarter increase of 14%.

In addition, Starbucks CEO Kevin Johnson mentioned in the performance meeting that as 99% of Starbucks stores in China can use the “Starbucks Now” service to place orders online, 85% of the stores provide “special star delivery” delivery services. , Mobile orders accounted for 30% of Starbucks’ sales in China (14% of which came from delivery and 16% from coffee shops), a record high, compared with 26% in the previous fiscal quarter.

Furthermore, affected by the global COVID-19 pandemic, as Starbucks’ base camp, the United States, and other places ushered in waves of “store closures”. Although the Chinese market has experienced the temporary closure of some stores, it has not affected the pace of Starbucks’ opening of stores.

The financial report shows that in the first fiscal quarter, Starbucks opened a net new 278 stores, a year-on-year increase of 4%. As of the end of the reporting period, there were a total of 32,938 stores worldwide. The number of stores in the United States and China was 15,340 and 4,863 respectively, accounting for 61% of the company’s total global stores.

As Starbucks’ largest growing market, in the first fiscal quarter, 157 new stores were opened in the Chinese market and entered 15 new cities.

It is worth mentioning that at the last fiscal quarter’s performance meeting, John Culver, President of Starbucks International and Channel Development Group, said that it is expected that Starbucks China’s net addition of 600 stores in fiscal 2021 will accelerate if feasible.

Although, Starbucks previously stated that it expects that the number of stores worldwide will reach about 55,000 by fiscal 2030. However, the Chinese market may not be as easy to occupy as Starbucks thought.

According to industry insiders, Starbucks’ main battlefield in China has always been a first-tier city, and it has high requirements for store location, requiring a large flow of people, business districts, and petty-bourgeois youth. Therefore, it may take longer for Starbucks to further expand its market share in China, as the market in first-tier cities is easily saturated and difficult to penetrate in China’s sinking markets, while also facing strong rivals such as Luckin and Hi-Tea.


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