On February 2, American multinational coffeehouse and roastery chain, Starbucks, reported its financial results for its 13-week fiscal first quarter ended January 1. Its revenue rose to $8.71 billion, which was still lower than market expectations. Its global comparable store sales increased by 5%, but comparable store sales in China decreased by 29%.
At the end of fiscal Q1 2023, Starbucks stores in the U.S. and China comprised 61% of the company’s global portfolio, with 15,952 stores in the U.S. and 6,090 stores in China. In fact, Starbucks has been under pressure in the Chinese market for a long time. In fiscal 2022, Starbucks’ comparable store sales revenue in China decreased by 24% year-on-year, driven by a 24% decline in comparable transactions and a 24% decline in average ticket.
Starbucks expressed confidence in its development in China. “Since January, we have seen a significant month-on-month improvement in sales and passenger flow, and people have begun to resume their previous lives, including gradually returning to our stores. We believe that the activation of consumption vitality will help our business recover in the second half of this fiscal year.” Howard Schultz, interim CEO of Starbucks, said when talking about the performance of the Chinese market.
Wang Jingying, chairman and CEO of Starbucks China, stressed at the performance conference, “Starbucks has made full preparations for the future business growth in China. I am full of confidence in implementing the vision and strategy put forward at the investor exchange meeting and achieving the goal of opening 9,000 stores by the end of 2025.”
As a global coffee giant, Starbucks’ success is largely due to its “third space” model, which creates a leisure and relaxation place different from home and work. But in China, Starbucks is trying to explore a more localized way.
Starbucks has a greater variety of store types in China, and the number of small stores has increased significantly. In the second quarter of fiscal year 2022, Starbucks’ mobile orders accounted for 47% of its total orders in China. According to Canyan Data, as of February 2, 2023, 60% of Starbucks stores are located in first-tier cities and new first-tier cities in China. Considering the limited quality stores in high-tier cities and Starbucks’ vision of entering more cities, exploring lower-tier cities is inevitable for its next development.
Starbucks’ Chinese competitors include fine coffee brands represented by Manner and Seesaw, large chain brands represented by Luckin Coffee and Tim Hortons, and tea brands represented by HeyTea and Naixue. Schultz pointed out in an open letter issued to Chinese employees in early 2023 that he firmly believed that “the Chinese market will become Starbucks’ largest market”.