Starbucks Struggle As They Post Slower 3Q

It's not only McDonald's that are seeing a hiccup in sales and profits. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Starbucks too are under growing pressure from price-sensitivity in the US and fierce competition in China, the coffee chain’s third quarter results show. 

 

The US coffee giant saw total net revenue fall 1% year-on-year in the three months ended June 30, 2024 to $9.1 billion – albeit a 6% increase on the previous quarter. Global like-for-like sales declined 3%, while footfall fell 5%. 

 

Revenues in the US, Starbucks’ largest market with 16,730 stores, grew 2% year-on-year and 7% quarter-on-quarter to $6.3 billion. However, price rises contributed to a 2% fall in like-for-like sales and a 6% decline in transactions, with Starbucks also facing stronger competition in the US coffee to-go segment, particularly from fast-growing drive-thru coffee operators. 

 

Net revenues for Starbucks’ International segment declined 7% year-on-year to $1.8 billion, a marginal increase on the previous quarter, as competition from domestic chains and an increasingly fierce price war in their key growth market, China, continued to create challenging trading conditions. 

 

Sales in China fell 11% to $733.8 million following a 14% decline in like-for-like sales and 7% falls in both transactions and average ticket price. 

 

Starbucks also noted headwinds in the Middle East, Southeast Asia and parts of Europe, driven by "widely discussed misperceptions" (😂😂😂) about the brand. However, trade was positive in Japan and Latin America – markets described as displaying "significant strength". 

 

Despite lagging sales, Starbucks continued to expand globally, adding 526 net new stores to reach 39,477 sites across 86 markets. The coffee chain opened 130 and 213 net new stores in the US and China respectively – with the markets comprising 61% of their total global store footprint.

 

In China specifically, Starbucks now operate 7,306 stores – but face an uphill task to reach their planned 9,000 outlets in the world’s largest branded coffee shop market by 2025. 

 

The gap between the US coffee chain and China’s market leader, Luckin Coffee, has also widened. Beijing-based Luckin achieved 35% year-on-year sales growth in the three months ended June 30, 2024 to reach RMB 8.4 billion ($1.1 billion) and already reached 20,000 stores in July 2024. 

 

It is not incorrect to say that Starbucks’ struggles reflect consumer fatigue with high prices at food chains, restaurants and stores after years of price hikes.

 

In other words: Fewer people are going to Starbucks and buying drinks and food. It was Starbucks’ second-straight quarter of sales declines.👍👍👍