Starbucks Logs First Profit Drop in Nine Years, Mulls Takeaway to Fend Off Rivals
Xu Wei
(Yicai Global) Aug. 1 — This year marks the 20th anniversary of Starbucks landing on the Chinese market. Despite steady and substantial revenue growth, the US coffeehouse chain just posted its first profit dip in nine years, National Business Daily reported today. The company is considering resorting to deliveries to survive amid China’s intense competition.
Starbucks’ earnings soared by 46 percent annually to USD1.23 billion in the China/Asia Pacific market — always seen as the company’s cash cow — as of July 1, but its operating profit margin slid 7.6 percentage points to 19 percent, per the third quarter report the firm released earlier, when it attributed the drop to shareholding changes in its East China outlets.
The firm also sucked up a two percent decline in same-store sales in Greater China, in stark contrast to the 7 percent growth it logged the same time last year.
It has more than 3,300 stores in around 140 Chinese cities, and the world’s second-largest economy has become its biggest and fastest-growing overseas market. The tally of its mainland venues will reach 6,000 by the end of fiscal year 2022, and new shops will open in about 100 new cities, bringing the total to 230 in its network, Starbucks forecast, adding that about 600 new stores will be added each year.
The brand, based in Seattle in the western US state of Washington, has been facing stiff competition, most notably from online coffee chains. China’s Luckin Coffee did not shy away from stating its intention to go head-to-head with Starbucks after its high-profile founding in November. It accused the US competitor in a public letter in May of signing contracts containing exclusive clauses with property management companies, charging it with monopolistic practices. It even sued Starbucks for these alleged antitrust acts in a case still pending.
The company is now mulling a deal with Chinese e-commerce giant Alibaba Group Holding, headquartered in Hangzhou in eastern Zhejiang province, to start a coffee delivery service to stem the sales downtrend in its Chinese market, Bloomberg and other media reported, citing an informed source.
The deal with Alibaba is not limited to delivery, but the source did not specify the exact scope, adding, however, the transaction will not affect Starbucks’ collaboration with Shenzhen-based tech titan Tencent Holdings in the mobile payment and online gift businesses, per Bloomberg.
Ele.me, an online food delivery platform affiliated to Alibaba, will start to provide delivery services for Starbucks in the fall under an agreement slated for release later this week, the source noted. Starbucks has not specifically confirmed the Ele.me deal but did say last week that introduction of a delivery service partner was in the cards for its Chinese operations.
How the mighty have fallen.
Editor: Ben Armour
