There Are Bigger Challenges Facing Starbucks

6842

Investors dumped Starbucks shares on Friday, a day after the coffeehouse giant reported disappointing first-quarter results, with slowing growth in its home U.S. market. But the reasons Starbucks blamed for its shortfall may not cover all the challenges it faces

Photo: © Depositphotos.com/mrsiraphol

Comparable sales for the quarter rose 2% in the Americas region, which mostly includes U.S. locations and accounts for about 70% of total company sales. That follows 3% growth in fiscal 2017, the worst performance in at least five years and a sharp contrast to sales growth of 6% to 7% in preceding years.

Traffic in the U.S.-led region was flat, after it closed fiscal 2017 with flat traffic, then the worst performance in at least five years as well.

Starbucks shares were off 4.5% shortly before the close of trading Friday.

On a conference call late Thursday, Starbucks President and CEO Kevin Johnson blamed Starbucks’ limited-time holiday drinks and merchandise that failed to deliver. He also blamed “softness in visits by occasional non-Starbucks Rewards customers” in recent quarters that likely worsened because of customers’ routine change during the holiday season. Declining U.S. mall traffic didn’t help, either, leading Starbucks’ comparable mall store sales, about 6% of its domestic company-operated locations, to decline and fare far worse than its non-mall outlets.

However, not addressed much on the call were underlying market shifts that may continue to threaten growth: Consumers are spending more time at home, and more of them are brewing their own artisanal craft coffee, different studies have showed. At the same time, they are also consuming more ready-to-drink coffee and other beverages. (Think, for instance, about the array of fancy nitro-infused cold brew coffee you suddenly see displayed in supermarkets these days.)

Market research firm NPD Group predicted more consumers will spend more time at home this year thanks to rising numbers of retirees and people who work from home. That’ll lead to growing demand for products such as coffee or espresso makers, NPD said. Its past research also pointed to millennial-led demand for in-home craft brewing.

Meanwhile, Americans' increasingly on-the-go lifestyle is leading to a surge in demand for ready-to-drink beverages. A Mintel study in the fall estimated that while U.S. coffeehouse sales would rise to $28.7 billion by 2021, from an estimated $23.4 billion in 2017, the coffee shop growth rate is slowing. A potential threat, it projected, is the ready-to-drink coffee segment, which it expects to expand by 67% between 2017 and 2022 and represents the fastest growing segment of the $13.6 billion coffee retail market. One hot driver of that demand: refrigerated cold brew coffee, which has seen total U.S. retail sales surging 460% since 2015, Mintel said.

A separate Nielsen study also showed liquid coffee joining liquid tea and other “new age beverages” in making the top 10 growth-drivers in the so-called center aisles of supermarkets.

Those consumer shifts aside, Starbucks has previously acknowledged in its annual report that it faces growing competition from quick-service restaurants and other gourmet coffee shops. McDonald’s, for instance, has been making a growing push in its McCafe offerings on the lower end while “third wave” artisanal craft coffee shops are eyeing Starbucks’ pie on the high end. Nestlé’s majority-stake purchase in Blue Bottle Coffee last year pointed to the promise in the upscale segment of the market.

Starbucks isn’t oblivious to these challenges. The company is expanding the rollout of its own third-wave high-end Roastery shops. To drive traffic, beginning in March, it will accept mobile payment from even non-reward loyalty customers, paving the way for its own cashless stores, Starbucks executives said Thursday. The company, in partnership with Chase and Visa, is also unveiling its first co-branded reward credit card to allow consumers to earn Starbucks reward points when they shop elsewhere. And this month it introduced the Blonde espresso roast, which Johnson said marks the first time Starbucks has had a second espresso roast in stores. Fresh food assortment, nitro cold brew and craft coffee are among other product expansion focuses in stores.

Meanwhile, Starbucks has been fast expanding in sales of its own bottled drinks and other coffee assortment at supermarkets and other locations.

Andria Cheng, Contributor

   Если вы обнаружили ошибку или опечатку, выделите фрагмент текста с ошибкой и нажмите CTRL+Enter

Орфографическая ошибка в тексте:

Отмена Отправить