Starbucks is under more scrutiny in China

Source | Official account: capitalwatch

Chinese regulators discovered more violations after inspecting Starbucks stores in Suzhou. This is Starbucks' second hit on food safety standards in these days, and no doubt more inspections will follow.

According to Reuters, after the reporter went undercover at starbucks' Wuxi store and conducted a secret investigation, Starbucks immediately apologized and promised to improve the situation. The Beijing News reported that the coffee chain used a large number of expired ingredients in two stores and sold a number of best-selling drinks. The Wuxi market regulator acted quickly, inspecting 82 branches in Wuxi and finding 15 problems.

In addition, the market supervision and management department of Suzhou has also joined in. According to Reuters, market regulators found that 18 of the 226 Starbucks stores in Suzhou had problems, including employees not wearing masks and loopholes in accounts.

No fines — Starbucks has pledged to inspect all of its stores in China and train its employees in food safety and store management. According to the company's latest financial report, as of early October, Starbucks had 5,360 stores in China, which is its largest market after the United States.

In its fiscal fourth quarter ended Oct. 3, Starbucks said its "comparable store sales in China fell 7 percent, primarily due to a 5 percent drop in average ticket revenue and a 2 percent drop in transaction volume." However, the report shows that in fiscal 2021, Starbucks' sales in China increased by 17%.

The development of Starbucks' Wuxi and Suzhou branches suggests that more regulatory inspections will be conducted on Starbucks in more cities in China. However, the company's investors are still relatively less sensitive to the new situation that is coming.

Over the past two days, Starbucks shares have fallen about 2 percent with the market. But traditionally, the holiday season boosts the coffee giant's sales — and while its coffee doesn't taste great, it's still the world's top café. While Luckin Coffee (OTC: LKNCY) may have more stores in the Chinese market than Starbucks, it still has a long way to go before it surpasses the 33,000 Starbucks stores worldwide.