Author: Pan Xian (original)
Early this morning, Starbucks' results for the last quarter were released.
During the period, Starbucks was coping with fierce price wars and challenges brought about by the macro environment in the Chinese market. At the same time, the world's largest coffee chain has 7,093 stores in China, all of which continue to maintain double-digit store operating margins and a record number of more than 127 million members.
"Our business has shown strong resilience, our fundamentals are very strong, and Starbucks will continue to lead the premium coffee market in China. Xiaoshidai noticed that at the subsequent earnings meeting, Starbucks global CEO Laxman Narasimhan (Laxman Narasimhan) said this.
He also said at the meeting that Starbucks' long-term commitment to China will not be affected by the current price war, "I firmly believe that the Chinese market is full of unlimited opportunities, and Starbucks is full of confidence in the long-term development of the Chinese market."
Let's take a look at the latest high-level discussions from the world's top management.
"Under control"
"In China, we are still seeing a slower-than-expected recovery [in the macro environment] and a lot of market promotions. Today, Nathhan said straight to the point that Starbucks is consolidating its high-end position in China, and that the team in China continues to execute the plan with extreme rigor and continued focus, and "a lot of things are under our control."
Despite the fierce competition in the market, Nashan believes that there are still a number of bright spots in Starbucks China's performance in the first quarter.
First of all, he pointed out that Starbucks is still the brand of choice for Chinese customers of all city levels and age groups in the "non-home coffee scene". More and more customers are turning to Starbucks as a coffee ritual to start their day, and the store's breakfast hour is strong, with more sales than before the pandemic. Same-store sales increased by Star Delivery.
Second, Starbucks' membership growth in China remains solid and strong. The number of 90-day active members exceeded 21 million, reaching an all-time high. The total number of members of Starbucks China continues to grow, reaching a record high of more than 127 million. Membership sales continued to grow, with the proportion of sales increasing to 75%, a record high. The consumption frequency of Gold Star members has also increased. "We are investing in increasing the loyalty of My Starbucks Rewards members, driving deeper customer connections and creating lifetime value," he said. ”
星巴克首席执行官Laxman Narasimhan（纳思瀚）
Thirdly, beverage innovation is also strong, demonstrating the opportunity to further enhance product innovation capabilities in China. Starbucks China launched a total of 27 new products in the quarter, continuing to create brand surprises and meaningful consumer connections in the market, with record consumer satisfaction and employee engagement ratings.
Fourth, the Starbucks China team achieved sequential margin growth in the face of revenue pressure due to its strong operational capabilities. The single-store business in China performed healthy and profitable, and all stores, including new stores, continued to maintain double-digit store operating margins.
"Our business has shown strong resilience and our fundamentals are very strong. Starbucks will continue to lead China's premium coffee market with a large and growing consumer base, strong brand power, a rich and profitable store portfolio, and a strong ability to drive margin growth, Nasihan said.
In conclusion, he pointed out that Starbucks will continue to implement the three key elements of its China strategy, one is to provide more locally relevant coffee innovations, the second is to increase significant technology investment, improve omni-channel capabilities, and digitally empower stores, and the third is to further expand new stores in sinking markets, especially in new county-level cities, in view of the strong economic benefits of new stores in sinking markets.
"In China, our confidence and ability to achieve our goals will remain the same, and we are 'playing the long game'. He said.
Jingying Wang, Chairman and CEO of Starbucks China, also said that in the last quarter, Starbucks China demonstrated "strong resilience and strength" to further grasp growth opportunities and continue to create new business increments. "We will continue to focus on high-quality, profitable and sustainable growth, consolidate our leadership in the high-end track, continue to focus on high-quality coffee and people-to-people connection, and continue to bring high-end coffee experience to Chinese consumers." ”
Nasihan pointed out that macro environmental factors contributed to the decline in trading volume in China during the quarter. Reduced consumption of occasional patrons, changing holiday patterns, the environment amid price wars, and the normalization of consumer behavior following the reopening of the market last year all had some impact on the performance. This is mainly manifested in the afternoon and evening hours.
This statement is similar to that of another local leading company. The decline in profit and other indicators in the first quarter was mainly due to the company's adjustment of the average selling price of products, the continuous fluctuation of the market environment and competitive situation, and the negative impact of seasonal factors.
According to the financial report, in the second fiscal quarter of 2024 ending in March, Starbucks' revenue in the Chinese market was $705.8 million, and same-store sales fell 11%, mainly due to an 8% decrease in average order value and a 4% decrease in same-store transaction volume. However, it is worth noting that Starbucks China continued to maintain sequential profit margin growth in the quarter, and store operating margins maintained a good double-digit performance.
No price wars
Xiaoshidai noticed that in the subsequent Q&A session, Wall Street analysts were very concerned about the fierce price war in China.
In this regard, Na Sihan said that China's overall coffee and tea business is growing, and Starbucks has chosen to be itself and not participate in the price war. "We are a premium brand. Over the past 25 years, we have built a company with a strong competitive advantage. We have great staff, our stores are different, and we have a vertically integrated supply chain. In addition, he noted that Starbucks partners in China have a wealth of coffee knowledge and are sparing no effort to promote coffee traditions and culture in China.
At the same time, the competition in the industry is quite fierce. For Starbucks, the focus is still on the high-end track. At present, there is still a lot of room for development in the Chinese market, and the per capita annual consumption of coffee is still only 13 cups, while Japan and the United States have reached 280 and 380 cups.
"We know that over time, you will find that our business is healthy, the P&L level is strong, and we will see growth as consumers become more exposed to coffee. Nasihan said that this is what he knows about China's overall competitive environment.
He stressed that changes in the external environment will not affect Starbucks' long-term commitment to China.
Rachel Ruggeri, chief financial officer of Starbucks, also added that despite the complex macro environment, the net new store openings in China last quarter were still 118, while the operating margin of new stores and the entire portfolio maintained double-digit stores, indicating the health and resilience of the Starbucks brand in the market, laying a solid foundation for long-term development.
At the end of the second quarter, the number of stores in the United States and China was 16,600 and 7,093, respectively, accounting for 61% of the company's total global stores. Among them, the number of stores in the Chinese market increased by 14% from 6,243 in the same period last year.
The 1,000th Starbucks store in Zhejiang opened in Cixi, Ningbo
She said that when Starbucks gave expectations around new store growth, especially in relation to the Chinese market, it was a deliberate decision, and that the increase in the number of stores opened in lower-tier cities and new county cities was because Starbucks saw higher returns in those markets.
"So, overall, our returns in the Chinese market are quite attractive, especially in lower-tier cities and new county cities. It also shows that Starbucks sees an opportunity in China, she said.
According to Wang Jingying, as of last quarter, Starbucks had covered nearly 900 of China's nearly 3,000 cities above the county level. New stores in county-level cities continued to perform well and became one of the important business increments.
It is reported that during the period, the scale of 90-day active members in the sinking market grew rapidly, hitting a record high, and the membership growth rate exceeded that of high-tier cities. In addition, membership sales grew substantially, with sales growth doubling that of high-tier cities. "As China's urbanization continues to advance, sinking cities will show even greater growth opportunities. Wang Jingying said.
Global expectations
Today, Starbucks revised its full-year 2024 global revenue growth forecast to a lower single-digit growth rate from 7% to 10% previously, according to Rachel Ruggeri, Starbucks Chief Financial Officer. Among them, the compound growth rate of the world and the United States fell to flat from 4% to 6% in the previous period at constant exchange rates.
In addition, Starbucks expects global net store additions to grow by about 6%, compared with the previous forecast of about 7%. The number of stores in the U.S. is expected to grow by about 4%, and the number of stores in China is now expected to grow by about 12%, compared to the previous forecast of about 13%. Operating margin growth was broadly in line with previous expectations for gradual expansion. Finally, EPS and non-GAAP EPS growth is expected to be flat at 15% to 20%.
Starbucks also expects revenue growth from the third to fourth quarters, and margin and earnings pressures will ease in the fiscal fourth quarter as the company's action plan pays off.
Finally, Starbucks still expects to have about $3 billion in capital expenditures, the majority of which will be used for our direct investment in our global store portfolio, which she describes as continuing to deliver very attractive returns.
Nathhan said today that Starbucks understands the specific challenges and opportunities ahead. "We have a clear execution plan and the whole organization is mobilizing around it. We are confident in our long-term growth and know that our 'Triple Shot Reinvention with Two Pumps' strategy will realize the unlimited potential of the Starbucks brand." He said.
For this latest Starbucks report card, Xiaoshidai noticed that the international media also gave a lot of attention.
Bloomberg quoted CFO Rachel Ruggeri as saying that last quarter's results were affected by colder-than-usual weather in January, global consumers were more cautious, and the Palestinian-Israeli conflict was also headwinded.
She emphasized that Starbucks hopes to reverse this trend by focusing on meeting the demand in the morning, including making products more accessible, reducing wait times for consumers, and adjusting the way some drinks are made. Starbucks is developing new products to appeal to consumers in the afternoon hours and will launch a bubble tea-like drink this summer.
CNBC quoted Starbucks executives as saying that the most loyal Starbucks consumers have remained loyal, but occasional consumers have made fewer purchases. Starbucks is planning to launch an app version that will allow consumers to order drinks without becoming a member, in an effort to entice those people to come back to Starbucks more often.
CNBC also pointed out in the commentary that McDonald's, PepsiCo and others have said that low-income consumers have cut back on spending and are looking for deals when talking about last quarter's results.
In addition, CNBC quoted Nathhan as noting that the company now expects to save $4 billion in supply chain costs over the next four years, revising its previous forecast of $3 billion in three-year savings.