3010MK: Starbucks’ sales in China come roaring back: Global Marketing, Coursework, SMU, Singapore

Starbucks’ China business is back after dropping due to Covid restrictions last year. In the three months ending on July 2, sales at Chinese locations open at least 13 months spiked 46% year-over-year, the company said Tuesday. China has been a key growth driver for Starbucks. But the company’s business in China — the world’s second-biggest economy — was hampered by the country’s strict Covid  restrictions. Starbucks sales in China took a major hit last spring.

“I am encouraged by our performance in the quarter,” Starbucks CEO Laxman Narasimhan said during an analyst call discussing the financial results Tuesday, noting that in the quarter revenue in China grew 51% year-over-year. As of July, there were nearly 6,500 Starbucks locations in China. But there’s still room for growth, Narasimhan said. “There is so much more opportunity ahead in underpenetrated areas within this market,” he said. “We are still in our early days in China, one of the largest consumer markets.” Narasimhan pointed to the company’s vertical integration and “locally relevant innovation,” which “has won over customers in what has historically been a tea-drinking culture,” as competitive advantages.

In China, the average person drinks about 12 cups of coffee per year, he said. That’s far lower than consumption in other markets. In Japan, each person drinks an average of about 200 cups of coffee per year, and in the US that number is 380 cups, he said. China, which has a population of 1.4 billion, offers a massive opportunity if Starbucks can boost coffee consumption to Japanese or US rates.

Sales in the United States also grew during the quarter but at a more modest clip. Sales at North American locations open at least 13 months popped 7%. Globally, sales at cafes open at least 13 months grew 10%, missing analyst expectations. Shares of the company fell about 1% after the market closed on Tuesday. In North America, quarterly revenue hit $6.7 billion, up 11% year-over-year.

Together, the US and China make up 61% of Starbucks’ portfolio worldwide. Source: Wiener-Bronner, D. (August 1, 2023). Starbucks’ sales in China come roaring back. https://edition.cnn.com/2023/08/01/business/starbucks-china-sales/index.html