At a forum organized by JPMorgan recently, Patrick grismer, chief financial officer of Starbucks, revealed that sales in China were “close to a full recovery”.
According to reports, about 1% of Starbucks’ stores in China have not been restarted. More than 80% of the stores that have been restarted have restored their normal seating. “So from this point of view, we are fully operational.” He said.
In addition, Patrick grismer talked about changes in Chinese consumers, the dynamics and challenges of future recovery, and the arrangement of marketing expenses. Now, let’s have a look.
value added tax
Starbucks China’s same store sales continued to improve month by month. “Our same store sales were flat in August, but they were down 10% in July. These figures include the 4 percentage point benefit impact of China’s temporary VAT exemption. ” Patrick grismer said.
“From the same store sales point of view, we are extremely satisfied with the recovery of China business. What’s more, we are very satisfied with the speed with which the team reopens new stores. ” Patrick grismer said the opening of new stores in the Chinese market had been suspended for only about six weeks.
Patrick grismer said that in terms of store opening, the Chinese team is not only expanding the scale rapidly, but also attracting consumers by innovating store form and design. For example, in July last year, it opened the world’s first “feikuai” concept store in Beijing, providing online ordering, self-service and takeout.
“We use (new stores) as a tool not only to attract existing customers, but also to welcome new customers into the experience. Because we will not only open stores in the cities already covered, but also enter new cities. ” Patrick grismer believes that opening a store in China, the “fastest growing consumer market in the world”, provides Starbucks with a platform to expand its brand influence.
According to the snack food agency, by the end of the third quarter of fiscal year 2020, Starbucks has 4447 stores in China. After the outbreak, Starbucks adjusted its target of new stores in China to 500 in fiscal year 2020.
“China is a dynamic market, which is by no means a static market.” Patrick grismer said.
The first is to pursue contactless service. He pointed out that as consumers pursue contactless experiences and prefer to use digital platforms, Starbucks is constantly improving its products to meet these needs. In July this year, Starbucks introduced the “fast food” service to more APP in the Ali ecosystem, including Alipay, Taobao, word of mouth and Gao de.
Secondly, the demand for convenience has increased. Patrick grismer believes that in order to keep up with this change, Starbucks will not only continue to open core stores, but also expand different store formats to meet the needs of the same group of consumers in different scenarios.
“Of the changes we’ve made in response to new consumer behaviors and preferences, I’d say digitization is the most important one.” He said.
“As previously expected, we are still expected to achieve positive same store sales by the end of the first quarter of fiscal year 2021 (Note: the end of December 2020), and this expectation has already excluded the pull of VAT revenue.” Patrick grismer said.
Patrick grismer, chief financial officer, Starbucks
When replying to the host’s question about why Starbucks could give this expectation, Patrick grismer said it was based on years of experience in fighting SARS. Data shows that before joining Starbucks, grismer worked in many multinational companies. For example, he held various leadership positions in Yum Brands such as KFC and pizza hut for more than 14 years, including CFO. This may explain what he called “the experience of fighting SARS”.
“At that time, we had opened a considerable number of stores in the (China) market. The lessons learned at that time can help us to anticipate market trends and how to deal with a major disruption to our business due to a pandemic He said.
While talking about the business and future prospects, Patrick grismer did not mention the Chinese rival Ruixing coffee involved in the fraud storm, but it is certain that in his opinion, there are three driving forces for the recovery of China’s business, one of which is “fast”.
One is the accelerated expansion of “feikuai” concept stores. The second is to improve customer participation through continuous improvement of digital platform, including the recently launched member multiple reward exchange system. According to reports, the new mechanism provides consumers with higher flexibility, including how to obtain and use points, which “promotes the promotion of member consumption”. Third, digital cooperation with Alibaba and other services.
In order to quickly achieve the goal of opening 500 new stores in China, Starbucks can further expand its store penetration by making smaller and more flexible bets, as well as the investment that may be faster to return the cost. Data shows that as of the end of May, Starbucks has opened 10 “feikuai” concept stores in the Chinese market, covering four first tier cities. At that time, the concept of “fast coffee” was set up in several cities.
Starbucks opened the first “coffee express” concept store in China and even in the world in July last year (the store space is more than 10 square meters, of which two-thirds of the space is occupied by coffee making area), and describes it as a supplement to the “third space” store form – it combines three functions of “online point, store pick-up” coffee service, special star delivery service and store customer experience Through the central kitchen in the store, feikuai concept store will share the special star delivery orders of nearby stores during peak passenger flow period, so as to reduce the waiting time of customers in other stores in the business circle.
Although not far from expected return to growth, Patrick grismer cautioned that a comprehensive recovery in Chinese sales also faces some adverse factors. For example, the flow of people in tourist attractions, transport hubs and urban center stores remains low, affected by the reduction in international inbound tourism.
1% marketing expenses
Facing the uncertainty brought by the epidemic, many companies are “covering their wallets”. But in terms of marketing, Starbucks seems to have no plans for the moment.
In response to the marketing spending arrangements, Patrick grismer said Starbucks’s marketing team has done a great job to use funds as efficiently as possible.
“Of course, in our line, Starbucks member loyalty award programs offer us a more efficient advantage.” Patrick grismer said that thanks to Starbucks’ brand status, the company “attracts a lot of media attention” and spreads it through different channels when it releases new products or new events.
Starbucks’ marketing spending accounts for about 1 percent of the company’s income statement, while peers are usually middle figures, he said.
Patrick grismer also said Starbucks believes that there is still room for continued optimization of the efficiency of marketing spending. This is not only for member loyalty program oriented marketing, but also through social and traditional media.
“We have the opportunity to continue to revisit the plan to ensure the efficiency of marketing costs, but we are not back. In other words, we don’t want to spend less, but want to continue to invest what we think is healthy marketing costs and to ensure that we invest in the most efficient and effective way. ” Patrick grismer revealed.