China Food

Starbucks has set a new record in opening stores in China! CEO: we want to be “broader, deeper and smarter”

On the second day of the year of the tiger, we might as well focus again on the “just need” of many office workers – coffee.

Not long ago, during the Spring Festival, Starbucks, the world’s largest coffee chain, announced the results in the first quarter of fiscal year 2022 (October 4, 2021 – January 2, 2022), with consolidated net income increasing by 19% to US $8.1 billion (about 51.6 billion yuan), setting a record in the first quarter; Global comparable store sales increased by 13%, with GAAP earnings per share of $0.69 and non GAAP earnings per share of $0.72.

It is worth noting that the snack generation noticed that in the first quarter, the number of new stores and new cities in Starbucks China reached a record high, with a record total of 5557 stores.

At the subsequent performance meeting, Kevin Johnson, President and CEO of Starbucks, Rachel ruggeri, chief financial officer of Starbucks, and Leo Tsoi, the new CEO of Starbucks China last year, further talked about China’s performance and gave the latest annual guidance.

Let’s take a look at the on-site news.

Over 5.7 billion yuan and 5500 stores

In its world’s second-largest market, the coffee chain giant experienced a challenging start to fiscal year 2022.

According to the financial report read by xiaoshidai, as of the first quarter of January 2, 2022, Starbucks China’s revenue was $897.2 million (about 5.715 billion yuan), a slight decrease of 2% over the same period; The same store sales fell by 14%, of which the transaction volume fell by 6% and the customer unit price fell by 9%; Excluding the 4% impact brought by the value-added tax preference of the previous year, the same store sales fell by 10%.

Starbucks China fiscal year 2022 first quarter results

Johnson said at the meeting that under the repeated epidemic, the growth and performance of net new stores remained strong, but the overall revenue and profitability were lower than expected. “We comply with epidemic health regulations, so in the first quarter, three-quarters of our Chinese stores experienced (temporary) closures or reduced operating hours.” He explained.

“Nevertheless, we expect our business in China to continue to show significant long-term growth.” He said the company believes that this is temporary and will focus on adapting to changing macro dynamics and balancing long-term investment in the business. “In a turbulent environment, we still focus on the long term.”

There is no evidence that Starbucks in China is slowing down.

Johnson said that in the first quarter, Starbucks continued to expand its store size, with more than 5500 stores in the mainland market, which also brought the company’s global store number to a record 34317. “It is worth noting that our new generation of stores in China have continued to perform well and achieved first-class store profitability and return on investment.” He said.

Ruggeri added at the meeting that this quarter, Starbucks China opened 197 new stores and entered 16 new cities, “all of which reached an all-time high in the first quarter”.

Kevin Johnson, CEO of Starbucks (profile picture)

The growth rate of this store and the performance of same store sales have attracted the attention of analysts. Xiaoshidai noticed that at the meeting, some analysts asked whether Starbucks needs to reconsider its development plan in the Chinese market, that is, to slow down the speed of opening stores and focus more on increasing same store sales.

“Over the past two years, we have opened more than 1200 new stores, most of which were actually opened during the epidemic. This accounts for more than 1 / 5 of our total stores, (proportion of new stores) More than many other retailers that have operated in the Chinese market for many years. But more importantly, as Kevin just mentioned, all our new stores have achieved first-class profitability and return on investment. This shows the huge market potential we can release here. ” Cai Deli responded.

“When you look at the overall development, it should be noted that 70% of our growth in China is actually driven by our new stores. Therefore, we will continue to seize the opportunity to develop in the Chinese market.” He said.

Cai Deli, the new CEO of Starbucks China

In short, the three strategies Starbucks China has been implementing are working, Cai said. The first is “go wider”, which means entering more cities. The second is “go deeper”, which provides customers with a new coffee experience by bringing diversified and rich products. Third, it is “go smarter”, that is, it continues to become smarter under the repeated epidemic. “We will use the power of data analysis to promote the development of our stores, including the expansion of our stores”.

“I must point out that I have worked in this market for more than 10 years, and what I see is that we are indeed still in the early stages of development. In fact, as we promote ‘wider, deeper and smarter’, our new store opening is helping us build long-term success.” He said.

Johnson agreed. “My answer to your question is that if we see that the income and return on investment do not meet the threshold we think we are satisfied with, we will reconsider. But now, the results are great. During the epidemic, as we were ‘wider’ and ‘deeper’ in the development of new stores, we performed very well.”

He added that as long as new stores can continue to provide “first-class profitability and return on investment”, Starbucks will continue to rely on opening new stores to make a long-term layout of the Chinese market.

Digital orders hit a new high

Under the repeated epidemic situation, the importance of digitization is also increasing.

“We are encouraged by the performance and growth of digitalization, as it promotes new consumption scenarios and opens up new convenient channels. In the first quarter, the sales of digital orders increased by a record 38%, consumer demand was strong in the morning and afternoon, and our continuous store expansion proves the great growth opportunities in the Chinese market.” Johnson pointed out at the meeting.

It was revealed that in the first quarter, the 90 day active members of Starbucks China’s Xingxiang club were close to 18 million, an increase of 2.6 million year-on-year, and the members contributed 75% of the sales.

“Despite the challenges, our partners (Note: Starbucks employees) Persevere and ensure the safety in the store through epidemic prevention measures. Importantly, our customer connection score hit an all-time high this quarter. This proves the resilience of our partners and the strength of our brand, and makes us believe that as the restrictions caused by the epidemic will eventually weaken, our growth opportunities in China remain as compelling as ever. ” Johnson said.

In addition, ruggeri said at the meeting that Starbucks China also recorded the lowest partner turnover rate in the past three years in the first quarter.

 

In terms of digital initiatives, ruggeri also mentioned that last month, the company expanded Starbucks takeout to meituan platform and cooperated with China’s leading e-commerce service providers to improve the customer experience. “We plan to continue to promote the growth of takeout business in the next few quarters.”  

Xiaoshidai introduced that with the expiration of the three-year exclusive distribution cooperation agreement between Starbucks and Alibaba’s takeout distribution platform hungry on December 31, 2021, in January this year, Starbucks China announced its entry into meituan and launched a series of new functions in meituan, including “special star delivery” takeout service and exclusive space service “1971 living room”, And the first landing application of meituan’s “super store” innovative product functions.

Among them, the “1971 living room” service named after the year Starbucks was founded can be said to be an upgraded strategy for the coffee chain giant to broaden the boundary of the “third space”. In November last year, Starbucks China announced the opening of the first shared space concept store in the mainland to start the business of sharing conference rooms and business communities.

In contrast, “1971 living room” has jumped out of the limitation of store type and made greater use of different store types to provide places for business, leisure and gatherings. According to reports, the service aims to meet the space needs of gatherings, meetings, work and study. Consumers can book the exclusive space in Starbucks stores through meituan app and public comment app under meituan.

Adjust the annual expectation

Looking forward to the full year of fiscal year 2022, ruggeri said at the meeting that the company reiterated its expectation that the sales growth of global comparable stores in fiscal year 2022 would be in the high single digits, and the revenue guidance range would be US $32.5 billion to US $33 billion.

“Considering that there are significant adverse profit factors in this changeable business environment, inflation is at the highest level in decades, and the repeated epidemic has affected our global business and extensive labor shortage in the industry, we believe that it is prudent to modify the profit margin and earnings per share guidelines for fiscal year 2022.” She said.

Specifically, in terms of profit margin, she said that according to the latest trend expected by Starbucks, inflation, epidemic related expenses, new partner training and support costs, and sales reduction caused by flow restrictions in fiscal year 2022 are expected to “bring incremental profit margin pressure of more than 200 basis points”.

However, ruggeri also pointed out that Starbucks has taken and will continue to take measures to offset these pressures, including “selectively accelerating price increases and strictly managing many cost areas”.

“We also believe that as our investment in partners begins to translate into higher retention rates, personnel costs related to training costs will slow down.” “Overall, the profit benefits from these actions are expected to almost offset the expected profit pressure,” she said

In terms of earnings per share, ruggeri said that considering the first quarter results and the expected margin pressure for the rest of the year, the company now expects GAAP earnings per share to decline by 4% to 6% in fiscal 2022. All other fiscal year 2022 guidelines, including the global net number of stores and capital expenditure, remained unchanged.

Ruggeri said that despite the unexpected impact of Omicron or other potential virus variants on the world, Starbucks is still confident of achieving excellent revenue growth in fy2022, “This is due to the amazing customer needs, our diversified product portfolio, and the ability to provide customers with valuable interpersonal connections in a safe, convenient and consistent way.”

Finally, ruggeri said that on the premise of no new major business interruption caused by the epidemic or other reasons, it is expected that the profit margin in fiscal 2023 will increase year-on-year and return to the long-term target of 18% to 19% in fiscal 2024.

“We will continue to look for ways to increase sales, which is our biggest opportunity to improve profit margins and increase revenue in the future.” Johnson added.

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