Gloss coming off Starbucks Asia growth
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Global coffee giant Starbucks has finished its financial year on a high, reporting a 17 per cent increase in annual revenue to a record US$19.2 billion.
But is the Starbucks Asia Pacific business underperforming?
Neil Saunders, CEO of Conlumino, believes so. He says the company’s last quarter figures were boosted by the acquisition of the balance of its Japan joint venture from partner Sazaby League. Globally it finished the quarter with 1666 more cafes than in the previous year, an impressive figure in itself.
“For a company of Starbucks size and scale, such results are exceptional and a testament to the company’s innovative attitude, as well as the continued relevance of coffee across many geographies,” says Saunders.
“While the overall numbers are strong, there is an interesting trend in the detail: namely that although Starbucks performed well across many geographies – including in the more mature core Americas territory – performance in Asia Pacific was surprisingly muted.”
Saunders says while total revenue held up well, rising 110 over last year, this is mainly because of the Japanese acquisition.
“Saunders says while total revenue held up well, rising 110 over last year, this is mainly because of the Japanese acquisition.”
The opening of 767 new stores in Asia-Pacific (which is essentially Asia given Starbucks has only 25 cafes in Australia and 26 in New Zealand, both run by franchise partners) certainly helped.
“However, on an underlying basis, same store sales only rose by six per cent – a slightly disappointing outcome, and one that is partly attributable to the general slowdown in China,” says Saunders.
“If the emerging markets proved to be soft, the same cannot be said of the Americas where comparable sales rose by eight per cent. Here some of the menu changes, including the continued growth of the food offer, have helped to push up average ticket within existing stores. However, in our view the various digital initiatives Starbucks has been developing and pursuing have also paid dividends. Its popular digital app is already widely used for payment, and locks in loyalty both by saving customers time at the register and by making Starbucks a destination by virtue of the fact that the card is preloaded with cash. It is also notable that the average ticket from customers using the mobile app for payment tend to be higher. Naturally, some of this is because Starbucks enthusiasts and most loyal customers are more likely to have the app. However, we also believe that the rewards and advertising, which the app supports, help to stimulate add-on sales.”
Saunders says Starbucks’ plan to drive evening sales through offering alcoholic beverages and an enhanced food menu in US and UK stores is also encouraging.
“These improvements should be in a quarter of US stores by the end of 2019. In our view, they’re another example of why Starbucks outperforms: it evolves and innovates its in a way that’s relevant to customers.”
Next year, Starbucks says it plans to open about 900 new stores in Asia-Pacific, two thirds of them licensed. And it says it expects it earnings in the region to be flat or even down.
Questions & Answers
Q.Why did Starbucks' total revenue in Asia-Pacific rise so much last year, despite muted underlying performance?
Why did Starbucks' total revenue in Asia-Pacific rise so much last year, despite muted underlying performance?
The significant rise in total revenue for the Asia-Pacific region was mainly due to the acquisition of the remaining stake in its Japan joint venture. The opening of 767 new stores in the region also contributed to this increase.
Q.What specifically caused the underlying same-store sales growth in Asia-Pacific to be disappointing?
What specifically caused the underlying same-store sales growth in Asia-Pacific to be disappointing?
The underlying same-store sales growth of six per cent was considered slightly disappointing. This outcome is partly attributed to a general slowdown observed in China, impacting the emerging markets in the region.
Q.How did Starbucks manage to achieve higher comparable sales in the Americas compared to Asia-Pacific?
How did Starbucks manage to achieve higher comparable sales in the Americas compared to Asia-Pacific?
Comparable sales in the Americas rose by eight per cent, aided by menu changes including a growing food offer, which increased average ticket values. Digital initiatives, particularly the popular mobile app, also paid dividends by boosting loyalty and add-on sales.
Q.What are Starbucks' expectations for its earnings in the Asia-Pacific region for the upcoming year?
What are Starbucks' expectations for its earnings in the Asia-Pacific region for the upcoming year?
Starbucks anticipates that its earnings in the Asia-Pacific region will either remain flat or potentially decrease in the coming year. They plan to open around 900 new stores, two thirds of which will be licensed.
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