Companies and Brands

Starbucks China Trouble

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Investors have been skeptical about the prospects for Starbucks Corp. (NASDAQ: SBUX) for the past year, driving its shares down 6% while the S&P 500 is 28% higher. It is a comedown for what was once the hottest fast-food chain. Today, it faces a recent challenge in China, a market that company management says it will conquer.

According to a new analysis by CNN, local coffee chain Luckin Coffee had revenue of $3.5 billion last year. The news outlet points out that, in its most recent fiscal quarter, Starbucks’s China revenue was $3.05 billion. Starbucks has 6,975 locations in China and is growing fast. Luckin says it has 16,218 and continues to grow at a pace that is high double figures year over year.

Starbucks’s China same-store sales increased by 5% in its most recently reported quarter. “China comparable store sales increased 10%, driven by a 21% increase in comparable transactions and 9% decline in average ticket,” management wrote. That is bad news for Starbucks. China’s customers spend less than they used to when they visit its stores.

China is critical to Starbucks’s success. At the end of last quarter, U.S. and Chinese outlets comprised 61% of all its locations. (See which 60 Starbucks menu items to avoid.)

Luckin’s success has not gone unnoticed. It was covered by CNN, Bloomberg, China Economic Review, and The World Coffee Portal. Starbucks has said that China is key to its future. It has a hurdle most investors did not know about in its way.

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