Starbucks sales surge despite China challenges

Starbucks sales growth has surpassed expectations with a glowing earnings report released yesterday that revealed strong performance in cafes across the US and China.

“We are especially pleased with our comparable-store sales growth in our two lead markets, the US and China,” said Starbucks CEO Kevin Johnson, “where we are also continuing to drive strong new store development with industry-leading returns.”

The firm reported a second-quarter net income of US$663.2 million, up from $660.1 million for the same period last year.

“While much of the beverage comp-sales growth was driven by ticket, close to half of the ticket growth was from beverage mix and match,” said company CFO Pat Grismer, “demonstrating that our higher margin premium offerings resonated with customers and customers bought more beverages per transaction.”

The release of Starbucks’ Cloud Macchiato last month, with promotional support from singer Ariana Grande, contributed to the results with “the second-most viral Starbucks campaign ever” according to Johnson. The success accords with the firm’s strategy to build on the cold-drinks business while focussing less on limited-time offerings and Frappucinos.

The popularity of the chain’s cold drinks, along with improvements in store, saw US sales grow 4 per cent in stores opened for at least one year.

Same store year-on-year sales grew 3 per cent in China, where the firm is facing a serious challenge from motivated competitor Luckin Coffee. “This performance is especially noteworthy when you consider the intensity of competition from discounting in China, as well as our aggressive pace of new store development,” said Johnson.

Transactions have decreased by 1 per cent in China, most likely as a result of increased competition, which has recently forced Starbucks to introduce a fast-delivery service in partnership with Alibaba. The firm has also seen significant growth in its loyalty program, Starbucks Rewards.

Starbucks surpassed 30,000 outlets worldwide in the second quarter, with 94 per cent of new openings occurring outside the US. A further 2100 new stores are planned for launch before the end of the current fiscal year, nearly 600 of those in China.


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