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STARBUCKS PREDICTS PANDEMIC REBOUND AS COFFEE SHOPS SHUT

Starbucks

Last Updated on December 18, 2020 by monica chan

As the world is battling against the economical troubles brought on by the global Covid pandemic, Starbucks projects a positive outlook for a rebound, whilst thousands of coffee shops shut.

Kevin Johnson, President and Chief Executive Officer for Starbucks Corporation

Last week, Starbucks hosted its biennial Investor Day, offering insight into the future of the company.

Kevin Johnson, President and CEO for Starbucks Corporations projects the global pandemic will only briefly interrupt Starbucks’ growth. He is confident people will be back in Starbucks stores at a rate far beyond what they were pre-pandemic.

Although sales dropped 40% year on year in the 2nd quarter, Starbucks expects its business in China to fully recover in the current quarter and, with the rest of the world also improving, the group’s earnings for the year to next September to approach or beat 2019’s figure.

With coffee consumption on the rise, Starbucks is focused on opportunities to grow its market share across at-home and away-from-home coffee. Starbucks said its focus on empowering innovation through elevating the customer experience and driving new and relevant beverage platforms is their key to recovery.

Starbucks has nearly 33,000 company operated and licensed stores around the world. By 2030, the company expects to reach approximately 55,000 stores.

The pandemic highlighted its reliance on foot traffic in downtown business districts and transport hubs, prompting Starbucks to rethink the locations and formats of its stores.

In America, to follow customer needs, they have ‘new store formats’ and experiences, including Drive-Thru, Starbucks® Pickup and curbside pickup.

In Starbucks second biggest growth market, China, the company expects to open approximately 600 new stores across the mainland in the next year. 10% of which will be Starbucks NOW stores.

These are new store formats which integrates signature Starbucks store environment with ‘Mobile Order & Pay’ and ‘Starbucks Delivers™’ customer experiences. They are on track to reach 6,000 stores in 230 cities by the end of fiscal year 2022.  

Although Starbucks is showing confidence in their growth, smaller coffee shops are closing, and ‘Starbucks stands to benefit from that’ – said RJ Hottovy, consumer equity strategist at Morningstar.

Even larger groups have also struggled such as, Caffè Nero, the UK’s third-biggest chain. As we reported a couple of months ago, they have been forced into a financial restructuring to avoid administration, while Pret A Manger has also axed some 3,000 people.

Mr Johnson strikes a sympathetic tone, saying he favours further government support “to help small businesses of all kinds, even independent coffee shops”.

But he added,

We have line of sight to grow faster than the addressable market, which means we’re going to be taking market share.

Starbucks shares are 13% higher now than before the global pandemic.

Wall Street forecasts rapid rebound from pandemic and expects Starbucks to emerge to an even more dominant position. Its market value has risen 80% from March’s lows and 13% since the start of the year to a near-record $119 billion.

RBC analysts now see Starbucks as one of only a handful of large consumer companies that can deliver double-digit earnings growth in 2022 and beyond.

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