Industry News | May 1, 2012 | QSR Exclusive Brief

Starbucks Maintains Major China Growth in Q2

Email this story Email this story
Printer-friendly versionPrinter-friendly version

Read More About

China’s love affair with Starbucks continues to push comparable same-store sales growth to enviable heights, said Howard Schultz, CEO of Starbucks, during the company’s second-quarter earnings call.

The quarter marked the seventh consecutive one in which Starbucks’ comparable sales growth in China exceeded a growth rate of 20 percent. “Starbucks’ business in China is strong and poised for significant, disciplined, profitable growth,” Schultz told the company’s investors on April 26.

“You almost have to see the [Chinese] customer engagement for yourself to fully appreciate the transformation,” he said. “In the past, our typical core customer in China was an expat or tourist visiting a store in Shanghai or Beijing. Today, without question, we have made a significant transition to serving local Chinese customers.”

The Starbucks CEO told investors he anticipates the company’s store count will exceed 1,500 in Mainland China by 2015. Schultz also increased estimates for the company’s store-opening targets for the China-Asia-Pacific region in this fiscal year to 400—100 more than an earlier estimate, he said.

Comparing the Chinese market for coffee beverages to the U.S. market in the early 1990s, he said traffic from Chinese consumers is “among the highest we’ve ever had in the company’s history.”

The level of customer loyalty in major cities like Beijing and Shanghai “is now being mirrored in the 44 other [Chinese] cities that have embraced us as well,” Schultz said.

The stellar performance is all the more remarkable for the fact that lackluster consumer confidence continues to weigh down the industry, Schultz said.

“The economic crisis that moved around the globe is, in many ways, here to stay,” he said.

In the U.S., consumers have warmed to Starbucks’ Blonde Roast coffees, and Schultz said the launch of the company’s Verismo system, designed for in-home brewing, will give consumers the ability to craft both espresso and brewed coffee dispensed from a machine, one cup at a time. Starbucks customers will see the Verismo system in company stores and specialty retail stores sometime in the fall, he said.

Incremental business generated by the launch of Blonde Roast Coffee on January 10 in the U.S. met company expectations, Schultz said.

“As we expected, we’re seeing new customer occasions to now drink coffee … as we now have an offering that satisfies their desire for something lighter, in addition to their usual visit,” he said.

Whole bean in-store sales have also increased, he said, with 70 percent of Blonde Roast whole bean in-store purchases incremental to the previous purchasing pattern.

Schultz said the company’s launch of a new beverage platform this year, Starbucks Refreshers, will entice consumers and “be viewed globally as a handcrafted beverage in our stores.” He said Refreshers are available in 50,000 outlets, and that figure is expected to increase to more than 100,000 outlets in the U.S.

In keeping with the company’s well-known focus on crafting a reputation for environmental concerns, Schultz said the company had opened 50 new company-operated stores globally that were built to achieve LEED certification standards, “with a commitment to local relevance.”

Troy Alstead, CFO of Starbucks, told investors the company’s mobile payment app has generated more than 45 million mobile payment transactions in the past 14 months, and Starbucks is now the “largest and most widely embraced mobile payment program of any retailer in North America.”

Channel development net revenues were $321.5 million in the second quarter, an increase of 57 percent over the same quarter last year, according a company press release. The increase was primarily due to sales of Starbucks, and Tazo-branded K-Cup portion packs, according to the company.

By Jan Fletcher