For Starbucks, the largest coffee chain in the world, feeling an impact from the coronavirus was not a question of if, but when.
The effects are starting to hit close to home as the coffee chain temporarily closed a Reserve bar in Seattle after an employee tested positive for the virus.
The brand said it cleaned the store overnight according to guidelines from Seattle and King County health officials. More than 100 cases of coronavirus have been reported in Washington, and 22 have died in the state.
Starbucks said the virus’ impact hasn’t affected sales in the U.S. yet, which accounted for about 65 percent of consolidated revenue in Q1.
The brand reported last week that as many as 80 percent of its Chinese units closed in February because of the virus and Chinese New Year. Sales were down 78 percent year-over-year. In Q2, the company expects a 50-percent drop in comp sales, compared to a projected 3-percent growth prior to the outbreak. In addition, the chain expects a $400 million to $430 million drop in revenue compared to previous projections.
In a letter to stakeholders, CEO Kevin Johnson and CFO Patrick Grismer said more than 90 percent of stores are open now, albeit with heightened safety protocols, such as limited lobby service, minimal café seating, emphasis of contactless service via pickup and delivery, and temperature checks for both customers and employees. The company also announced last week that it was temporarily suspending the use of personal cups at all locations, but it will still honor the 10-cent discount for anyone who brings one inside.
Most of those units are operating with reduced hours and some offer only delivery. Except for a regional support center in Wuhan, China, where the outbreak was first reported, corporate offices in China have reopened after temporarily closing.
Stores that remain closed are mostly in Wuhan and high-risk areas like hospitals, universities, movie theaters, and tourist attractions. Starbucks leadership expects 95 percent of stores in China to be open by the end of Q2. In the last week of February, transactions grew 6 percent and weekly gross sales increased 80 percent as stores reopened. Mobile orders attributed to 80 percent of sales mix at the end of February—30 percent pickup and 50 percent delivery.
Starbucks operates more than 4,200 stores in 177 cities in China, and employs more than 57,000 employees.
The brand noted that business in Japan, South Korea, and Italy—countries outside of China that have the largest amount of coronavirus cases—have witnessed closures and reduced traffic. However, Starbucks is not yet able to assess how it will impact sales in Q2.
The brand said the virus’ impact hasn’t affected sales in the U.S. yet, which accounted for about 65 percent of consolidated revenue in Q1.
All business-related travel, domestic and international, has been restricted through March 31 and large meetings have been postponed across offices in the U.S. and Canada.
“Although there are near-term financial implications, our long-term, optimistic outlook for the growth potential of Starbucks is undiminished,” Johnson and Grismer said in the joint letter. “In fact, recent events strengthen our conviction in the long-term opportunity and reinforce the trust in and resilience of the Starbucks brand. These events also highlight that our partners are the heartbeat of Starbucks.”