Starbucks sales falter in China due to Covid restrictions

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In the three months ended July 3, sales at Starbucks’ Chinese branches that had been open for at least 13 months fell by 44%.

“China was facing its worst COVID disruption since the start of the pandemic,” Belinda Wong, chairman of Starbucks China, said during an analyst call on Tuesday discussing the results. “Mobility restrictions and lockdowns were implemented more quickly and eased more slowly under China’s zero-Covid policy,” she said, adding that Shanghai, Starbucks’ largest market, was completely shut down for about two-thirds of the quarter.

Starbucks international sales declined 18% in the quarter, partly due to poor results in China. Excluding the decline in sales there, international growth would have increased by double digits, the company said Tuesday.

China’s zero-covid policy has made it difficult for individuals and businesses to resume normal operations. That’s a problem for Starbucks, which considers China to be one of its most important markets. Starbucks has approximately 5,760 Chinese locations and points to the region as a growth opportunity for the brand.

Even in light of the difficult quarter, “our position in the market and our ambitions for the future have never been greater” in China, Starbucks interim CEO Howard Schultz said during the call on Tuesday.

The situation is improving as Covid restrictions ease, Wong said, noting that “we saw immediate improvement in traffic and sales following the reopening of Shanghai in early June.” She added that “we continue our relentless focus on the long term, even as we navigate short-term disruptions.” The company plans to open 6,000 branches in China by the end of the year.

In other international markets, Starbucks has reconsidered its presence. Earlier this year, Starbucks said it would leave Russia for good because of the war in Ukraine.
And the British newspaper The Times said in July that Starbucks was considering whether it could or should sell its business in the UK. Starbucks said at the time it was not engaged in a “formal sales process” and reiterated that it wanted to remain in the region.
In the United States, where the company is fighting against unionization, sales have increased. Sales at US stores that have been open for at least 13 months rose 9% in the quarter.
Despite the decline in China, investors were pleased with the company’s overall results. Starbucks (SBUX) the stock rose nearly 2% after hours on Tuesday.



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