24/7 Wall St. Insights

• Starbucks Corp. (NASDAQ: SBUX) blamed poor sales in China on the competitive environment there.
• Now one of those competitors aims to expand into the United States.
• Also: 2 Dividend Legends to Hold Forever.

Starbucks Corp. (NASDAQ: SBUX) needed large growth in China to drive its global expansion. As recently as last year, management said China sales would rise rapidly. Recently, sales in the world’s largest market went into reverse. In the most recent quarter, same-store sales dropped 14%. Management blamed the “competitive environment.” That competition is Luckin Coffee, which has 20,000 locations. Now, Luckin is looking to the United States as its next target.

The Financial Times recently reported, “The Xiamen-based company is laying the groundwork for a US launch as early as next year, building out its supply chain and customising its technology for the market, according to two people with knowledge of the matter.” Add Luckin to other large Starbucks competitors, like Dunkin’ and McDonald’s, and tens of thousands of local coffee stores in every American city.

Starbucks same-store sales dropped 6% in its most recently reported quarter. If they drop any further, it is a bad sign for the early turnaround efforts of the new CEO, Brian Niccol. When Starbucks released the quarterly numbers, Niccol said, “Our fourth quarter performance makes it clear that we need to fundamentally change our strategy so we can get back to growth and that’s exactly what we are doing with our ‘Back to Starbucks’ plan.” He has to change what has become poor customer service and part of the barista system where Starbucks frontline workers view themselves as overworked and underpaid.

On top of those troubles, Starbucks may have a new and impressive competitor.

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