Starbucks Big China Trouble

By Douglas A. McIntyre Published May 27, 6:50AM EDT

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Starbucks Big China Trouble — © Mall Starbucks (CC BY-SA 4.0) by Mr.u3061u3085u3089u3055u3093

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Starbucks Corp. (NASDAQ: SBUX | SBUX Price Prediction) faces a price war in its second-largest market.

Starbucks Corp. (NASDAQ: SBUX) has had enough trouble with labor unions; a former CEO, Howard Schultz, criticizing the company; and a falling stock price. These attacks have been aggressive. According to Reuters, it faces a price war in its second-largest market, China.

The price competition and price cuts are due to local companies, which is something Starbucks cannot conquer completely. Reuters reports, “As Starbucks faces stiff competition for its brew in China from fast-growing, low-cost rivals who have chipped into its market share, the coffee chain is increasingly being dragged into a price war it says it wants to avoid.” Starbucks is giving out coupons to try to draw customers.

In its most recent quarterly report, Starbucks clearly outlines how critical China is and that sales in China are already in trouble. Of its stores worldwide, 61% are in the United States and China. In exact numbers, 16,600 locations are in the United States and 7,093 in China.

The bad news is in the locations section of the earnings report, which contains comparable store sales. “China comparable store sales declined 11%, driven by an 8% decline in average ticket and a 4% decline in comparable transactions.” This is compared to a 4% drop in comparable store sales worldwide in the same period. There is no Starbucks recovery right now.

The figures are even worse when compared to Starbucks’s aspirations in China. Late last year, new CEO Laxman Narasimhan said he expects 9,000 locations in China by the end of 2025.

If Narasimhan is right, he will have many stores in China offering discounts to attract customers.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.