Wall Street says Starbucks has too many stores, prices too high

LOS ANGELES: Starbucks Corp has too many stores and its prices are too high, Wall Street analysts are starting to agree, as they seek to explain the company’s cooling US growth.

The Seattle-based chain now has more US locations than McDonald’s Corp but it has been struggling for more than a year to lure the traffic needed to deliver the robust growth investors expect.

Executives last week warned that 2018 same-store sales growth would be at the low end of its forecast. Starbucks reported a 2% US quarterly same-store sales gain that fell short of expectations on flat holiday traffic. Two years ago, those sales jumped 9%.

Starbucks has offered a laundry list of reasons for the deceleration in its domestic business, including weak retail traffic, changes to its rewards program, bottlenecks from a crush of mobile orders, and holiday merchandise and drink specials that failed to “resonate” with customers. Executives concede that Starbucks’ US afternoon business has dragged down results in its most important market.

Still, they say that Starbucks – which had 14,163 US locations at year-end, 25% more than five years ago and 127 more than McDonald’s – is not cannibalising its own sales or losing share in a market crowded with coffee sellers ranging from independent cafes to fast-food chains and convenience stores. Analysts disagree. After a recent analysis of restaurant industry trends, retail traffic and other factors, Bernstein analyst Sara Senatore solidified her view that “excess unit growth, at a time when Starbucks is reaching a more mature stage of growth, is the root cause” of the company’s domestic woes. — Reuters