Wall Street says Starbucks has too many stores, prices too high
NEW YORK: 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 per cent US quarterly same-store sales gain that fell short of expectations on flat holiday traffic.
Two years ago, those sales jumped 9 per cent.
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 market.
Still, they say that Starbucks — which had 14,163 US locations at yearend, 25 per cent more than five years ago and 127 more than McDonald’s — is not cannibalizing its own sales or losing share in a market crowded with coffee sellers ranging from independent cafes to fast-food chains in its most important 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.
“Rather than a litany of excuses, we believe this is best explained by overcapacity in the industry,” said John Zolidis, President of Quo Vadis Capital, a Paris-based boutique research firm.
“Starbucks problem by Zolidis added.
Credit Suisse analyst Jason West said the brew of stepped-up competition combined with Starbucks’ recent opening of roughly 700 US stores a year, weighs on its “ability to re-accelerate growth.”
Starbucks said on Friday its new cafes perform well and bring more business to all nearby coffee shops, not just its own.
Proliferation of stores is not Starbucks’ only problem, according to analysts.
Zolidis also sees another troubling sign: “We believe the company has raised prices too much.”
Starbucks on average is increasing prices 1 to 2 per cent on an annual basis, while offering discounts through its rewards program, spokesman Reggie Borges said. is contributing opening new to the units,”