Starbucks Corp., facing a rare sales decline in China, is betting a rapid rollout of delivery service will get the business back on track.
With the Seattle company expecting China to eventually surpass the United States as its biggest market, Starbucks says deliveries will help it will fend off competitors that are already offering the service, coupled with deep discounts. The goal is for Starbucks to establish itself as a daily routine for customers in the world’s second-largest economy.
“Delivery as a whole is becoming a lifestyle ritual in China, and consumer behaviors are changing,” Belinda Wong, chief executive of Starbucks’ Chinese business, said on a conference call. The service will start this fall in the key cities of Beijing and Shanghai and expand from there.
As competition heats up worldwide, delivery is becoming increasingly important. In the United States, Chipotle Mexican Grill is expanding delivery to 2,000 locations soon, McDonald’s is working with Uber Eats, and Taco Bell parent company Yum Brands has teamed up with Grubhub.
The key to adding delivery service across China, one of the biggest nations by geography, will be bringing on a partner, Chief Financial Officer Scott Maw said.
“The competitive environment is definitely kicking up,” Maw said. Rivals are “bringing a delivery capacity that we don’t really have in China.”
Starbucks reported that comparable-store sales in China dropped 2% in its most recent quarter, trailing analysts’ estimates. The chain is betting big on the world’s most populous nation, attempting to triple its revenue there over the next five years. It plans to have 6,000 stores in 230 cities on mainland China by the end of fiscal 2022 — a rate of a new store every 15 hours.
The rapid growth has led to some cannibalization of sales, the company said.
While investors might be concerned about China’s negative comparable sales, “we believe the real opportunity continues to revolve around the long-term opportunity,” Nicole Miller Regan, an analyst at Piper Jaffray, said in a research note.
Miller Regan said same-store sales can grow even as Starbucks adds new restaurants at a rapid pace. She also cited the chain’s expansion of social gifting on the Alipay payments platform, which has more than 500 million active users.
Patton writes for Bloomberg.