Coffee giant Starbucks Corp. has announced its plans to close hundreds of US cafés in 2019, as tough competition called for the world’s biggest coffeehouse chain to further step up its performance.
Starbucks stated that it would hold back the number of licensed stores it opens by about 100 and will shut down around 150 underperforming company-operated shops, which are mostly located in urban areas that are heavily populated with Starbucks locations.
The espresso drinks maker is well aware that it tends to create more shareholder value in a company-owned store than a licensed one, according to chief executive Kevin Johnson.
Starbucks usually closes 50 coffee shops per year, but by the next fiscal year, it intends to close three times as many as it typically does.
The move came as Starbucks aim to improve its performance, as it contend against upscale cafés and low-cost fast-food chains, such as McDonald’s Corp. and Dunkin’ Donuts.
Johnson found that the company’s recent performance was not good enough to reflect the potential of their exceptional brand, saying they have to move more quickly to tackle the fast-changing preferences and needs of their customers.
The competitive environment, according to analyst Jennifer Bartashus, has really become stronger in the US and a lot of that is from the improvements made by fast-food chains on the quality and breadth of their offerings in terms of hot beverages and breakfast.
Bartashus added that Americans being able to get the same flavor profile at a much lower price somewhere else has become an area of concern for Starbucks.
Shares of Starbucks were down 4.2 percent to $55.00 in after-hours trading.
Starbucks Forecast Slow Sales in the Third Quarter
Starbucks is also putting the brakes on its sales growth in the third quarter, as it expects global same-store sales to rise by just 1 percent for the next quarter, which is lower than the estimate of 3 percent.
Despite its booming business overseas and openings of more and more coffeehouses, US sales growth of the company has lost its pace, failing to meet analysts’ forecast for five straight quarters.
Following those quarter of misses, Starbucks was able to beat same-store sales expectations in the most recent quarter, although traffic remained flat.
Sales were also hurt after the coffee group temporarily halted operations on about 8,000 stores in April, so as to provide 175,000 employees racial-bias training, following the arrest of two black men at one of its cafés in Philadelphia.
Starbucks has been exploring a number of initiatives to bolster sales; including offering more cold drinks, which now accounts for 50 percent of its business, and new lunch items to attract customers in the afternoon.
The company also plans to open more coffeehouses in underpenetrated markets and look into strategic options to license company-owned shops. China is currently Starbuck’s main growth driver, with its same-store sales increasing 4 percent in the previously reported quarter.
In addition, Starbucks intends to raise its digital initiatives and gain more people to sign up for its app. Since the prior month, the coffee chain has added 5 million new digital customers.
FSMNews provides you the latest happenings on the market. Subscribe now to FSMNews and get up-to-date information on forex, commodities, stock s, technology, economy and a lot more.