Starbucks, coming just weeks after boasting about its expansion in China, is seeing a slowdown that it’s blaming on third-party delivery services.
According to a report in Reuters, the third-party delivery services that bring caffeine-infused drinks to Chinese consumers have been clogging up the cafe with bulk orders that have been frustrating customers waiting to get their fix. Earlier this week Starbucks said that same-store sales would be flat or slightly negative in China for the April through June period, which compares to 7 percent growth in the year-earlier period. The comments come just a month after Starbucks said it was aiming to triple Chinese revenue and up the number of cafes in the country to 6,000 by 2022, noted Reuters. That all changed this week when it said the new cafe openings were hurting other stores, which was the case in the U.S. as well. Starbucks also saw a decline in third-party companies that place big orders for delivery to their customers, which had been resulting in long in-store lines. “I think it was driven by the government to want to stop having third parties do that because it was creating annoyances,” Chief Executive Kevin Johnson said on a call with analysts, according to Reuters. He said the way to fix it is to ink a delivery partnership with a “large tech company” by the end of 2018.
Reuters pointed to a research note issued by Mizuho Securities analyst Jeremy Scott, who said that costs at Starbucks will likely go up if it inks an official arrangement with a third party for delivery in China. “While the Street may be willing to forgive a tough May … the soft comp (comparable store sales) in China is more disheartening given that management is hyper-focused on the market,” said Scott in the research report, according to Reuters.
Earlier this week Starbucks also said it was scaling back its growth and cutting its sales targets for the third quarter. This comes as its loyalty program and mobile app are driving business, with 39 percent of its sales in the U.S. coming from those venues. According to a report in CNBC, Starbucks said it would slow down the pace of licensed store openings and will shutter underperforming ones that are in highly populated areas. While Starbucks typically shuts around 50 stores a year, in 2019 it expects that pace to increase to around 150 stores.