Starbucks (SBUX): A glimpse into the coffee chain’s performance in China

The US and China are Starbucks Corporation’s (NASDAQ: SBUX) two biggest markets. As its second largest market, China holds a significant place in the company’s growth plans. After concluding what it considers a “watershed year in China” and putting the pandemic behind it, Starbucks believes it is well positioned to support the growth opportunities the market presents.

FY2023 performance

In fiscal year 2023, Starbucks’ revenue in China grew 3% year-over-year to $3 billion. Revenue growth was 11%, excluding the impact of foreign currency translation. Comparable store sales in the region increased 2%, driven by a 4% rise in comparable transactions. Average ticket, however, fell 2%.

Starbucks saw revenues in China in the second half of the year increase 20% over the first half, reflecting the growth momentum in the region. The company is benefiting from the strength of its beverage and food offerings and from its product innovation.

Store fleet

With regards to its store fleet in China, Starbucks sees additional opportunity in new store expansions to fill the space in existing cities with purpose-defined store formats while also entering new county cities. The company is currently in 800 county cities out of 3,000 so there is room for expansion there as well as in cities where it already has a presence.

In the fourth quarter of 2023, Starbucks opened 326 net new purpose-driven stores in China, reaching 13% net new store growth over the prior year. The company ended the fourth quarter with 6,806 stores in the region. The coffee chain giant remains confident that it will reach its goal of 9,000 stores by 2025, opening nearly 1,000 net new stores every year.

Growth plans

Starbucks plans to continue its investments in digitalization in order to drive productivity and efficiency across its supply chain and store operations. In the fourth quarter of 2023, the company saw its omnichannel capabilities in China gain traction, with strength in-store, through Mobile Order & Pay, mobile order delivery, e-commerce, and in channels. It currently has over 21 million active loyalty members, which is up 22% over the prior-year period.

Starbucks continues to see recovery in its China market and it expects this market to remain strong and highly competitive going forward. The company remains optimistic about the growth potential of this market over the long term.

Outlook

In fiscal year 2024, Starbucks expects double-digit revenue growth in China, driven by new store performance and strong comps. Comps are expected to range between 4-6% in Q2 through Q4 with a higher comp in Q1 as the company laps prior-year mobility restrictions. The store count in China is expected to grow by 13% in FY2024.