Starbucks Corp., facing a rare sales decline in China, is betting a rapid roll out of delivery service will get the business back on track.
With the company expecting China to eventually surpass the US as its biggest market, Starbucks says deliveries will help it will fend off competitors who 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 behaviours are changing,” Belinda Wong, chief executive officer of the chain’s Chinese business, said on a conference call. The service will start this fall in the key cities of Beijing and Shanghai and will expand from there.
As competition heats up worldwide, delivery is becoming increasingly important. In the US, Chipotle Mexican Grill Inc. is expanding delivery to 2,000 locations soon, McDonald’s Corp. is working with UberEats, and the owner of Taco Bell 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 in an interview.
“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 a comparable-store sales drop of 2 percent in its most recent quarter in China, 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 cannibalisation 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.