Starbucks CEO calls the use of rebates by Chinese rivals unsustainable
Starbucks CEO Kevin Johnson said on Friday that the company's rivals are focusing on short-term gains, while Starbucks pursues a more sustainable growth plan.
" Some of these competitors compete through heavy, heavy discounts that we don't think are sustainable, "Johnson said on CNBC's" Squawk on the Street "Friday
Luckin Coffee, Seattle-based company's primary challenger in China, is competing for customers by focusing on practical acquisitions and discounted beverages, recently filed a first public offering on Nasdaq, in its filing to become public, Luckin said It expects to continue investing heavily in discounts and deals.
Luckin is trying to beat Starbucks by exceeding it in the number of stores in China, Starbucks opened its first store in the country 20 years ago and foresees 600 new locations in 201[ads1]9 as a part of the goal of meeting 6,000 Chinese stores at fiscal policy 2022. At the same time, the Chinese startup has opened 2370 locations for 18 months since its establishment and plans to open 2,500 this year.
Starbucks shares was down 1% Friday morning after the company reported second quarter results. While Starbucks' earnings hit estimates, sales fell slightly after Wall Street's expectations. The same store sales growth of 3% in China made estimates, but traffic to these sites fell again.
With the increased competition in China, Starbucks has added delivery to more than 2,100 stores in the country through a partnership with Alibaba. It has 8.6 million active loyalty program members and plans to add mobile orders and pay to China by the end of the year.
"We not only drive transaction growth and engage new customers, but we also generate the return on invested capital that we believe is sustainable in order to continue building new stores at this rate for many, many years to come," Johnson says.
Johnson told analysts Thursday on the quarterly call that Starbucks wins in China because of its premium quality Although some investors may be worried about competition in China, we are still optimistic about SBUX's ability to maintain market share and believe the Alibaba relationship remains largely untapped growth opportunities, says analyst Andy Barish in Jefferies in a survey note.
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