Starbucks' First-Half Earnings Drop as China’s Coffee Price War Takes Toll(Yicai) Aug. 1 -- Starbucks has posted drops in net profit and revenue for two straight quarters as the US coffee titan is impacted by intense competition and the prolonged price war in China’s coffee market.
Starbucks’ worldwide net profit slumped 7.6 percent in the third fiscal quarter ended June 30 from a year ago to USD1.1 billion, and its revenue dipped 1 percent to USD9.1 billion, according to the Seattle-based company's latest earnings report released yesterday. In the second fiscal quarter net profit sank 15 percent and revenue tumbled 1.8 percent.
The Chinese market has become a major drag on Starbucks’ earnings. Transactions at Starbucks’ China stores tumbled 7 percent in the three months ended June 30 from a year earlier and the average value of each order also slumped 7 percent, according to the report. This caused its China revenue to plunge 11 percent to USD733.8 million, widening 3 percentage points from the previous quarter.
Starbucks is facing fierce competition in China from local coffee brands such as Luckin Coffee, which is selling coffee for just CNY9.90 (USD1.40) a cup. Luckin Coffee logged more sales than Starbucks China for the first time last year, making the Xiamen-based firm China’s largest coffee chain.
But Luckin Coffee’s earnings are also being badly affected by the sustained low prices. Profit contracted 13 percent in the second fiscal quarter year on year to CNY871.1 million (USD120.5 million), despite revenue soaring 36 percent to hit a quarterly high of CNY8.4 billion (USD1.1 billion).
“We have been staying controlled to avoid a price war amid competition driven by frequent sales promotions,” Liu Wenjuan, co-chief executive of Starbucks China, said at the earnings call, adding that Starbucks will not sacrifice operating margins for sales.
Starbucks added 213 stores in China in the three months ended June 30 to a total of 7,306 outlets, while Luckin Coffee’s store count soared by 1,371 to 19,961 over the same period, according to the two companies’ statistics.
Editors: Dou Shicong, Kim Taylor
