Starbucks has experienced a disappointing second straight quarter as its US and international same-store sales have declined again.
This quarter, global sales at the company have dropped 3% for stores open at least a year, and the coffee giant asserts that this sales slump may not end anytime soon as customers continue to reject the high price of dining out.
North America and China
According to Starbucks CEO Laxman Narasimhan, the global sales decline was driven primarily by two regions, China and North America.
“Our global comparable store sales declined 3% year-over-year driven by a negative 2% comp growth in North America and a negative 14% comp growth in China and partially offset by strong performance in Japan,” said Narasimhan.
Transactions Falling
According to the Starbucks earnings report, transactions in North American stores that were open for one year fell by 6% in Q3, though the losses from fewer transactions were somewhat offset for the company by higher prices.
This drop in transactions coincided with a similar drop in traffic. Traffic in the company’s US stores fell 6% and store sales in the country fell by 2%.
Company Revenue
Despite overall disappointing earnings for the quarter, there were some bright spots for the company’s financials.
“Our Q3 total company revenue was $9.1 billion, up 1% year-over-year and 6% over Q2,” said Narasimhan.
Grocery Store Rise
Narasimhan noted a volume increase in the company’s sales at grocery stores, where people are flocking as they continue to reject eating out in fast food restaurants and the company’s cafes.
A survey released earlier this year found that a 62% majority of Americans are eating fast food less frequently, citing higher prices.
Focus on Rewards
According to Narasimhan, 60% of the company’s revenue is tied to its Starbucks Reward members program, which helps drive more frequent visits.
“What we’re focused on is what is it that we can do to control what we have and so the Starbucks Rewards members you see greater engagement,” said Narasimhan.
Complaining About Prices
In response to the earnings report, many commenters online expressed outrage over their price perception of the company’s menu items.
“Not only coffee, their food has gotten outrageous. $7+ for two egg bites? I started making a dozen at home regularly, costs so little to make those it’s laughable how they overcharge,” said a Reddit user.
Pricing Customers Out
Others were happy to see Starbucks struggling and accused them of trying to price their customers out.
“I love seeing basic economics working against companies like Starbucks and McDonalds right now. If you price your consumers out and continue to lower the already [bad] quality of your product, eventually people will stop buying it, you [freaking] morons,” said a Reddit user.
McDonald’s Too
This week, the fast food giant McDonald’s also published a disappointing earnings report that showcased the first drop in global sales for the company in over three years.
“Industry traffic has declined in major markets like the U.S., Australia, Canada, and Germany. In several markets, we also continue to be negatively impacted by the war in the Middle East,” said CEO Chris Kempczinski.
Drying Up Demand
Equity analyst Alan Galecki pointed out that the sudden drop in demand for Starbucks follows customer discretionary income being recently challenged.
“This is not a surprise. Many (though not all) consumer discretionaries / cyclicals have been hit hard by a “sudden” demand dry-up,” said Galecki. “Add to that many stocks having been valued for strong double-digit growth for years to come and you know why these stocks have seen brutal drops.”
Tired of Coupons
Other disgruntled Starbucks customers feel burnt out with negotiating around high prices and having to keep track of coupons and deals.
“These places (seemingly all of them) are trying to push higher prices to get people using their [crappy] apps for coupons and deals. You see it everywhere and I’m not playing that game,” said a Reddit user.
Competing with Home Coffee
The high price of coffee at places like Starbucks has encouraged a change in behavior for some customers, who now prefer to get coffee at home.
“The prices don’t make it appealing anymore, home coffee is more consistent than waiting between 4-15 minutes and getting something either tasting just perfect or completely burnt,” said another Reddit user.
