Key Takeaways
- Addressing lagging sales in China has been seen as a key issue for new Starbucks CEO Brian Niccol. Bank of America analysts said Wednesday that his global experience should help.
- The coffee giant’s sales have fallen in China in recent years, with executives citing a slow post-COVID economy as a reason.
- Starbucks’ China same-store sales dropped by 14% year-over-year in the most recent quarter
Starbucks’ (SBUX) falling sales in China are one of the major issues for new CEO Brian Niccol, who took over the top job earlier this month. Bank of America analysts said Wednesday that Niccol’s experience should help tackle the problem.
Niccol’s history as CEO at both Yum! Brands’ (YUM) Taco Bell restaurants and, more recently, Chipotle Mexican Grill (CMG) gives him experience in dealing with licensing and international expansion—skills that potentially could help Starbucks’ recovery in China.
The analysts gave their Starbucks price target a slight bump Wednesday to $118 from $112, while maintaining a “buy” rating. From 2010 through 2017, they said, Starbucks’ same-store sales growth in China and the rest of the Asia-Pacific region averaged 10% per year, with growth in China around 5% annually from 2016 through 2019. That has fallen to an average 3% annual decline in same-store sales since the onset of COVID.
How Niccol’s Experience Could Help Starbucks
The analysts said Niccol’s previous experience with franchising and licensing at Yum! Brands and Chipotle could mean the new Starbucks CEO is “receptive” to licensing the Starbucks bran Licensing the brand in China could allow Starbucks to use “fewer managerial resources” to run its operations in the country, and focus on higher-margin operations in the U.S.
Same-store sales dropped in China by 14% year-over-year in the most recent quarter, as the company has seen a decline in both foot traffic and average ticket. Former CEO Laxman Narasimhan said earlier this year that China sales were affected by a “more cautious consumer” and competition from fast-growing domestic brands.
Starbucks shares were up less than 1% in recent trading. They’re up about that much this year, rising substantially after Niccol was hired.