Starbucks blames slower China growth on drop in third-party delivery orders

China has been a sweet spot for Starbucks for the past few years, as the country embraces cafes and opens up to drinking coffee over tea while growth saturates back home. (Reuters)
Updated 21 June 2018
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Starbucks blames slower China growth on drop in third-party delivery orders

SINGAPORE/SHANGHAI: Starbucks Corp. has reported a sudden slowdown in China growth just weeks after trumpeting rapid expansion in the country, citing a drop-off in unapproved third-party delivery services whose bulk orders had been clogging up its cafes.
The US cafe chain on Tuesday same-store sales would be flat to slightly negative in its second-biggest market in April-June, versus 7 percent growth a year earlier. The announcement was followed by a 9 percent drop in Starbucks’ share price.
China has been a sweet spot for Starbucks for the past few years, as the country embraces cafes and opens up to drinking coffee over tea while growth saturates back home. Last month, the firm said it aimed to triple China revenue and double cafe numbers to 6,000 by 2022.
But on Tuesday, the company said new cafe openings were cannibalizing customer visits at other stores, as also happened in the United States. However, Starbucks particularly noted a decline in third-party firms — with whom it had no formal arrangements — that placed large orders for delivery to their own customers, often resulting in long in-store queues.
“I think it was driven by the government to want to stop having third parties do that because it was creating annoyances,” Chief Executive Kevin Johnson said on a call with analysts on Tuesday. He said the remedy was to seal a delivery partnership with a “large tech company” by the end of the year.
Reuters was unable to confirm any government measures on the matter.
Third-party “daigou” shopping agents in China offer services via delivery platforms such as Ele.me, backed by Alibaba Group Holding Ltd, and Meituan-Dianping, backed by Tencent Holdings Ltd. Restaurants and cafes can also have official accounts on such platforms, though Starbucks does not.
Mizuho Securities analyst Jeremy Scott in a research note said Starbucks would have been happy for the no-cost custom generated by third-party delivery services, but an official arrangement will likely push up costs.
“While the Street may be willing to forgive a tough May ... the soft comp (comparable store sales) in China is more disheartening given that management is hyper-focused on the market,” said Scott.
Starbucks also on Tuesday said it planned to close 150 cafes in the United States and open fewer locations in its financial year beginning in October, in response to competition that has seen new coffee chains, convenience stores and fast-food restaurants improve quality and cut prices.


German industry groups warn US on tariffs before Trump-Juncker meeting

Updated 22 July 2018
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German industry groups warn US on tariffs before Trump-Juncker meeting

  • Washington imposed tariffs on steel and aluminum imports from the EU, Canada and Mexico on June 1
  • Trump is threatening to extend them to EU cars and car parts

BERLIN: German industry groups warned on Sunday, before European Commission President Jean-Claude Juncker meets US President Donald Trump this week, that tariffs the United States has imposed or is threatening to introduce risk harming America itself.
Citing national security grounds, Washington imposed tariffs on steel and aluminum imports from the EU, Canada and Mexico on June 1 and Trump is threatening to extend them to EU cars and car parts. Juncker will discuss trade with Trump at a meeting on Wednesday.
“The tariffs under the guise of national security should be abolished,” Dieter Kempf, head of Germany’s BDI industry association said. Juncker should tell Trump that the United States would harm itself with tariffs on cars and car parts, he told Welt am Sonntag newspaper.
The German auto industry employed more than 118,000 people in the United States and 60 percent of what they produced was exported. “Europe should not let itself be blackmailed and should put in a confident appearance in the United States,” he added.
German Economy Minister Peter Altmaier told Deutschlandfunk radio on Sunday he hoped it was still possible to find a solution that was attractive to both sides. “For us, that means we stand by open markets and low tariffs,” he said
He said the possibility of US tariffs on EU cars was very serious and stressed that reductions in international tariffs in the last 40 years and the opening of markets had resulted in major benefits for citizens.
EU officials have tried to lower expectations about what Juncker can achieve, and played down suggestions that he will arrive in Washington with a novel plan to restore good relations.
Altmaier said it was difficult to estimate the impact of any US car tariffs on the German economy, but added: “Tariffs on aluminum and steel had a volume of just over six billion euros. In this case we would be talking about almost ten times that.”
He said he hoped job losses could be avoided but noted that trade between Europe and the United States made up around one third of total global trade.
“You can imagine that if we go down with a cold in the German-American or European-American relationship, many others around us will get pneumonia so it’s highly risky and that’s why we need to end this conflict as quickly as possible.”
Eric Schweitzer, president of the DIHK Chambers of Commerce, told Welt am Sonntag the German economy had for decades counted on open markets and a reliable global trading system but added: “Every day German companies feel the transatlantic rift getting wider.”