Starbucks Posts Softer Sales
For a number of months, the industry’s outlook has been bearish. Higher prices due to increased costs of labor and other types of expenses have led to a large number of consumers to eat and drink at home.
Grocery stores, the benefactor of lower costs for goods that they sell, have passed that savings along to their customers. Consumers have been buying more online, pressuring demand for places closely associated malls and other destinations for shopping where restaurants also are operating locations.
The end result has been that eateries in the U.S. are seeing less traffic. NPD Group, an online research firm said earlier in January that much of the current down swing would remain the same during 2017.
A report showed that growth has stalled and will remain stalled, as those that have cut back on visits to restaurants believe prices remain too high.
Starbucks is still a strong performer within this sector, as it reports growth in its existing locations across the U.S. On Thursday, the company posted an increase in net revenue of 7% to just over $5.7 billion for its January 1 ending fiscal first quarter.
Comparable sales, which is a key metric for measuring demands at locations that have been open a minimum of 13 months, grew by 3% in U.S. locations, 5% in Asia Pacific/China and fell by 1% in Europe, Africa and the Middle East.
Those figures ended the quarter all weaker than analysts on Wall Street had expected. Starbucks shares were down 4% in Thursday afterhours trading following the news.
Starbucks has anticipated this for some time. Outgoing chief executive Howard Schultz, who in April will step down, has labeled it the Amazon effect.
Schultz says that increased spending on e-commerce has hurt the foot traffic within malls and other physical stores not just domestically but abroad as well.
That has had its impact on the company, which has operations in many locations in shopping areas such as malls and plazas.
McDonald’s earlier in the week posted softer sales for the U.S. than anticipated by analysts and the burger giant promised to improve its traffic during 2017.
Starbucks, in its attempt to compete, is investing heavily in making its mobile experience stronger. During the just ended quarter, Starbucks had $2.1 billion loaded on its cards in Canada and the U.S., which was an increase of 15% from the same period last year.
Card transactions are now 40% of the overall domestic transactions at locations that are company owned.