Starbucks China Q1 Revenue Nears RMB 5 Billion as Howard Schultz Says China Could Become Larger Than the U.S.

This is an English adaptation of a FoodBud historical article originally published on May 3, 2022.

On May 3, Starbucks reported results for the quarter ended April 3, its fiscal Q2 2022. Global revenue reached US$7.6 billion, about RMB 50.2 billion, up 14.5% year on year.

Key operating figures

In North America, Starbucks generated US$5.4 billion, about RMB 35.7 billion, in revenue, up 17.4% year on year. Same-store sales increased 12%, driven by a 5% rise in transactions and a 7% increase in average ticket.

In China, quarterly revenue was US$740 million, about RMB 4.89 billion, down 14% year on year. Same-store sales fell 23%, with transactions down 20% and average ticket down 4%.

Starbucks opened 313 net new stores during the quarter, taking its global store count to 34,630. Company-operated stores accounted for 51% of the system, while licensed stores accounted for 49%. The U.S. had 15,544 stores, and China had 5,654.

Earnings call takeaways

Howard Schultz, who had returned to Starbucks as founder and interim leader, joined the earnings call. Starbucks China CEO Leo Tsoi did not participate; Starbucks China chair Belinda Wong represented the China business.

The main operating points discussed included:

• Starbucks planned to invest more than US$200 million in the U.S. during the year across company-operated store training, partner wages, and store equipment.
• The company said it would build a Web3 digital “third place” using blockchain technology and launch its first NFT. It also planned branded NFT collections and partnerships, describing NFTs as a potential incremental revenue stream and a complement to its existing digital platforms.
• Schultz said Shanghai, a city about four times the size of New York, was fully locked down, while other major cities including Beijing were facing a new wave of COVID impact. He said conditions in China left Starbucks with very limited ability to forecast China performance for the second half of the year.
• During the quarter, 72% of the 225 Chinese cities where Starbucks operated were affected by the pandemic. Entering the second quarter, about one-third of Starbucks China stores remained temporarily closed or limited to delivery and takeaway. In the final week of March, same-store sales in China were down nearly 50%.
• Since Starbucks China launched on Meituan delivery in January, digital channels had risen to 43% of sales in the first quarter.
• Starbucks aimed to reach 6,000 stores in China in 2022. It opened 97 net new stores in China during the first quarter. Belinda Wong said that among every two coffee consumers in China at the time, one chose Starbucks over other brands.
• Cold beverages accounted for about 80% of Starbucks’ business. After returning, Schultz paused the share buyback plan in order to increase investment in stores and employees.

Schultz said Starbucks’ store equipment and layouts were no longer fully suited to the current business mix. He identified equipment upgrades to reduce store operating pressure as the first priority, alongside investment in employee wages.

He added that China’s restrictions would gradually ease, that no brand was better positioned than Starbucks, and that the China business would become larger than the U.S. business in the future.

Note: forward-looking targets, Web3 plans, and share buyback references are historical figures and statements from 2022.