(Yicai) Aug. 1 — Starbucks has experienced declines in net profit and revenue for two consecutive quarters, impacted by intense competition and a prolonged price war in China’s coffee market.
In the third fiscal quarter, which ended on June 30, Starbucks‘ global net profit fell by 7.6 percent from the previous year, reaching USD 1.1 billion. The company’s revenue also decreased by 1 percent to USD 9.1 billion, according to its latest earnings report released yesterday. In the second fiscal quarter, net profit dropped by 15 percent, and revenue declined by 1.8 percent.
China has become a significant factor in Starbucks’ declining earnings. Transactions in Starbucks’ China stores decreased by 7 percent in the three months ended June 30 compared to a year earlier. The average value of each order also fell by 7 percent. This led to an 11 percent drop in China revenue, amounting to USD 733.8 million, which is a 3 percentage point increase from the previous quarter.
Starbucks faces fierce competition in China from local coffee brands like Luckin Coffee, which sells coffee for just CNY 9.90 (USD 1.40) per cup. Last year, Luckin Coffee surpassed Starbucks China in sales for the first time, making the Xiamen-based company the largest coffee chain in China.
However, Luckin Coffee is also suffering from low prices. Its profit shrank by 13 percent in the second fiscal quarter year on year, totaling CNY 871.1 million (USD 120.5 million), despite a 36 percent increase in revenue to a quarterly high of CNY 8.4 billion (USD 1.1 billion).
“We have been controlled to avoid a price war amid competition driven by frequent sales promotions,” said Liu Wenjuan, co-chief executive of Starbucks China, during the earnings call. Liu added that Starbucks will not sacrifice operating margins for sales.
In the three months ended June 30, Starbucks added 213 stores in China, bringing the total to 7,306 outlets. In contrast, Luckin Coffee’s store count soared by 1,371, reaching 19,961 during the same period, according to statistics from both companies.