The spread of the deadly coronavirus has struck Starbucks’ business in China hard, and the company has indefinitely closed more than half of its stores in that market, CEO Kevin Johnson confirmed in Tuesday’s first quarter earnings call. After a favorable first quarter of 2020 with the company's largest quarterly peak traffic growth in three years, Starbucks was originally going to raise its outlook for 2020 but declined to do so with the events unfolding in China.
However, despite closing 2,000 stores in China over the last several weeks, the company could not divulge exactly how business will be affected by the coronavirus in the long-term at this time.
“Our immediate focus is on two key priorities in China: first, caring for the health and well-being of our partners and customers in our stores; second, playing a constructive role in supporting local health officials and government leaders as they work to contain the coronavirus,” Kevin Johnson said in Tuesday’s earnings call.
For the stores that remain open, store hours and menu offerings have been adjusted based on supply chain availability, and delivery remains an option for customers.
CFO Patrick Grismer clarified that the large-scale impact on Starbucks China would be determined by two factors: the number of closures and the length of time that they remain closed. He said that they would likely not know the full impact of the coronavirus crisis until, at the latest, the next earnings call at the end of April.
Starbucks executives were confident that the impact on the business would temporary, as China is still the company’s largest international market — representing about 10% of Starbucks’ global revenue — and is still growing rapidly.
“We have built an admired and trusted brand and we will continue to play the long game in China as we navigate in the coming weeks and months,” John Culver said.
Starbucks is not the only company facing challenges in China with the spread of coronavirus. McDonald’s has closed several hundred of its stores in China — a much smaller percentage than Starbucks — and more than 3,000 stores remain open.
“We've put in place an epidemic prevention and control task force which is something we're doing again in combination with the local authorities there,” McDonald’s said during Monday’s earnings call. “And it's everything from using our kitchens to help provide meals to health care workers in hospitals. We're doing things in terms of giving medical screening for customers who come to some of our restaurants.”
China represents a smaller percentage of global revenue for McDonald’s than for Starbucks, so the burger company is not as worried about long-term effects and predicts a much smaller impact on business, assuming that the virus stays contained to China.
Contact Joanna Fantozzi at [email protected]
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