A Starbucks store in Pudong, Shanghai | Photo credit: Declan Sun

Starbucks has posted record first quarter revenues but issued caution over escalating geopolitical tensions in the Middle East and lower consumer spend in China and the US will likely impact its second quarter performance. 
 

The Seattle-based coffee giant achieved 8% year-on-year sales growth in the three months ended 31 December 2023 to reach $9.4bn. 
 

Starbucks’ net revenues in North America increased 9% year-on-year and 3% quarter-on-quarter to $7.1bn, with sales growth in the US increasing at the same rate to $6.6bn. The coffee chain also reported record US spending per order in the quarter as customers purchased more food and spent more on customised beverages. 

However, in an earnings call CEO Laxman Narasimhan said heightened tensions in the Middle East were having ‘significant impact on traffic and sales’ for its stores in the region. ‘Misperceptions’ about the coffee chain’s position on growing tensions in the region had also led to a ‘softening’ of US traffic from mid-November, he added.  

“We feel very confident in our robust plans to address these challenges. There was some traction in the quarter, and it will take some time to normalise,” he said. 

Net revenues for Starbucks’ International segment grew 10% year-on-year to $1.8bn – 10% less than the previous quarter. Narasimhan attributed the decelerated growth to a slower-than-expected recovery in China, driven by ‘cautious consumers’. 

First quarter net revenues in China reached $735m – a 12.5% decline compared to $840.6m in the fourth quarter of 2023. Although customer transactions increased 21%, average spend per order fell 9%, which Starbucks China CEO Belinda Wong attributed to new ‘targeted promotional investments’ as the business competes with an influx of mass-market competitors focused on ‘low-price tactics’. 

Alluding to the rapid growth of value-focused operators, such as Luckin Coffee and Cotti Coffee in China, Wong said Starbucks was not interested in entering ‘the price war’, with Narasimhan adding that the brand is seeking to ‘be the best in the premium market’. 

“In China we remain very confident in the long-term. The market is going through a transition as we see an increase in mass-market competitors which we believe will shake out over time and the market will emerge looking fundamentally different to what we see today. We expect a much larger and tiered market as per capita consumption continues to increase and the market matures,” Narasimhan said. 

China is Starbucks second largest market with nearly 7,000 stores. The east Asian country and the US, where the coffee chain has 16,466 outlets, currently comprise 61% of Starbucks 38,586 stores globally.  

Starbucks opened 549 net new stores in the first quarter, including 114 in the US and 169 in China. 

The Seattle-based coffee chain also reported a 6% year-on-year sales decline in its Channel Development segment, which sells branded packaged coffee, tea and ready-to-drink (RTD) beverages outside of company-operated and licensed stores.  

Starbucks expects sales in the US and China to decline further in the second quarter before improving in the second half of the year. It has revised its full-year revenue growth outlook from 10-12% to between 7-10%.