Starbucks has given up on its expectations for 2022: after the war in Ukraine, the coffee chain is now also affected by harsh anti-Covid restrictions in China. The brand with the mermaid logo is therefore withdrawing its sales and profit forecast for the rest of the year.
Chinese dream turns nightmare
Starbucks’ quarterly figures are disappointing, despite a strong recovery in its American home market. Domestic sales rose by 12 % in the past quarter, but because the coffee chain has been focusing more on Chinese consumers for the past few years, this growth has been overshadowed by the tightening of Covid measures in China. As a result of these lockdowns, Chinese sales dropped by 23 %.
In total, worldwide turnover rose by 7 %. Net sales clocked in at 7.64 billion dollars (7.2 billion euros). Next quarter will be even tougher, Starbucks CEO Howard Schultz already anticipates, as Beijing and Shanghai are now also severely restricting life outside the home. Other major retailers and brands are suffering as well.
Staff investments after union pressure
In the past quarter, the company added 313 new coffee bars. Since August, some 240 American Starbucks cafes have also held union elections, of which 50 have now joined. This is the first time staff have unionised as employees begin to organise in more and more US companies.
Schultz however claims the union contract will not even come close to what Starbucks offers, according to Reuters. The top executive, who has already had an entire career at the head of the company and is known to be a union opponent, is nevertheless investing 200 million dollars this year to raise shop managers’ wages, improve training and launch an internal communications app for American workers. From the end of this year, it will also be possible to add tips to card payments, as per union request.
These costs, together with the purchase of new equipment, faster repairs and an update of the consumer app so that customers can more accurately follow when their order will be ready, makes for a total investment of a billion dollars. At the same time, margins are shrinking due to higher costs for labour, transport and raw materials.
Returned CEO leaves already
Due to the confluence of all these factors and the uncertainty that still lies ahead, Starbucks is afraid to make any statements about this year. The coffee company is withdrawing all its forecasts and expectations for the 2022 financial year.
Howard Schultz, who reappeared at the helm of the chain in March after five years of retirement, did shed more light on his sudden return. He is temporarily taking the torch from Kevin Johnson, who is taking early retirement after union struggles, but that will only be short-lived. Starbucks hopes to find a successor by the autumn, after which Schultz will retire from the board.