Starbucks achieves record third quarter as sales in China rebound

Starbucks achieved 12% third quarter group revenue growth to reach $9.2bn | Photo credit: Starbucks

Starbucks has posted ‘record’ third quarter results, with total sales, profits and outlet growth boosted by a strong performance in China. 
 

The Seattle-based coffee chain achieved 12% group revenue growth to reach $9.2bn in the three months ended 2 July 2023, with total operating income increasing 22% year-on-year to $1.6bn. 

Sales in North America, where Starbucks operates 17,592 stores, grew 11% year-on-year to $6.7bn – generating more than 70% of total revenues during the period. Operating income for the region grew 10% to $1.4bn. 

Revenue growth in the coffee chain’s international segment was also positive, increasing 24% to $2bn, with operating income surging 177% to $375m. The strong performance was driven by 11% year-on-year outlet growth to 19,630 stores, alongside resurgent sales in China – Starbucks’ second largest and key growth market. 

The coffee giant, which entered the Chinese market in 1999 with a store in Beijing, opened 237 net new stores in China during the quarter to reach 6,480. In May 2023, CEO Laxman Narasimhan said Starbucks was committed to reaching 9,000 stores in China by 2025 despite slower outlet growth during two years of Covid disruption. 
 

Starbucks’ third quarter revenues in China increased 51% year-on-year to $822m, driven by a 48% increase in comparable transactions. Sales were 8% higher than the previous quarter. 

In a further indication recovering trading conditions in the east Asian country, Starbucks reported its Rewards loyalty programme now has more than 20 million members in China, making it the largest market outside the US, where it has 31.4 million members. 

“We have built a brand that is highly relevant for China, in China. And we believe our unique approach has us well-positioned to play the long game and win,” said CEO Laxman Narasimhan on an earnings call to investors. 

The US and China collectively comprise 61% of Starbucks’ global store portfolio, which now stands at 37,222 outlets across 86 markets. The coffee chain opened a total of 588 net new stores during its third quarter. Currently, 51% of Starbucks stores globally are company operated, with the remaining 49% licensed.  

“Our strong third quarter results point to all-around momentum in the business and reflect the significant progress we are making against our Reinvention Plan. Our results were also amplified by the distinctive competitive advantages that set us apart in the market. Starbucks is an iconic, durable brand and I am confident in the multiple paths available for the company to drive significant growth and margin improvement, which position us well to create outsized long-term shareholder value,” Narasimhan said. 

Starbucks’ Channel Development division reported sales of branded packaged coffee, tea and ready-to-drink (RTD) beverages outside of company-operated and licensed stores, fell 6% to $449m. The coffee chain said the segment’s performance was the result of a decline in Global Coffee Alliance revenues. 

Starbucks and Nestlé formed the Global Coffee Alliance in May 2018 in a deal worth $7.1bn. The partnership gave the Swiss food and beverage giant exclusive rights to distribute Starbucks-branded coffee products across more than 80 markets outside of Starbucks’ retail stores.