Starbucks speeds up closing of 150 US stores as sales slow

Starbucks is planning to speed up its closings of US stores next year as sales growth is cooling. Usual rate of closings is 50 stores a year but next year it will close 150 under-performing stores in heavily penetrated markets.

Starbucks has huge presence in the United States

At present, Starbucks has about 13,900 locations in the US almost as many as the 14,400 restaurants operated by competitor McDonalds. In just the last year Starbucks has opened 1,000 new stores in the US, Canada, and Latin America.

The new stores in some instances may be taking customers from already established operations. Also, competition from rivals such as Dunkin Donuts and McDonalds is increasing.

Starbucks has 25,000 coffee shops in 70 countries. After the announcement of the closure Starbucks shares fell 2 percent in after hours trading.

Competition is heating up

Analyst Sara Senatore said in a research note: "Intensified competition in the slushy coffee category is exacerbating the shift towards health and wellness weighing on Frappuccino demand. Starbucks will focus on Teavana drinks and other more healthful options in its core offering, which it views as 'more differentiated.'"

Even though there is strong competition Starbucks expects 1 percent growth in global sales in the third quarter.

Starbucks holds race-bias training for employees in US

The growth in sales came in spite of an uproar over the arrest of two black men at a Philadelphia Starbucks as reported in a recent Digital Journal article. Two men were arrested when they were simply waiting for a third man to arrive for a business meeting.

The company closed its US stores on May 29th to hold a training session on racial bias. The closing of the stores was estimated to have cost Starbucks $12 to 14 million in lost sales. Although some criticized the exercise as virtue signaling, many black officials and activists were cautiously optimistic about the session.

New shops may be cannibalizing existing operations

Analyst Senatore said that the new stores could be cannibalizing customers from existing stores. She estimates that in some cases 1 out of 7 transactions are diverted from existing shops to the new ones.

A good example is in Burlington Vermont. For years, there was only one Starbucks location on the south side of the city. It was on a main road. However, a new shop was but built right across the street from the older cafe.

The former CEO of Starbucks Howard Schultz at present executive chairman has announced he is leaving his position and may run for public office, even perhaps for president as suggested in the appended video. He has been with the company for decades. Schultz is a billionaire.

Previously published in Digital Journal