'Is the China Open Boom Over?'... Starbucks Growth Slowdown Expected

Starbucks, which has been aggressively expanding its business in China to capitalize on increased demand following China's reopening (economic restart), is facing a slowdown in sales growth.

On the 2nd (local time), Starbucks announced after its Q1 earnings report that it expects sales growth in the Chinese market to slow down starting from Q2 this year during its conference call.

Rachel Ruggeri, Starbucks' Chief Financial Officer (CFO), said, "While the weekly average sales in China will continue to grow each quarter, the growth rate is expected to decline after Q1." She also predicted that the Q2 performance would fall significantly short of the previously set targets.

This outlook from Starbucks stems from the assessment that the recovery in Chinese consumption is not rising as much as expected. Although there has been a recovery mainly in service consumption, which was directly or indirectly affected during the COVID-19 pandemic phase, recent evaluations indicate weakening domestic and external demand.

[Image source=Reuters Yonhap News]

The first economic report since China abandoned its zero-COVID policy in December last year was solid. Last month, China's National Bureau of Statistics announced that China's Gross Domestic Product (GDP) grew by 4.5% year-on-year in Q1 this year.

This exceeded market expectations (4%) and was the highest level since Q1 last year (4.8%). China's economic growth rate has been declining steadily since peaking at 18.3% in Q1 2021, during the height of the COVID-19 pandemic.

However, it is uncertain whether the rebound in the Chinese economy will continue. The manufacturing Purchasing Managers' Index (PMI), a real economic indicator in China, was 49.2 in April, below both the previous figure (51.9) and market expectations (51.4), suggesting that the economy is shifting from an expansion phase back to a contraction phase.

Foreign media have evaluated that the Q1 recovery in the Chinese economy was driven by the reopening effect, and it is too early to expect a full recovery due to the dual challenges of demand contraction and supply shocks.

Starbucks announced on the 2nd that its Q1 revenue (its fiscal Q2 2023) increased by 14.2% year-on-year to $8.72 billion (approximately 11.69 trillion KRW). Net income rose 35% to $908 million, and adjusted earnings per share (EPS) increased 25% to 74 cents.

This content was produced with the assistance of AI translation services.