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  • - Betting against Starbucks has been a mistake

  • for a long, long time.

  • But finally, the concerns are crystallizing.

  • This past quarter, Starbucks sales fell off of a cliff.

  • This is "Heard on the Street,"

  • and today we're talking about Starbucks.

  • (bouncy piano music)

  • The suspicion is people are finally hitting a pain point

  • with the expensive beverages at Starbucks.

  • This is the change in US foot traffic.

  • You can see that Dunkin' grew quite a bit faster,

  • and Dutch Bros, which is a fast expanding chain,

  • grew far more quickly.

  • The overall growth in Starbucks

  • in the United States has slowed dramatically,

  • because they've reached a saturation point.

  • It's growing, but it's not growing like it used to grow.

  • They need China to succeed.

  • So Starbucks' long-term strategy in China

  • is to grow very quickly,

  • because they know that the country's becoming more wealthy,

  • and that people like coffee culture.

  • Starbucks said in 2022, it wanted over the next three years

  • to open a cafe in China every nine hours,

  • which sounds bonkers, and it is,

  • except if you consider the fact that in China last year,

  • a brand new coffee shop opened,

  • on average, every 20 to 30 minutes.

  • The problem is, Starbucks has a lot of competitors in China,

  • all of a sudden, led by Luckin Coffee,

  • which is the local champion.

  • How quickly is Luckin growing?

  • Well, here's a chart where you see Luckin in blue,

  • and Starbucks in green,

  • and you can see they were pretty neck and neck,

  • which is problem enough for Starbucks.

  • And then in 2023, Luckin went into total turbo overdrive

  • in terms of new store expansion.

  • China is not over for Starbucks,

  • but the growth story might be significantly diminished.

  • For a stock like this,

  • growth is really the most important thing.

  • In order for investors to pay growth stock prices for it,

  • they need to expect it to continue growing quickly.

  • May was a wake up call for them where they saw

  • that the two primary growth engines,

  • the willingness of Americans to pay more

  • and more for coffee, and the willingness of Chinese people

  • to keep sampling this beverage,

  • and for them to dominate this new market,

  • have both disappointed.

  • And if they don't fix one, and preferably both,

  • it won't be the growth stock that it once was.

  • Just treading water, muddling along

  • is not going to be enough for investors in the stock.

  • (bouncy piano music)

- Betting against Starbucks has been a mistake

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