The UK was once Starbucks’ beachhead in Europe. But its European invasion may be crumbling as weak economic prospects call into question a consumer-discretionary business surrounded by thug-like competition. Rumors are circulating that it is prepared to offload its UK business, even after it slogged through the pandemic.
Starbucks has denied rumors that it is in a “formal” sales process; the choice of words here is important. The investment bank Houlihan Lokey has been retained to explore options for a once-sacred international expansion. Since its first store outside of North America opened in London in 1998, Starbucks now either owns or licenses some 1,000 outlets across the UK. It has run into fierce competition from Coca Cola-owned Costa Coffee, as well as local favorites Pret a Manger and Caffe Nero.
The pandemic opened a few cracks in Starbucks’ business, revealing weakness in its staffing, supply chain, and distribution efforts. In the UK, those challenges may be repairable, but the long, hard slog to do so may not be worth the cost when confronted by macroeconomic challenges. In the UK, growth is set to be the lowest—and inflation may be the most persistent—among the G7 nations.
Starbucks’ stock price has soared over the past decade. From a financial-crisis low of about $3 a share in November 2008, it now trades at near $83, representing an uptick since the UK rumors began to surface. The stock price peaked at $126 in July 2021. With a growth orientation brewed into corporate strategy, the firm is going to have a tough time re-rebuilding its business from a consumer-discretionary company to something akin to a consumer staple. That sort of extreme pivot may be required to push through the cycle ahead, depending on how dour the outlook.
For executives in Seattle, it is better to play trench warfare in higher growth markets like China. The competition is also intense there—with new-to-market names like Hey Tea and Manner Coffee—but a Western brand adapted to Chinese preferences will play well in a market set to rebound from its unique version of pandemic lockdown. Starbucks opened its 5,000th store in China in 2021; one of its very largest stores worldwide is in Shanghai at 30,000 square feet.
Fortunately for Starbucks, the economic outlook in China provides the best possible focus for the company. Baseline, post-pandemic GDP growth in 2023 at 4% seems quite reasonable in a global context. The company is better known for exploiting growth opportunities, not adroitly managing macroeconomic settings. In the absence of a bounce from China, Starbucks runs the risk of becoming just another meandering retail brand, however large and lumbering. ■
Our Vantage Point: Starbucks’ apparent move in the UK previews the complex decisions that many consumer-oriented companies will be forced to make over the cycle ahead. In this case, Starbucks weighs a measured decision. Other companies may be cornered into fast-and-furious choices.
Learn more at the BBC
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