Core market growth slows for world’s biggest coffee chain as experts say it is struggling to match investors’ expectations

This article is more than 2 years old

This article is more than 2 years old

Wall Street experts scalded Starbucks on Friday with an opinion many caffeine lovers – and investors - have probably been frothing about for a while – the company has opened too many coffee shops and the price of a cup of joe is too darn high.



The Seattle-based behemoth – the world’s biggest coffee chain – now has more US locations than McDonald’s, but growth in its core market is slowing. It has been struggling for more than a year to deliver the increases investors have come to expect, stock market analysts said.

Starbucks itself cited reasons ranging from drink specials that failed to “resonate” and holiday merchandise that didn’t sparkle for customers to bottlenecks from a crush of mobile orders and weak afternoon sales.

The company’s latest quarterly domestic growth was only 2%, below expectations, compared with a 9% jump in sales for the same period two years ago, and executives warned of a slow year ahead.

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Wall Street analysts were not energized. “We believe the company has raised prices too much,” said John Zolidis, president of Quo Vadis Capital, a Paris-based boutique research firm.

He added that the chain had opened too many stores, contributing to overcapacity in a crowded coffee retail marketplace that offers a wide variety of chain and independent cafes.

Starbucks had just over 14,163 US locations at the end of 2017, 25% more than five years ago and 127 more than McDonald’s. The company says it is not cannibalizing its own business, but financial observers disagree.

A Bernstein analyst, Sara Senatore, blamed “excess unit growth, at a time when Starbucks is reaching a more mature stage” as the root cause of the company’s domestic woes.

McDonald’s and Dunkin’ Donuts have kept prices of their coffees, such as $1 cups of drip coffee or $2 small espresso drinks, mostly flat, while Starbucks continues to raise its prices by about 3.5% a year, said a Maxim Group analyst, Stephen Anderson.