China won&a;rsquo;t save Starbucks from its decline on Wall Street. As the company makes its transition from a momentum play to a value play, its stock has nowhere to go but down.
Starbucks has a serious problem in the US: market saturation. Its stores are on almost every neighborhood corner. And they&a;rsquo;re beginning to cannibalize the sales of each other.
That&a;rsquo;s why the company has been closing stores in some neighborhoods.
&l;/p&g;&l;div class=&q;table-wrapper&q;&g;&l;table&g;&l;tbody&g;&l;tr&g;&l;td width=&q;277&q;&g;&l;span&g;Company/Index&l;/span&g;&l;/td&g;
&l;td width=&q;277&q;&g;&l;span&g;3-month performance&l;/span&g;&l;/td&g;
&l;td width=&q;277&q;&g;&l;span&g;5-year performance&l;/span&g;&l;/td&g;
&l;/tr&g;&l;tr&g;&l;td width=&q;277&q;&g;&l;span&g;Starbucks&l;/span&g;&l;/td&g;
&l;td width=&q;277&q;&g;&l;span&g;-17.88%&l;/span&g;&l;/td&g;
&l;td width=&q;277&q;&g;&l;span&g;39.47%&l;/span&g;&l;/td&g;
&l;/tr&g;&l;tr&g;&l;td width=&q;277&q;&g;&l;span&g;Dunkin Brands&l;/span&g;&l;/td&g;
&l;td width=&q;277&q;&g;&l;span&g;14.69&l;/span&g;&l;/td&g;
&l;td width=&q;277&q;&g;&l;span&g;55.11&l;/span&g;&l;/td&g;
&l;/tr&g;&l;tr&g;&l;td width=&q;277&q;&g;&l;span&g;S&a;amp;P 500&l;/span&g;&l;/td&g;
&l;td width=&q;277&q;&g;&l;span&g;2.77&l;/span&g;&l;/td&g;
&l;td width=&q;277&q;&g;&l;span&g;61.24&l;/span&g;&l;/td&g;
&l;/tr&g;&l;/tbody&g;&l;/table&g;&l;/div&g;
Source: Finance.yahoo.com 7/5/2018
Still, there is China Starbucks, bulls say.
&a;ldquo;Longer-term, SBUX is becoming a mature cash-generating company in the U.S. market with a high-margin licensing revenue stream from licensing partnerships all around the world and a huge high-return growth opportunity in China,&a;rdquo; says equity analyst John Zolidis.&a;nbsp; &a;ldquo;There&s;s a lot left from this story if you&s;re willing to look past near-term comp headwinds, in our opinion.&a;rdquo;
But with close to 1600 outlets already opened in China, there&a;rsquo;s very little room to grow there, beyond the country&a;rsquo;s &a;ldquo;highly globalized&a;rdquo; market segment.
With over 1.3 billion people and rising incomes, China has been a &l;span&g;&a;nbsp;&l;/span&g;mouth-watering target for Starbucks. But winning the minds and the wallets of Chinese consumers isn&a;rsquo;t easy. China is a diverse rather than a homogeneous consumer market, which consists of three segments:
--The highly globalized segment, in which Chinese consumers display similar preferences and tastes with consumers in highly developed countries. This segment extends over three eastern regions: The Pearl River Delta, which includes Hong Kong, Guangzhou and Shenzhen; the Yangtze River Delta, which includes Shanghai and nearby cities; and the Beijing-Tianjin region.
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--The highly localized segment, in which consumers maintain their local preferences and tastes. This segment may be found in the most remote rural areas of central and western China.
--The semiglobal market segment, in which consumers display a mix of global and local preferences. This segment is a collection of &a;ldquo;mega-cities&a;rdquo; like Fuzhou, Zibo, Quingdao, Hantou, Dilian, and Huizhou.
So far, Starbucks has expanded into the easy target, the highly globalized segment, which requires little localization of the products sold in its home market.
But it will be extremely difficult to reach the other two segments, without substantial changes to its business model that will undermine the company&a;rsquo;s scalability and profitability.
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