Shares of Starbucks SBUX surged over 2% on Monday following two significant pieces of news regarding the recently-struggling coffee powerhouse, including a possible Alibaba BABA partnership to help boost growth in China.
Departing Starbucks CEO Howard Schultz told reporters at a roundtable discussion at the company’s flagship roastery store in Shanghai on Monday that a potential Chinese slowdown is a "false narrative." Schultz made it clear that Starbucks would continue its growth in the world’s second-largest economy after the company said last month that same-store sales in China would be flat to slightly negative in the June quarter, compared to impressive 7% comps growth in the year-ago period.
"It's a very short-term number that Wall Street uses, it's not a number we're concerned about," Schultz said. "I will say, unequivocally, that anyone who is betting against Starbucks in China is dead wrong."
Investors should note that Chinese comps climbed 4% last quarter, with overall revenues for the China/Asia Pacific segment up 54% to $1.19 billion. The company also opened 216 new stores in the region. Meanwhile, same-store sales grew by 2% in the Americas and the U.S.—which still accounts for roughly 70% of total revenues.
Schultz then went on to discuss the possibility of joining forces with Chinese e-commerce giant and Amazon AMZN rival Alibaba in order to bolster sales. The outgoing Starbucks chief executive also spoke openly about his relationship with Alibaba's billionaire founder Jack Ma.
“There's no doubt that no brick-and-mortar retailer anywhere in the world, let alone China, can exist as a stand-alone business without having a significant, integrated e-commerce mobile application," Schultz said. “I have been very dear and close friends with Jack Ma for many, many years... and suffice to say there will be news coming that will relate to our plans for accelerating and integrating mobile commerce at a higher level into our core business.”
Looking ahead, Starbucks thinks that China can overtake the U.S. as its top market. Starbucks plans to add 600 new stores per year in Mainland China through 2022 in order to double its locations to 6,000 total stores in 230 cities.
Investors should also note that Starbucks announced that it plans to stop using plastic straws at all of its locations within two years, pointing directly to the environmental threat to the oceans. Starbucks’ move comes amid increased coverage about how much plastic waste—with straws playing a significant role—ends up in oceans.
The company also became the largest food and beverage company to make such a commitment, which comes a week after its home base of Seattle banned plastic drinking straws and utensils. Going forward, Starbucks will begin to use straws made from biodegradable materials such as paper and specially designed lids, some of which are already offered in Seattle.
Starbucks' announcement could put more pressure on fellow coffee giant Dunkin' Donuts DNKN to make more environmentally friendly moves. Dunkin' did announce in February that it plans to eliminate polystyrene foam cups from its stores by 2020.
Meanwhile, McDonald's MCD recently said that it would switch to paper straws in the UK and test alternatives to plastic straws at some U.S. locations.
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