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Coffee in the coronavirus era: Starbucks and Dunkin' forced to close hundreds of stores

Brian Sozzi
·Editor-at-Large
·3 min read

Getting your caffeine fix in the morning may soon require a longer drive than normal or brewing a pot at home, thanks to the ongoing COVID-19 pandemic.

In an effort to slash costs with many dining rooms still closed for service and as people exit urban areas that coffee chains have feasted on for sales for years, the biggest java outfits have ramped up store closings into year-end. Starbucks executives told analysts on its earnings call Thursday evening it would shutter 200 more restaurants in the U.S. and Canada than it previously outlined.

In June, Starbucks said it would close up to 400 of its company-operated stores in the Americas over the next 18 months.

“Part of the reason why we've taken that up is that as our team has started the process of repositioning the portfolio over the course of the summer, accelerating the strategic plans we already had in place, what we've learned is that we've been able to manage the closures much more efficiently than we originally anticipated,” Starbucks CFO Pat Grismer explained to analysts.

Continued Grismer, “So with this new information, we were able to go back and take a look at the portfolio, along with insights we have into how the dense metro trade areas are performing and identify an incremental 200 store closures that would create shareholder value through our ability to capture sales transfer from the stores that are closing at nearby locations, while also reducing cash operating losses at underperforming stores, avoiding future CapEx that would otherwise have to spend to remodel some of these stores.”

In other words, cost-cutting.

NEW YORK, NEW YORK - OCTOBER 28: A person walks by a permanently closed Starbucks location as the city continues the re-opening efforts following restrictions imposed to slow the spread of coronavirus on October 28, 2020 in New York City. The pandemic continues to burden restaurants and bars as businesses struggle to thrive with evolving government restrictions and social distancing plans which impact keeping businesses open yet challenge profitability. (Photo by Noam Galai/Getty Images)
NEW YORK, NEW YORK - OCTOBER 28: A person walks by a permanently closed Starbucks location as the city continues the re-opening efforts following restrictions imposed to slow the spread of coronavirus on October 28, 2020 in New York City. The pandemic continues to burden restaurants and bars as businesses struggle to thrive with evolving government restrictions and social distancing plans which impact keeping businesses open yet challenge profitability. (Photo by Noam Galai/Getty Images)

The company plans to open 2,150 locations worldwide in its current fiscal year, including 850 in the Americas. But with the store closures included, Starbucks said it would only open a net 50 new stores in the current fiscal year in its Americas segment.

The stepped-up pace of store closures in the Americas come as Starbucks endured another challenging quarter at the hands of the pandemic. Fiscal fourth quarter same-store sales plunged 9% globally. Same-store sales in the Americas and U.S. each dropped 9%. International same-store sales fell 10%.

Non-GAAP operating profits fell to 13.2% from 17.2% last year.

Starbucks rival Dunkin’ Brands is also quick to close stores.

The Dunkin' Donuts brand closed 687 U.S. locations by the end of the third quarter, including 447 Speedway gas station locations as part of an initiative announced back in February. Dunkin’ will now look to close a total 800 locations in the U.S. by year-end.

“We are working with our franchisees to scrub our asset base by eliminating low volume, low profit restaurants,” Dunkin’ Americas president Scott Murphy told analysts on an earnings call this week. “For many franchisees, closing these restaurants will enable them to redeploy capital into the brand, whether through next-gen remodels, building new restaurants or relocating restaurants to higher traffic areas where they can add a drive-thru.”

Dunkin’ U.S. same-store sales rose a mere 0.9% in the third quarter. Overall adjusted earnings improved 3.3% from a year ago.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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