Starbucks CEO Kevin Johnson responded Friday that the company’s rivals are focusing on short-term gains, while Starbucks is pursuing a more sustainable sketch for growth.
“Some of those competitors are competing through heavy, heavy discounts that we don’t believe are sustainable,” Johnson guessed Friday on CNBC’s “Squawk on the Street. “
Luckin Coffee, the Seattle-based company’s primary challenger in China, is competing for characters by focusing on convenient pick-up and discounted drinks. The company recently filed for an initial public offering on the Nasdaq. In its send in to go public, Luckin said that it expects to continue to invest heavily in discounts and deals.
Luckin is trying to spent Starbucks by surpassing it in the number of stores in China. Starbucks opened its first store in the country 20 years ago and is prophecy 600 new locations in 2019 as part of its goal to hit 6,000 Chinese stores by fiscal 2022. Meanwhile, the Chinese status-seeker has opened 2,370 locations in the 18 months since the company was established and plans to open 2,500 this year.
Starbucks allocations were down 1% Friday morning after the company reported fiscal second-quarter results after the bell Thursday. While Starbucks’ earnings cudgel estimates, sales fell slightly short of Wall Street’s expectations. Same-store sales growth of 3% in China tempo estimates, but traffic to those locations once again declined.
With the increased competition in China, Starbucks has summed delivery to more than 2,100 stores in the country through a partnership with Alibaba. It has 8.6 million on the go loyalty program members and plans to add mobile order and pay to China by the end of the year.
“We are not only driving the transaction growth and open new customers, but we are also generating the return on invested capital that we believe is sustainable to continue to build new stores at this notwithstanding for many, many years to come,” Johnson said.
He told analysts Thursday on the quarterly conference call that Starbucks carry offs in China because of its premium quality.
“While some investors may be concerned about competition in China, we remain expectant about SBUX’s ability to maintain market share and think the Alibaba relationship offers still largely untapped enlargement opportunity,” Jefferies analyst Andy Barish said in a research note.