During January’s Q1 earnings call, Starbucks CEO Kevin Johnson said that the company did not yet know the long-term business impact of the coronavirus outbreak on the company, but now we have a clearer idea of the short-term effects in China. In a report addressed to shareholders Thursday, Starbucks said that same-store sales dropped 78% in China this February, as 10% of stores in China still remain closed. The worst week was the second week of February, but the company said it has seen “sequential improvements” since then, coinciding with the reopening of the majority of its stores.
Starbucks emphasized that the sales nosedive has not impacted U.S. business and that they are “confident” the effects are temporary.
For stores that remain open or have reopened in China, Starbucks has put abundant safety measures in place to counteract effects of contamination:
- Open cafes have limited lobby service and minimal seating.
- Starbucks has initiated its “contactless experience” policy which uses mobile order and pay and limits human contact through a carefully orchestrated set of instructions. A guest that has placed a mobile order will be checked in by an employee wearing gloves who will take their temperature, let the customer into the store, and another employee wearing gloves will place the order on the mobile order station. The customer will pick up the beverage by themselves and leave.
- Open cafes are operating at reduced hours.
- All employees have to undergo daily temperature checks.
- Extra sanitation measures have been put into effect
- Café seating has been rearranged to maintain a “safe distance between customers”
During the closures, Starbucks paid salaried employees as usual, hourly employees were paid for hours that were scheduled before stores were shut down, and hourly partners in need of “special financial assistance” were provided partial payment in advance for hours they committed to working in the future. Starbucks also said they provided a special counseling program as an employee assistance benefit, in addition to normal insurance coverage.
Moving forward, the company anticipates further impact on other countries heavily affected by the outbreak, including Italy, Japan, and South Korea although these developments are “in early stages.”
“While the current situation in China continues to be dynamic, we believe that the financial impacts of COVID-19 are temporary, and we remain confident in the strength of the Starbucks brand and the long-term profitability and growth potential of our business in China,” CEO Kevin Johnson and CFO Patrick Grismer said in the letter to shareholders.
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