Shaun Rein is a senior China Market Research Analyst. He was blunt in his assessment of Starbucks Corp.’s (NASDAQ SBUX), deteriorating performance, when he talked to CNBC Friday.
Starbucks, he said, is failing in China despite the fact that experiential categories such as sportswear are flourishing. This is because Starbucks has been making major strategic errors in this region for many years.
The analyst said that Starbucks used to represent luxury, but now the coffee is expensive and in an unfavorable environment. He added: “I am very bearish on Starbucks’ stock which has fallen by 20% from its high for this year.
Starbucks cannot compete with the local coffee shops on price
Shaun Rein recently had an “incredibly bad experience” in a Starbucks store, as 40% of their premium menu options were not available.
The analyst told CNBC that SBUX had lost its appeal to Chinese consumers, where the brand once represented sophistication and upward mobility.
He added, “They have stayed expensive but their stores are horrible.” Rein also criticised Starbucks for trying to compete on price with rivals such as Luckin Coffee, saying “you cannot compete with Chinese firms on price.”
He said that SBUX should return to its origins: premium coffee, refined experiences in stores, and exclusivity in order to achieve the “luxury-in-a-cup” feel.
SBUX and local Chinese firms should work together
Shaun Rein believes that working with local firms like Prima Vera or Hillhouse that understand the dynamics of the domestic market could be the key to helping Starbucks return its glory as the second largest economy in the world.
Rein then offered a bolder solution, combining candor with ambition: just hand him the reins.
If they are bought by a PE company, I would like to be the CEO. I believe I could turn Starbucks around in China.
Rein spent almost three decades advising Fortune 500 companies in China and has written several bestsellers about Chinese consumer behaviour.
He has long advocated cultural fluency and deeper localization. His company works with international brands to navigate China’s complicated retail landscape.
Does it make sense to buy Starbucks at the current price?
Starbucks same-store sales have fallen in China amid an escalating price war. Luckin, on the other hand, has a technology-driven, app-first business model and over 20,000 stores.
Starbucks has, on the other hand, been slow in localizing its store and offering experience, despite launching a Y=1.5billion innovation center, and releasing over 78 products by 2024.
Wall Street has given Starbucks stock a “overweight rating” but its mean price target is $93 which matches the current market value.
SBUX’s shares are at least slightly more appealing to buy at the current price because of a dividend yield of 2.58%.
The post “Analyst: Make me CEO and I’ll turn Starbucks around in China” may change as new information becomes available.
