Starbucks, Facing Higher Costs, Pushes Upscale Coffee

Starbucks was among the first global restaurant companies to feel Covid-19’s impact last year, as the coronavirus’s initial spread in China forced closures across chain locations there. Sales have recovered as the company has been able to reopen lobbies and steer customers to order online. Now, Starbucks and other chains face supply shortages and staffing problems, raising costs as consumers resume dining out.

Inflation and supply-chain disruptions cut into Starbucks’s profit for its most recent quarter, the company said, and inflation and higher wages are likely to further push up costs. That could lead Starbucks to lift menu prices in some markets, executives said. It is also promoting cold beverages and ones that are custom-made, which tend to be more expensive.

“We do have pricing power,” Starbucks Chief Financial Officer

Rachel Ruggeri

told investors Tuesday on a conference call.

Starbucks shares fell 3% to $122 in aftermarket trading.

The company got a boost in the most recent quarter from its U.S. locations, where same-store sales increased 10% compared with the same period in 2019—before the pandemic. U.S. same-store sales were 83% higher than the same period last year, when Covid-19 forced the chain to shut many of its dining rooms as the health crisis worsened.

Business hasn’t returned to normal for Starbucks. The company has yet to fully restore seating in its U.S. cafes, and Covid-19-related restrictions abroad continue to affect consumers. Frequency of orders is improving but hasn’t returned to pre-pandemic levels in the U.S., the company said. Starbucks also has struggled to keep cafes fully staffed as its dining rooms have reopened and demand has grown, leading the chain to spend more on wages and benefits.

Coffee companies face rising prices for beans, after a cold snap in Brazil damaged growing regions in the key arabica producer. Coffee-bean futures prices recently hit a six-year high on global markets.

Chief Executive

Kevin Johnson

said Starbucks has more than a year of coffee on hand, locked in at better prices.

On Tuesday the chain increased its full fiscal-year guidance for U.S. same-store sales and earnings. It slightly reduced its store openings in its Americas division, now estimated at 800 new locations this fiscal year. The company is also in the process of closing hundreds of U.S. locations as it tailors more of its operations to to-go sales.

Starbucks was less upbeat on its outlook abroad. The chain now expects same-store sales growth of 18% to 20% in China for its full fiscal year, down from 27% to 32% previously. It also reduced its same-store guidance in other international markets.

Starbucks said the company had previously expected travel restrictions to lift faster in China, but the company remains confident in its growth plans there. “These are still early days,” Mr. Johnson said.

Write to Heather Haddon at [email protected]