These days, it might feel like there’s a Starbucks on every corner. And while more stores sometimes translate to more customers and better sales, the ubiquity of Starbucks is turning into a bit of a problem for the Seattle-based chain as it struggles to compete — with itself.
Analysts BMO Capital Markets downgraded Starbucks shares today, noting that the company’s sales are struggling because so many stores overlap with each other.
Too much competition
BMO looked at the percentage of U.S. locations with another Starbucks outlet within a one-mile radius as well as the average number of locations within that same area, reports CNBC. Analysts found that 62.5% of U.S. Starbucks locations have another store within one mile — a 4% increase from 2014.
In addition, most locations have 3.6 other Starbucks stores within a one-mile radius, compared to 3.3 stores in 2014.
And the more stores there are in a given area, the more sales are spread around, potentially stymieing sales growth.
“Cannibalization likely has increased,” BMO analyst Andrew Strelzik wrote in a note Wednesday. “Strong new store performance appears to be coming – at least in part – at the expense of existing store traffic.”
What now?
Things could be getting worse, Strelzik warns, as “specialty beverage growth may be nearing saturation among existing customers as the percentage of Starbucks U.S. orders that include specialty beverages declined from year-ago levels.”
Over-expansion is a familiar concern for Starbucks. Back in 2008, the company shuttered 600 underperforming locations, followed by a further 300 stores the following year.
by Mary Beth Quirk via Consumerist
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