Starbucks Faces Challenges with Store Overlap and Slowing Breakfast Sales

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Recently, concerns have emerged regarding Starbucks’ rapid expansion and the proximity of its stores to one another. Analyst Andrew Strelzik from BMO Capital Markets suggests that this increased store density may be leading to cannibalization, ultimately impacting the company’s performance.

Strelzik’s research reveals that a staggering 62.5% of Starbucks stores now have another location within a mile, an increase from 58.6% in 2014. The average Starbucks store is currently surrounded by 3.6 other locations within a mile radius, up from 3.3 three years ago.

With this growing density, Strelzik views the situation as problematic and has downgraded Starbucks shares from Outperform to Market Perform. He believes that the stock is no longer a better investment compared to the rest of the market.

In addition to the issue of cannibalization, Strelzik expresses concern about the potential slowdown in sales for Starbucks’ food and specialty beverages. Previously, these segments were significant growth drivers for the company; however, Strelzik suggests that their impact may diminish going forward. Interestingly, there are signs indicating that the share of Starbucks orders including specialty beverages might have already peaked. Furthermore, growth in breakfast sandwich sales has notably slowed. Although Starbucks is working to expand its lunch offerings, Strelzik doubts that this will fully compensate for the breakfast slowdown.

On Wednesday afternoon, Starbucks shares traded down 1.2% at $53.86; marking a 17% decline since their all-time high in early June.

The Concerns Surrounding Starbucks

An analyst voiced concerns regarding Starbucks’ store overlap and the potential slowdown in breakfast sales growth. As the company continues its expansion efforts, it faces challenges related to store density and the sustainability of previous sources of growth, such as food and specialty beverages.

Increasing Store Overlap

Research by analyst Andrew Strelzik indicates that an increasing number of Starbucks stores now have another location within a mile, potentially leading to cannibalization. This trend has raised concerns about the company’s overall performance.

Cannibalization Impact

The current store density surrounding Starbucks locations is a point of contention for Strelzik, who believes it poses problems for the company. As a result, he has downgraded Starbucks shares from Outperform to Market Perform, suggesting that they no longer offer a superior investment opportunity.

Slowing Breakfast Sales

Strelzik also worries about the potential slowdown in Starbucks’ breakfast sales, which have historically been a significant growth driver. He notes that the share of Starbucks orders including specialty beverages may have already reached its peak, while growth in breakfast sandwich sales has noticeably slowed. Although Starbucks is expanding its lunch offerings, Strelzik questions whether this will sufficiently offset the decline in breakfast sales.

Market Performance

Shares of Starbucks have experienced a 17% decline since reaching their all-time high in early June. On Wednesday afternoon, the stock was trading down 1.2% at $53.86.

These concerns highlight the challenges Starbucks faces as it navigates increased store overlap and potential declines in breakfast-related sales.

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