The Great Coffee Clash: Is SBUX Feeling the Heat in China?
Also, Is There a Hidden Message Behind the 11/2 Reinvention Update: Is the Company Off-Track?
Starbucks (SBUX) is catering to local preferences in China by introducing a more petite 259 ml cup size, part of the "Intenso Collection." This cup contains more espresso and less milk or cream, offering a more intense flavor than the larger cups favored in the U.S. Priced at 33 yuan ($4.51), this new size is considerably smaller than Starbucks' regular tall, grande, and venti options. Starbucks will test the response to this change in Mainland China, the company's second-largest market, with plans to expand to 9,000 stores by 2025. The move is a response to aggressive expansion and new product launches by local rivals like Luckin Coffee and Manner Coffee. Whether this new cup size will be offered outside China depends on customer reception.
Key Points:
- Starbucks (SBUX) introduced a 259 ml cup size in China, designed to cater to local preferences.
- The "Intenso Collection" cup offers more espresso with less milk/cream, priced at 33 yuan ($4.51). It's smaller than the "tall" cup but larger than the smallest "short" size.
- Starbucks aims to provide novelty in a competitive market. Local competitors like Luckin Coffee and Manner Coffee have expanded rapidly and introduced innovative products.
- Starbucks is experiencing a recovery in China as COVID restrictions ease, with plans to reach 9,000 stores in the country by 2025.
- The availability of the new cup size outside China depends on customer response.
- Starbucks will report earnings on November 2 and host a Reinvention update and holiday launch event. The event will feature presentations by CEO Laxman Narasimhan and the executive leadership team, along with a question and answer session.
Just Eat Takeaway.com 3Q23 trading update.
Northern Europe experienced a notable decline in performance quarter-over-quarter, while North America showed a modest improvement during the same period, but the 2-year stack slowed across all the operating segments. Grubhub is a melting ice cube.
Shares in Just Eat Takeaway.com are slightly higher after publishing its 3Q23 trading update. Although the 3Q23 outcomes fell marginally short of consensus projections, the company disclosed an increase in Gross Transaction Value (GTV), revised its (EBITDA) guidance upwards and introduced a program for repurchasing shares. Furthermore, the company acknowledged ongoing challenges in the divestiture of Grubhub.
Key Highlights:
- Excluding North America, the company saw growth in Gross Transaction Value (GTV) in 3Q23 of €6.47B (slightly below consensus €6.48B)
- 3Q23 Orders amounted to 217.9 million, slightly below the consensus of 218.5 million.
- Excluding North America, GTV returned to growth in 3Q23
- FY23 constant currency GTV growth is now (4%) y/y (revised from previous guidance of -4% to +2% y/y)
- Upgraded Adjusted EBITDA guidance: €310M (up from €275M and consensus €286.08M
- Expected break-even Free Cash Flow (before changes in working capital) in H2, turning positive after that (previously expected to turn positive in mid-2024)
- Initiation of a new share buyback program: Up to €150M worth of ordinary shares to improve future EPS. The buyback program starts today and aims to be completed by the end of Sep 2024.
- Still can't sell Grubhub.
Order growth by geography:
- North America (-11.0%) vs (-12.3) in 2Q23 and (2-year stack decelerated 300bps YoY)
- Northern Europe (4.7%) VS +4% in 2Q23 and (2-year stack decelerated 190bps YoY)
- UK & Ireland (5.0%) VS +0.5% in 2Q23 and (2-year stack decelerated 190bps YoY)
- Southern Europe & ANZ (11.3%) vs (-16.4%) in 2Q23 and (2-year stack decelerated 150bps YoY)
YUM's Pizza Hut brand-making a late-night push
Late night is a competitive segment with convenience an important factor.
- DENN thinks they have "cemented our late-night diner leadership position."
- DNUT is selling Insomnina, which has a late-night business
- FWRC reminds us how difficult hiring for evening and late-night shifts is.
- TAST says that late-night is more discretional and has a higher average check
- JACK says after ten years, the original Munchie Meal (Snoop Dog Promo marketing to cannabis users) has a leadership position
- WEN is the most aggressive from the 2Q23 earnings call - "our recent push into the late night daypart paid off with double-digit sales growth versus the prior quarter and year. Up to 90% of our U.S. restaurants are now open until midnight or later."
Now we have Pizza Hut making a splash:
Pizza Hut targets the late-night business by extending hours at thousands of locations, opening until midnight or later, with some open until 2 a.m. This move is aimed at attracting younger consumers seeking post-dinner meal options. Pizza Hut offers its menu for carryout or delivery during late hours and leverages partnerships with third-party delivery services. The company also utilizes Dragontail technology to optimize pizza preparation based on delivery driver availability. This shift towards late-night service follows the resurgence of late-night dining post-pandemic, driven by increased labor availability and the convenience of digital and delivery options. Pizza Hut joins other restaurants in this endeavor.
Key Elements:
- Extended Hours: Thousands of Pizza Hut locations are now open until midnight or later, with some open until 2 a.m.
- Targeting Younger Consumers: Aimed at attracting younger customers seeking late-night dining options.
- Menu Availability: Pizza Hut offers its menu for carryout or delivery during late hours.
- Third-Party Partnerships: Leveraging partnerships with third-party delivery services to expand availability.
- Dragontail Technology: Utilizes technology to optimize pizza preparation based on delivery driver availability.
- Late-Night Resurgence: Reflects the return of late-night dining in the post-pandemic era.
- Increased Labor Availability: More workers available, allowing companies to extend their hours.
- Digital and Delivery Convenience: Diners are more eager to order meals late at night due to digital and delivery options.
