Starbucks Corporation (NASDAQ: SBUX) confirmed the closure of thousands of its stores in China after the continued spread of coronoavirus. Compared to McDonald's Corp (NYSE: MCD), the coffee chain has a higher exposure to the country, according to Piper Sandler analyst Nicole Miller Regan.
China Exposure: (NASDAQ: SBUX) Vs. (NYSE: MCD)
McDonald's exposure to China is more limited than Starbucks since it is an entirely-franchised system, Miller Regan said on CNBC. As such, the fast-food chain is limited to "headline risk" but Starbucks could see a double-digit operating income impact from the coronavirus in China.
Looking beyond any near-term disruption from the outbreak, Starbucks boasts an impressive digital relationship with 10 million customers that showed signs of success, she said. Specifically, the company showed in its earnings report a digital transaction growth of 40%.
Concerns Prior To Coronavirus Outbreak
Starbucks' business in China started showing concerning metrics before the coronavirus outbreak, Guggenheim's Matt DiFrisco also said on CNBC. The earnings report showed a slowdown in China's same-store sales from 5% last quarter to 3%. In fact, the delivery portion of the business showed a 9% growth rate which implies the rest of the business is in the negative.
Other concerns Starbucks faces in China include the potential for cannibalization as the company is opening on average two stores each day, he said. Also, the company continues to make a push into second-tier and third-tier cities where the Starbucks brand isn't as well-known to the growing middle class.