Starbucks Corp. will close as many as 200 coffee shops in Canada over the next two years, as the COVID-19 pandemic has accelerated plans to cope with changes in customer behaviour.
The Seattle-based chain said on Wednesday that it is working more aggressively to “transform our store portfolio,” including placing more emphasis on mobile ordering, drive-through and takeout services. While some of the locations will close entirely, others will be “repositioned,” according to the company, either by moving to a new location or changing the store format. Starbucks did not disclose how many would be repositioned in Canada.
According to the company, even before the crisis, 80 per cent of transactions in its U.S. cafes were “on the go,” and customer use of its mobile app was increasing. Starbucks had already begun opening dedicated pick-up-only locations – the first of these in Canada launched in downtown Toronto earlier this year. Starbucks was also already planning to close underperforming locations, such as those in low-traffic malls, while opening more locations equipped with drive-throughs.
“While we had originally planned to execute this strategy over a three- to five-year time frame, rapidly evolving customer preferences hasten the need for this concept and we are now envisioning the accelerated plans to transform our store portfolio over the next two years," the company said in a statement on Wednesday.
Starbucks has cut its store-opening plans in half in North America for this year. The chain now expects to open 300 “net new" stores, down from roughly 600 that were originally planned.
The company usually closes approximately 100 stores a year in North America, mostly because of leases expiring.
The transformation plan applies to corporate-owned-and-operated cafés. Starbucks has roughly 1,600 locations in Canada, of which 1,148 are corporate locations and the rest are operated under license.
“Although we expect this portfolio optimization will yield net new store growth for the Americas in fiscal 2021, this will have a moderately negative impact on Americas revenue through next fiscal year,” Starbucks said in a letter to shareholders filed with the U.S. Securities and Exchange Commission on Wednesday.
The changes are happening at a time of intense competition in the coffee industry in Canada, with the largest players -- Starbucks, Tim Hortons and McDonald's -- battling each other for market share.
“Coffee is still a battleground,” said Vince Sgabellone, a foodservice industry analyst with research firm The NPD Group Inc. “Canadians love their coffee, and it has made breakfast the number-one meal occasion in Canada. Italy is the only other country we track where that’s the case.”
Digital ordering, including delivery, is one of the fastest-growing segments of the market, he added. That trend has only intensified due to the pandemic.
“Nobody wants to be in a crowd,” Mr. Sgabellone said. “Starbucks is quite advanced with their digital engagement ... they were ahead of other players in the market who, to some extent, are playing catch-up.”
In response to the pandemic, Starbucks closed nearly all of its cafés in Canada on March 20, offering only drive-through and delivery services. The vast majority of locations around the world, including in Canada, have now reopened, with restrictions in place to encourage physical distancing.
“With each passing week, we are seeing clear evidence of business recovery, with sequential improvements in comparable store sales performance,” the company said in a statement.
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