The impact of Boycotting on Starbucks

Considering the ongoing genocide in Gaza and the associated boycott of Starbucks due to its perceived support of the Israeli occupation, the company has faced significant reputational damage.

Delving into the results of Q1 for the fiscal year 2024, beginning from October 2, 2023, to December 31, 2023, it's crucial to understand Starbucks' business model and its primary revenue streams.

The primary revenue source stems from company-operated stores, which are directly managed and run by Starbucks. Following this are licensed stores, which generate revenue through franchising fees based on a percentage of sales. Additionally, Starbucks sells various consumer-packaged goods primarily through partnerships like the Global Coffee Alliance with Nestlé.

In terms of operating segments, Starbucks operates under two main reporting segments:

1-???? North America, encompassing the U.S. and Canada, including both company-operated and licensed stores.

2-???? International, covering regions such as China, Japan, Asia Pacific, Europe, the Middle East, Africa, Latin America, and the Caribbean, also comprising both company-operated and licensed stores.

As for KPIs, the coffee brand focusses on 3 major KPIs:

-??????? New store openings and store count

-??????? Comparable store sales growth

-??????? Operating margins

As for Comparable store sales growth represents the percentage change in sales in one period from the same prior year period for company-operated stores open for 1 year.

With this understanding, let's conduct a more detailed examination of Starbucks' financials for Q1 2024.

Despite achieving an overall revenue increase of $711.4 million for the quarter compared to the same quarter last year, with a $671 million increase in the North America segment and a $72.6 million increase in the international segment, the growth rate for this quarter remained exactly as last year's, standing at 8.2%. Additionally, when examining the revenue streams from company-operated and licensed stores in North America, we observe an increase of $510.5 million and $57.9 million respectively, compared to $656.5 million and $161.1 million in in the corresponding quarter of the previous year, reflecting a decline in growth of 29% and 178%. Similarly, for the international segment, there was an increase of $14.7 million in revenue from licensed stores, compared to $104.6 million in the in the corresponding quarter of the previous year, representing a decline of 90%. Moreover, there was a decrease in their global ready-to-drink revenue stream by $11 million.

The impact of the boycott on the financial results of the international segment, which includes China, Japan, Latin America and Europe, was unclear in the Middle East and Africa markets. "Especially that the revenue increase in the international market mostly only came from China bouncing back from the disruptions caused by the COVID-19 pandemic in the previous year, while other markets didn’t experience similar growth and instead potentially showed a decrease in growth.

Furthermore, In an interesting aspect of Starbucks' financial report, the company indirectly addressed the impact of the boycott, stating, “ We anticipate these headwinds experienced in the first quarter of fiscal 2024, although transitory, may continue to impact the balance of our fiscal year. Despite these transitory headwinds, we remain confident in our long-term growth and durable business model”.? Meaning in simpler terms, the company acknowledged that the boycott might affect their business but describing it as temporary situation challenging the consumer behavior and the boycott itself.

Ultimately, it's evident that Starbucks felt the impact of the boycott, as evidenced by share price decline since mid-November, falling by about 9 percent, resulting in a market cap reduction of around $11 billion although it's important to note that other factors may have contributed to this decline. Additionally, the discrepancies in the financial results of Q1 further highlight the impact of the boycott. Yet, the important question remains: Will the boycott last, or is it, as the company suggests, a transitory setback that will be over soon?