Starbucks blames UK for weak performance

Starbucks has blamed falling sales in Britain for weak performance by its international division, sparking fears about the vulnerability of UK cafés to the credit crunch.

The world's largest coffee company said that, as a result of the decline, it is planning to take a "more cautious approach" towards expansion in the UK and western Europe.

Related articles

• Unemployment edges closer to two million mark
• Interest rates may drop to record lows in 2009
• Bankruptcy fear for small businesses starved of borrowing
• Hamish McRae: Cut taxes, but don't expect miracles
• Credit crisis diary: Try not to talk the market down, chaps
• 5,000 jobs axed as City forecasts 3m by 2010
• Jeremy Warner: Sterling crisis threatens Brown's reflationary plans
• Sainsbury's rises out of the gloom
• Brown to act over credit card rate rises
• Taylor Wimpey sees no prospect of recovery in the short term
• Slowdown in Chinese demand triggers Cookson profit warning
• Yell promises £100m cost-cutting package
• Virgin Media to cut 2,200 workers in next four years
• InterContinental Hotels revenues tumble
• Vodafone plans to save £1bn to survive recession and intense competition
• Jeremy Warner: Colao makes cash his main priority at Vodafone
• Tax cuts now could mean tax rises later, says minister
• Leahy urges PM to do more to support struggling retailers
• G20 summit: New world order?
• Search the news archive for more stories

Its warning on UK sales will send shockwaves through the boardrooms at Costa Coffee, owned by Whitbread, Coffee Republic and Caffe Nero.

Some industry insiders believe, however, that Starbucks has not invested heavily enough in its stores and has lost ground to rivals. Costa, which has 821 stores in the UK, reported an increase in total sales of 25.6 per cent for the six months to 28 August. Costa's like-for-like sales grew by 3.7 per cent.

Starbucks' poor UK performance contributed to a 97 per cent slump, to $5.4m, in net profit for the quarter ended 28 September. Comparable store sales at Starbucks' international division were flat for the fourth quarter, "primarily resulting from a decline in traffic in the UK, along with continued softer sales in Canada".

A Starbucks spokeswoman declined to comment on the closure of any under-performing UK coffee shops or how many it would open over the next year. But she said: "Starbucks continues to plan new store openings internationally going forward. Starbucks believes our Europe, Middle East and Africa operations, including the UK, are a good engine for growth."

Internationally, Starbucks plans to open 700 net new stores in fiscal 2009, down from its previous forecast of 900. Of its new international stores, two-thirds will be licensed, which is its favoured model overseas.

Howard Schultz, the chief executive, said the overall deterioration in its comparable sales was "directly linked to the worsening economic environment in both the US and UK". Mr Schultz said that its performance in the US was worse than had been expected going into the fourth quarter.