Starbucks to Extend its Presence in California

Starbucks (SBUX) intends to continue expanding its presence in California as the state implements a new, higher minimum wage. Starbucks CFO Rachel Ruggeri expressed the company’s strong commitment to its markets and businesses, including its real estate holdings in California. California’s FAST Act, which raises the starting wage for fast food workers to $20 an hour, will become effective on April 1, 2024.

On a global scale, Starbucks aims to expand its footprint to 55,000 stores by 2030, with an average of opening eight new stores daily. China remains a key market for Starbucks, with plans to expand to 9,000 stores in the country over the next two years, including nearly 1,000 new stores annually. Sales growth in China is expected to be between 4% and 6% in the second through fourth quarters of 2024, according to Belinda Wong, CEO of Starbucks China. This expansion represents an opportunity for the company to increase the penetration and frequency of its products among Chinese middle-class consumers.

Starbucks operates over 38,000 company-operated and franchised stores, with more than 20,000 stores located outside of North America. This geographic diversity helps mitigate risks associated with state-level regulations. California currently boasts the largest number of Starbucks locations, approximately 3,100. The state accounts for 19% of the company’s real estate portfolio.

In late October, Starbucks closed seven stores in San Francisco, reducing the city’s total locations to 52. Some have suggested that these closures may have been related to the FAST Act, but Ruggeri characterized them as part of the company’s regular quarterly evaluation process.

Chipotle’s CFO recently indicated that the company might need to “raise prices” by a mid- to high-single-digit range to offset the impact of higher wages in California, but Starbucks has not yet made a similar announcement.

Following a market update with investors on its Reinvention Plan, Starbucks announced plans for a larger reevaluation of its US store portfolio. It aims to achieve a 4% net increase in new stores in fiscal year 2024, reaching a total of 20,000 stores in the US.

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