Starbucks has announced that it will close 150 locations in some of the nation’s big cities to get ahead of its worst growth performance in nine years. But the company also admitted it is racing to blunt the effect of cities with higher minimum wages and other business-killing regulations.
The announcement comes on the heels of the company’s low one-percent rise in sales, a figure well below the 2.9 percent the company expected to achieve, Bloomberg reported.
With new CEO Kevin Johnson beginning to make his mark on the coffee giant, the closures will hit corporate-owned locations mostly in densely populated areas in the U.S., meaning that the old joke that there is a Starbucks on every corner in America’s biggest cities may become a thing of the past.
“Our growth has slowed a bit,” Johnson admitted in a recent interview, Bloomberg said. “I expect better, I think our shareholders deserve better, and we’re committed to address that.”
While growth overseas is still robust, its U.S. properties have slowed to a crawl, the company reported. Still, even with the 150 closures, a number about three times higher than its normal annual closure rate, Starbucks has approximately 14,000 locations across the U.S.A.
But one other thing Johnson admitted with the company’s percolating closure rate is that higher minimum wage laws have hurt their bottom line.
Tucked into his interview, Johnson made mention of the problems with running food service outlets in some of America’s biggest left-wing cities.
The closing stores are often in “major metro areas where increases in wage and occupancy and other regulatory requirements” are making them unprofitable, Johnson said. “Now, in a lot of ways, it’s middle America and the South that presents an opportunity.”
The inference is clear: large, liberal cities raising minimum wages have stifled growth, so Starbucks is beginning the process of fleeing the cities for the high growth, low wage south and rural areas of the nation where regulations are more friendly and exorbitant minimum wage laws are non-existent.
For a company that prides itself as one of the most left-wing, “progressive” companies in America, this admission is somewhat shocking and evidence of a “do as I say, not as I do” mentality. While Starbucks talks the game for progressive causes, it is opting out of the big cities that have put in place the very anti-business policies Starbucks has claimed to support.
The company has often boiled over with politics in recent years. In its latest political flap, Starbucks weathered charges of racism when a store in Philadelphia called the police to chase out a couple of black customers that the location’s manager said were loitering. The resulting flap sparked the company to shut down all its locations to force employees to attend “racial-bias training.” By some reports, that training was closer to anti-cop propaganda than it was to a course in racial bias.
Starbucks reported strong overseas growth, despite its anemic U.S. numbers. The coffeehouse chain will more than triple its commitment in China with plans to open a new location there every 15 hours through the year 2022.
Follow Warner Todd Huston on Twitter @warnerthuston.
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