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Starbucks is competing against itself in US with saturation of cafes, analyst warns

BMO Capital Markets has downgraded Starbucks to a ‘market perform’ rating from 'outperform', citing saturation concerns
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Cannibalisation has likely increased at Starbucks, says BMO Capital Markets

Starbucks Corporation (NASDAQ:SBUX) shares fell after a Wall Street analyst warned that it has too many cafes competing against each other.

BMO Capital Markets downgraded Starbucks to a ‘market perform’ rating from ‘outperform’ and cut the target price to US$56 from US$64, citing saturation concerns.

Shares dropped 2.15% to US$53.34 in early US trading.

Each store now has about 3.6 other Starbucks within a one-mile radius in the US, BMO analyst Andrew Strelzik said.

"Cannibalisation likely has increased," Strelzik added.

“Strong new store performance appears to be coming – at least in part – at the expense of existing store traffic."

Last week the company posted worse-than-expected third quarter revenue and cut its full year 2017 forecast amid fierce competition between US retailers and restaurants.

Strelzik suggested that the pace of US development should be slowed, pointing to research that shows the annual increase in store overlap across the US has accelerated by more than three times of the past few years.

"75% of Starbucks locations in California (Starbucks' largest US market representing approximately 20% of its US footprint) now have a store within a one-mile radius," Strelzik said.  

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