By Heather Haddon 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 22, 2020).

Starbucks Corp. said it is speeding up plans to build stores with drive-throughs and will close locations in unpopulated malls as its dine-in service remains suspended due to the coronavirus pandemic.

The Seattle-based coffee company said Thursday that U.S. same-store sales are now down 35 to 40% from last year, after it closed dine-in operations starting in March. Sales in its key China market, where Starbucks had closed more than half of its stores from January, remain 20% lower than the same period last year.

"We know that it will take time to fully recover and post positive comparable-store sales growth," chief executive Kevin Johnson said in a letter to employees.

The letter provided the company's first business update since it opened more than 85% of its owned U.S. stores to drive-through, delivery and carryout earlier this month. Less than half of its U.S. company stores were open last month. Starbucks, which said it expects 90% of its stores to reopen by early June, offered no details on when cafe dining service may resume.

Big restaurant companies, including McDonald's Corp. and Starbucks, are dealing with a long list of new costs to operate safely during the pandemic.

McDonald's chief executive Chris Kempczinski said Thursday that changes in customer behavior brought by the coronavirus bring ongoing uncertainty to its business.

"We expect our performance will remain challenged," Mr. Kempczinski said in the burger chain's annual shareholder meeting.

The Chicago-based company is opening fewer stores in most markets in response. Its long-term growth plan will also need to change as a result of the crisis, he says.

Starbucks and other chains are renegotiating their rent to try to shave costs, with mixed success.

Starbucks said it is accelerating its plans to build more drive-through stores and to-go only locations, as it had begun to do in New York City before the crisis. It will relocate stores out of "low-traffic malls," the company said.

Plans to build more drive-through and to-go only locations will occur in the next 12 to 18 months rather than three to five years due to the pandemic, it said. Starbucks said it is also rolling out ads encouraging customers to order ahead through its app, as have many other restaurants trying to operate with less contact between customers and employees during the pandemic.

Shares in Starbucks rose 1% to $78 in morning trading.

Starbucks said employees' working hours won't return to pre-pandemic levels for now, adding that demand from key groups, including office workers, is unlikely to revert to previous levels anytime soon.

"It is important that we are open and honest about the current reality," said Mr. Johnson, adding that it is extending unpaid leave that it first rolled out after the pandemic hit.

Write to Heather Haddon at heather.haddon@wsj.com

 

(END) Dow Jones Newswires

May 22, 2020 02:47 ET (06:47 GMT)

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