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Coffee demand 'resistant to Covid-19', says Zanetti - but Starbucks struggles

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Massimo Zanetti Beverage Group weighed into the debate on the threat to coffee consumption from coronavirus, viewing demand as relatively resilient – even as Starbucks warned that the outbreak had cut its profit hopes.

 

Pascal Héritier, chief operating officer at Italian-based Zanetti, which owns brands including Segafredo and Boncafe, said that outbreak of Covid-19 coronavirus was “something that is a concern of our group.

 

“We will follow carefully the situation of Covid in the coming weeks.”

 

However, he said that analysis of historical incidences “of issues like this” suggested that “fortunately” demand would prove relatively unaffected.

 

“Like alcohol and cigarette, usually, it’s quite resistant to… the crisis,” he told investors following the release of group results on Thursday.

 

‘Considerable downside risk’

The comments contrast with a caution earlier this week from the International Coffee Organization, an intergovernmental group, that “Covid-19 presents considerable downside risk to global coffee consumption”.

 

The organisation noted “fears over the effect Covid-19 might have on demand, particularly for out-of-home consumption”.

 

Separately on Thursday, Starbucks blamed the outbreak for a dent of $0.15-18 dent to its earnings per share prospects for its financial second quarter, which ends this month.

 

Investors had pencilled in group earnings of $0.58 per share for the quarter.

 

The coffee giant also warned that it was “unable to estimate business impacts beyond [its second quarter] with reasonable accuracy”.

 

‘Elevated safety protocols’

Starbucks’ caution over its second quarter performance reflected the setback to its operations in China, the epicentre of the Covid-19 outbreak, and where it, at one point early last month, it closed 80% of its 4,300 outlets in the country because of the disease.

 

While more than 90% of its outlets in China were now open - although “operating under elevated safety protocols”, with some delivery-only - the closures were reflected in a 78% plunge in Starbucks’ same-store sales in the country last month.

 

For the quarter, comparable store sales will fall by some 50%, equivalent in revenue terms to a shortfall of $400m-430m.

 

Outbreak expansion

Although Starbucks said that Chinese sales were recovering as stores reopened, and that it viewed as “the financial impacts” of Covid-19 as “temporary”, it warned that the disease’s spread outside China had taken market disruption with it.

 

“As the Covid-19 situation continues to evolve globally, Starbucks business operations in Japan, South Korea and Italy have also been impacted by store closures and/or reduced customer traffic,” the group said.

 

“Given the early stage of these developments, we are currently unable to forecast business impacts in markets outside of China with reasonable accuracy.”

 

The letter was released after the closure of Starbucks shares on Thursday down 4.4% at $76.19. The stock shed a further 5.4% in early deals on Friday, hitting a near-one-year low of $72.05, before recovering to $74.90 in late morning deals, a drop of 1.7% on the day.

 

‘Beat the budget’

By contrast, Mr Héritier said that Zanetti, which sells coffee through foodservice and retail channels, as well as through its own stores, said that Asia contributed only small proportion of group revenues of E914.5m last year, with Thailand the biggest exposure in the region.

 

There, in “January and February just for your information, we… beat the budget” besides showing year-on-year growth, he said, noting that that its operations in Thailand were “are spread out in all the country with more than 20 showroom.

 

“We are not only in Bangkok or Phuket where we may have some problems with tourism.”

 

The group’s total revenues from its Asia-Pacific and café operations totalled E98.1m last year, growth of 24% year on year, boosted by the acquisition of Australia’s Bean Alliance.

 

US feedback

In the Americas, which were responsible for 44% of group revenues last year, “there is no concern for the moment” in the key US market, Mr Héritier said.

 

Starbucks also that that to date, at its US business “there are no perceptible signs of Covid-19 impact”.

 

Mr Héritier added that in Europe, responsible for 45% of group revenues last year, “there is no major concern at the moment”, while underlining the group’s status as a diversified coffee group, both geographically and by market.

 

“We are working in more than 40 countries, and we are spread out, and we are selling in various channel and various type of products.”

 

Profits fall

The comments followed the group’s release of results showing a decline of 23% to E15.31m in earnings for 2019, despite revenue growth of 2.6%.

 

The drop in earnings was attributed largely to increased income tax expenses and a change of accounting practice on amortisation and depreciation.

 

Adjusted ebitda rose by 13.9% to E84.02m.

 

The group forecast a “slight increase” in revenues in 2020, with adjusted ebitda seen ending up “in line” with year-ago levels.

 

Massimo Zanetti Beverage Group shares closed down 0.8% at E4.91 in Milan on Thursday.

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