Starbucks stock seems to be in a funk

The coffee giant reported not-so-great earnings recently, causing its stock to plummet 12% this week. The American coffee giant is facing declining sales at home and in China.

The company is seeing challenges in its core US market, with a significant drop in transactions at its North American cafes, worse than during the global financial crisis, Morgan and Stanley notes.

It is also struggling to maintain dominance in the rapidly growing Chinese market. TH International, a Tim Hortons franchisee, is rapidly growing and aiming to compete with Starbucks in the country. Local coffee chain Luckin Coffee has also been aggressive in its expansion.

Competitors, including KFC and McDonald’s, are expanding their coffee offerings in the US and China, too.

Despite the pressure, Starbucks refuses to engage in price competition, maintaining its premium brand image.

However, the brand’s valuation has dropped significantly, raising questions about its strategy. It was worth nearly $150 billion at its peak.

The recent setbacks have left its new CEO, Laxman Narasimhan, in a tough spot. He has cited inflation, bad weather, tough competition and double-thinking customers as the reasons but is optimistic they can make a turnaround.