October 11, 2024
Photo by Declan Sun on Unsplash
Can Starbucks Survive in China and Asia Amidst the Coffee Price Wars?
China’s coffee industry is rapidly expanding, especially in lower-tier cities, with a remarkable 72% increase in specialty coffee and tea shops in 2023, outpacing both Asian and global growth rates, as reported by Retail Asia. This has been spelling trouble for Starbucks.
To stay competitive and attract new customers, brands are focusing on product innovation, with Luckin Coffee launching new beverages weekly and collaborating on unique offerings like the Jiangxiang-flavored latte. Additionally, health-conscious consumers are prompting the introduction of lower-calorie drinks.
Chinese chains are also eyeing international markets, particularly in Southeast Asia. While Starbucks holds a 30% market share in the region for foodservice value sales, Luckin has opened its first overseas store in Singapore and plans to expand to Malaysia in 2024, prioritizing brand recognition over aggressive pricing. In contrast, Cotti Coffee is expanding more assertively, replicating its domestic strategy and offering a diverse menu alongside affordable prices.
The expansion of these Chinese coffee chains has stirred up “fierce price wars,” according to the outlet. Brands have been cutting their prices since early last year, which has forced “competitors like Starbucks to adjust their pricing, despite trying to maintain their premium image.”
Reuters reported in May that Starbucks was being dragged into this price war, something it wanted to avoid. The coffee giant has been facing increasing competition in China from these “fast-growing, low-cost rivals who have chipped into its market share.”
Yet, even though the CEO of Starbucks China, Belinda Wong, stated at the time that the company was “not interested in entering the price war” and instead wanted to focus on “capturing high quality but profitable, sustainable growth,” analysts and Chinese consumers alike have noticed Starbucks offering an increasing number of discount coupons, available through its mini-programs, coffee-maker livestreams on Douyin, and popular third-party delivery platforms for coffee orders.
While accurately measuring the increase in discount coupons remains challenging, the report explained that Chinese social media users have been sharing posts about how they’re seeing more discounts, a practice that was “once a rarity from the U.S. coffee retailer.” Per Reuters, “Starbucks has made it relatively easy for Chinese consumers to buy its most commonly ordered coffees with 30% discounts or two-for-one coupons without dropping their listed prices.”
Furthermore, Coffee Intelligence reported in May that all of Starbucks’ geographic segments reported declines, including the crucial Chinese market, where sales dropped by 11%.
The publication also explained how Starbucks is facing challenges in China as consumer preferences shift toward delivery services. In both China and the U.S., the popularity of home brewing and convenient coffee delivery options has grown significantly.
In 2023, 83% of American coffee drinkers reported brewing coffee at home, a trend that has also gained traction in China since the pandemic. The convenience of delivery services has made it easier for consumers to enjoy coffee without visiting cafes. This shift in consumption habits is reshaping the coffee landscape, prompting brands to adapt to meet the rising demand for delivery, which has become a staple in consumers’ routines.
In 2024, the coffee market is brewing up quite the financial buzz, with total revenue expected to hit $16.42 billion in China, according to Statista. Of that, $14.7 billion will come from cafes and restaurants, while at-home coffee sales will generate $1.72 billion. This segment is on track to grow by 3.77% annually through 2029. In a global context, the U.S. tops at-home coffee revenue, pouring in $11.7 billion. By the end of 2024, coffee enthusiasts are expected to consume 107.4 million kg in China, with home drinking predicted to account for 78.08 million kg compared to out-of-home drinking of 29.35 million kg.
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Michael Zakkour
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Lisa Goller
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Neil Saunders
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Discussion Questions
What strategies must Starbucks adopt to thrive in China’s rapidly changing coffee market amid rising competition and shifting consumer preferences?
As delivery services and home brewing gain popularity, how can Starbucks maintain relevance and market share without engaging in a damaging price war?
Given its recent sales declines, what innovative approaches can Starbucks implement to achieve sustainable growth and enhance brand appeal in an evolving market?
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Starbucks has over 7,000 stores in China. Last quarter alone it did $0.7 billion in revenue in the country. With that kind of business, it’s not about to give up or to go bust. So yes, it can survive. However, it is under significant pressure. Sales are down because of a slowing economy and more competition – including from Luckin Coffee which overtook Starbucks as the largest chain last year. And there is a lot of focus on discounting which Starbucks has had to engage in to prevent sharper sales erosion. Just like in the US, Starbucks needs to rebuild its business with a more compelling offer and greater focus on areas like foodservice and delivery.
Starbucks should be able to compete in Asia over the long-haul and do so successfully. Starbucks International CEO Brady Brewer has been in the company nearly 25 years and led or participated in much of the early growth and customer experience initiatives under Howard Schultz. As the former head of marketing, he helped foster growth in segmentation of customer experiences and in building the digital platform. Local markets are different in each country, but his teams will be responsive and should own a clear picture of the what and how to deliver the value and experiences of Starbucks early roots.
Starbucks needs to survive in China, given ever-growing pressure from shareholders, due to weaker sales in the USA.
It will be a strategic mistake for Starbucks to compete with its rival, Luckin Coffee, based on price wars. As Howard Schultz always emphasized, the brand must protect itself with consistency, high quality and profitable, sustainable, growth. That needs to happen regardless of what any competitors are doing. Starbucks used to always control its own destiny.
I have read that increases in discount coupons are being offered by Starbucks through its own livestream and also third-party platforms, in China. Discounts are not permanent price decreases, so I like that approach.
Price is an issue only when the brand’s own perception of experience, quality, and service, falls closer to the levels of cheaper brands. When Starbucks was in its prime, and when the brand was elite in quality, service, and experience, Starbucks performed just fine even when convenience stores and other coffee chains were selling jumbo size coffee at a fraction of Starbuck’s price.
Luckin had already gone bankrupt (was that just last year?) and has had shady finances all along. Starbucks pioneered coffee in China & is the gold standard there. I’d place the sales drop not at the hands of rivals but the overall downturn in the PRC’s economy and failure to rebound post-COVID / CCP total mismanagement of the pandemic. Every Chinese business sector is struggling right now; whole tradeshows are abandoned and many migrant workers are giving up in the coastal cities to return to their rural home towns.
Starbucks will adapt and thrive in China. Let’s not forget Luckin’ was delisted from NASDAQ in 2019 for fabricating $300mm in sales. Luckin’ has made a comeback but they are a takeout shop, as opposed to Starbucks still being a place to hang out. Luckin’ is also cheap, low cost, lower quality offering.
They are growing on the back of flavored drinks that are almost coffee-free. I trust Starbucks to adapt to growing takeout culture, improve APP based commerce and yet continue to remain an attractive “3rd place.”
This is a poorly written and positioned article. Numbers, numbers, numbers! Where are all of the dollar numbers, instead of percentages? China has 1.5 billion people, yet drinks more tea than coffee, and the same with soda. Comparing percentage growth does very little across different sized markets and countries if we don’t compare real dollars to each position. Losing market share without showing the actual dollars it represents is a poor way to compare and contrast coffee growth and losses. Starbucks needs to understand its market position in each culture and contrast it with the other markets it is competing in. Having a large coffee position in a country where the population drinks tea, gives the reader no insight into Starbucks true position and how to better determine Starbucks’ next steps.
China’s coffee culture is far from mature, so it’s foolish for Starbucks to abandon the market where it already has thousands of store. They do however, need to realize that consumption is primarily in larger cities and is rising slowly, and that convenience seems to be the primary impetus for purchases, not quality or 3rd Space, and adjust their strategy and products to educate and differentiate themselves to Chinese consumers.
Interesting that SBUX recent US advertising campaign is ‘back to its roots’ focused on quality and coffee (vs the specialty beverages it markets so heavily).
Funny, I would think that as large as Starbucks is globally they would have the cost advantages due to their scale, but maybe not. The brand is already positioned in China, and I assume they could compete in a more cost intensive environment.
But I do not think they should go that route. What they should do is focus on quality and delivering a better product and experience. That is where they will shine. Do not take on lower cost options head on. As in never. Serve up a better product consistently and differentiate that way.
Too many brands go into China thinking “huge market, low margins let’s go!” and that strategy is getting long in the tooth. Be different Starbucks!
Continuously monitoring China’s competitive, economic and tech factors will help Starbucks stay relevant. Adapting to market demand like lower-calorie drinks and providing limited-time offers can help Starbucks keep up with rivals, reflect the current economy and make the brand part of customers’ habits. Establishing a bold presence on Chinese social media platforms WeChat and Douyin will keep the Starbucks brand in front of Chinese consumers where they already spend time.
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Starbucks has over 7,000 stores in China. Last quarter alone it did $0.7 billion in revenue in the country. With that kind of business, it’s not about to give up or to go bust. So yes, it can survive. However, it is under significant pressure. Sales are down because of a slowing economy and more competition – including from Luckin Coffee which overtook Starbucks as the largest chain last year. And there is a lot of focus on discounting which Starbucks has had to engage in to prevent sharper sales erosion. Just like in the US, Starbucks needs to rebuild its business with a more compelling offer and greater focus on areas like foodservice and delivery.
Starbucks should be able to compete in Asia over the long-haul and do so successfully. Starbucks International CEO Brady Brewer has been in the company nearly 25 years and led or participated in much of the early growth and customer experience initiatives under Howard Schultz. As the former head of marketing, he helped foster growth in segmentation of customer experiences and in building the digital platform. Local markets are different in each country, but his teams will be responsive and should own a clear picture of the what and how to deliver the value and experiences of Starbucks early roots.
Starbucks needs to survive in China, given ever-growing pressure from shareholders, due to weaker sales in the USA.
It will be a strategic mistake for Starbucks to compete with its rival, Luckin Coffee, based on price wars. As Howard Schultz always emphasized, the brand must protect itself with consistency, high quality and profitable, sustainable, growth. That needs to happen regardless of what any competitors are doing. Starbucks used to always control its own destiny.
I have read that increases in discount coupons are being offered by Starbucks through its own livestream and also third-party platforms, in China. Discounts are not permanent price decreases, so I like that approach.
Price is an issue only when the brand’s own perception of experience, quality, and service, falls closer to the levels of cheaper brands. When Starbucks was in its prime, and when the brand was elite in quality, service, and experience, Starbucks performed just fine even when convenience stores and other coffee chains were selling jumbo size coffee at a fraction of Starbuck’s price.
Luckin had already gone bankrupt (was that just last year?) and has had shady finances all along. Starbucks pioneered coffee in China & is the gold standard there. I’d place the sales drop not at the hands of rivals but the overall downturn in the PRC’s economy and failure to rebound post-COVID / CCP total mismanagement of the pandemic. Every Chinese business sector is struggling right now; whole tradeshows are abandoned and many migrant workers are giving up in the coastal cities to return to their rural home towns.
Starbucks will adapt and thrive in China. Let’s not forget Luckin’ was delisted from NASDAQ in 2019 for fabricating $300mm in sales. Luckin’ has made a comeback but they are a takeout shop, as opposed to Starbucks still being a place to hang out. Luckin’ is also cheap, low cost, lower quality offering.
They are growing on the back of flavored drinks that are almost coffee-free. I trust Starbucks to adapt to growing takeout culture, improve APP based commerce and yet continue to remain an attractive “3rd place.”
This is a poorly written and positioned article. Numbers, numbers, numbers! Where are all of the dollar numbers, instead of percentages? China has 1.5 billion people, yet drinks more tea than coffee, and the same with soda. Comparing percentage growth does very little across different sized markets and countries if we don’t compare real dollars to each position. Losing market share without showing the actual dollars it represents is a poor way to compare and contrast coffee growth and losses. Starbucks needs to understand its market position in each culture and contrast it with the other markets it is competing in. Having a large coffee position in a country where the population drinks tea, gives the reader no insight into Starbucks true position and how to better determine Starbucks’ next steps.
China’s coffee culture is far from mature, so it’s foolish for Starbucks to abandon the market where it already has thousands of store. They do however, need to realize that consumption is primarily in larger cities and is rising slowly, and that convenience seems to be the primary impetus for purchases, not quality or 3rd Space, and adjust their strategy and products to educate and differentiate themselves to Chinese consumers.
Interesting that SBUX recent US advertising campaign is ‘back to its roots’ focused on quality and coffee (vs the specialty beverages it markets so heavily).
Funny, I would think that as large as Starbucks is globally they would have the cost advantages due to their scale, but maybe not. The brand is already positioned in China, and I assume they could compete in a more cost intensive environment.
But I do not think they should go that route. What they should do is focus on quality and delivering a better product and experience. That is where they will shine. Do not take on lower cost options head on. As in never. Serve up a better product consistently and differentiate that way.
Too many brands go into China thinking “huge market, low margins let’s go!” and that strategy is getting long in the tooth. Be different Starbucks!
Continuously monitoring China’s competitive, economic and tech factors will help Starbucks stay relevant. Adapting to market demand like lower-calorie drinks and providing limited-time offers can help Starbucks keep up with rivals, reflect the current economy and make the brand part of customers’ habits. Establishing a bold presence on Chinese social media platforms WeChat and Douyin will keep the Starbucks brand in front of Chinese consumers where they already spend time.