People around Starbucks coffee shop in Shenzhen, China.
Jakub Bolzycki | Noor Photos | Getty Images
During Starbucks’ fourth-quarter earnings call, new CEO Brian Niccol told investors he needed to spend more time in China to understand the challenges.
The company’s same-store sales in the country plunged 14% as foot traffic and average spending per customer fell. Niccol told CNBC’s Andrew Ross Sorkin that he plans to visit the country in the first or second week of December to better understand the business.
Here’s what you might see when he visits.
Low-cost model led by China’s upstarts
China’s coffee upstart is growing in popularity in the coffee scene, competing with more than 7,300 Starbucks stores across the country.
June 18, 2024, a Starbucks store in Shanghai, China.
Cost Photo | Noor Photo | Getty Images
And it’s far from the only one. Other local competitors include Cotti Coffee, Manner, M Stand, Seesaw and Nowwa.
Luckin, Cotti and Manner were the most aggressive in pricing.
For example, in Beijing, a small latte costs $4.22 at Starbucks, $2.25 at Luckin Coffee, $1.75 at Cotti, and $2.11 at Manner. This doesn’t include regular deep discounts. For example, on a recent day, Luckin Coffee launched a promotion where most drinks were priced at 90 cents.
Many Chinese chain stores are crowded and may only have two baristas (in Manner’s case, there’s usually just one). The food menu is limited and seating is little more than a few folding chairs. However, the drinks are generally priced less than half the price at Starbucks.
Starbucks has an express version of its coffee shops in China called “Starbucks Now” where most customers order drinks on the app and pick them up. The interior is more basic. Even so, there are no special discounts compared to traditional Starbucks.
Money-conscious consumers maintain aspirations
Due to the economic slowdown, price has become an important consideration for Chinese consumers. At the same time, many people want to maintain similar lifestyles, which means consumers want to save as much as possible without compromising too much on quality.
Amid the coffee competition, Chinese chains keep their coffee interesting by changing their menus frequently and trying combinations that go far beyond the traditional cappuccino.
The coffee is mixed with juice, floral, and thickened with rice or even cheese. Chinese brand Manner claims that it only uses locally sourced coffee beans and trains its baristas to use semi-automatic coffee machines.
A young barista works at the cold brew coffee bar at the Starbucks Reserve Roastery in Shanghai.
Zhang Peng|Light Rocket|Getty Images
M Stand and Seesaw compete at the premium end of the market, introducing more luxurious drinks such as the long-standing M Stand hit, a latte in an edible oatmeal cookie cup.
But for the most part, with so many options out there, coffee drinkers can find something that suits their tastes and wallets.
Competition from all directions
In addition to its Chinese coffee rivals, Starbucks competes with many other local chains in tea.
Tea specialty stores such as ChaPanda, Auntea Jenny and Mixue Bingcheng sell fruit tea and milk tea similar to Starbucks, and the price is about 60% cheaper. In addition to low-priced tea drinks, Auntea Jenny also sells lattes for $2.67. Mixue’s version is 56 cents.
As more Chinese want their daily cup of coffee, takeaway coffee is becoming more common in tea chains and convenience stores.
Starbucks also faces international challengers such as tim hortonscosta rican coffee, McDonald’s and KFC.
Starbucks Advantages
Despite fierce competition in the Chinese market, Starbucks still has fans.
One of Starbucks’ main selling points in China remains that it is seen as the go-to place to hang out with friends or make business connections.
Unlike many other establishments in the country, Starbucks stores hit key points with their unified experience: pleasant interiors, comfortable seating, clean surroundings and friendly employees. Starbucks maintains its position as a high-profile aspirational brand.
About The Author
