In the fiercely competitive industry landscape, Starbucks China firmly adheres to a differentiated growth strategy.
On July 30th local time, global chain coffee giant Starbucks released its financial results for the third quarter ending June 30th, 2024. Starbucks achieved a total net income of $9.114 billion in the third quarter, an increase of 1% calculated at a fixed exchange rate.
Among them, Starbucks China achieved a net revenue of 733.8 million US dollars, with a month on month growth of 5% after excluding the impact of exchange rate fluctuations. The overall operating profit margin achieved double-digit growth for two consecutive quarters, mainly due to successful beverage innovation, localized holiday food, and an increase in member consumption frequency during breakfast periods.
In terms of store expansion, Starbucks opened a net of 526 new stores worldwide in the third quarter, with a total of 39477 stores as of the end of the third quarter. There are a total of 7306 stores in China, accounting for over 18% of the global total.
Starbucks China Co CEO Liu Wenjuan stated that Starbucks China continues to adhere to a healthy and steady development path. "Our profitability is robust and excellent, and we will continue to expand our operating profit margin. We will focus on continuously driving month on month growth in key business data, continue to invest in China for the long term, and have confidence in the long-term development opportunities in the Chinese market and our ability to achieve success
Starbucks China's multiple indicators improved month on month in the third quarter, with a year-on-year increase of 13% in the number of new stores added
In the past year, the industry has experienced unprecedented store expansion and large-scale price wars, even at the cost of sacrificing same store sales and profitability. This has caused significant and permanent changes to the market environment, "said Starbucks' global CEO, Simon Yam, in a post earnings conference call.
In the fierce market competition, Starbucks China has made certain progress in important areas. In the third fiscal quarter, Starbucks China continued to grow on a year-on-year basis in three key business data: net revenue, store transaction volume, and profit margin.
According to the introduction of Hexi Han, in the third quarter, Starbucks' store transaction volume, weekly sales, and overall operating profit margin further improved compared to the previous quarter. Starbucks China Star Enjoy Club members increased by 1.6 million year-on-year, with a record breaking 22 million active members. Starbucks' partners also exceeded customer expectations, achieving the highest scores in customer connection and store operations in the monthly customer experience survey. At the same time, the retention rate of full-time partners in stores reached a new historical high.
Starbucks China is also continuing to explore blue ocean opportunities. In the third fiscal quarter, the scale of Starbucks' stores in China's lower tier markets further expanded, with 213 new stores added and 38 county-level markets entered. The number of new stores increased by about 13% year-on-year. On the one hand, Starbucks China continues to encrypt first and second tier cities, and on the other hand, it is also accelerating its entry into county-level markets. Currently, Starbucks China has 7306 stores in over 900 county-level markets.
Currently, affordable coffee is emerging, and the lower tier market has become a new battlefield for coffee companies. According to a report released by iMedia Consulting at the beginning of this year, the competition in the coffee market in first - and second tier cities is fierce, and third - and fourth tier cities have become important markets for coffee companies to compete in. The lower tier market provides brands with the opportunity to create a new brand matrix. To increase market share, coffee companies should customize new product categories for their customer base and establish deep connections with consumers in the lower tier market; Expand new scenarios and enrich the life segments of sinking users.
According to Starbucks China executives, based on the current pace of opening stores, the number of new stores opened in the Chinese market this fiscal year will break records.
It is worth noting that Starbucks' new stores continue to achieve first-class returns and profitability. Among them, the transaction volume of the store has steadily increased, partly due to the increase in the frequency of member consumption during breakfast time and the growth in occasional customer purchases in the afternoon and evening. The transaction volume has achieved monthly growth and quarterly quarter on quarter increase.
Starbucks China firmly adheres to a differentiated growth strategy, with executives stating that they will "stand firm in the high-end market and not engage in price wars"
Against the backdrop of increasingly cautious consumption and fierce competition in the coffee market, "roll price" has become the norm for industry development.
Compared to mainstream brands in the industry, discount strategies are not Starbucks' response to the current price war. On the contrary, for Starbucks China, which is positioned as a high-end coffee brand and focuses on the third space, it is seeking a unique growth model that is high-quality, profitable, and sustainable.
Over the past 25 years, the Starbucks China team has established local businesses and accumulated unique brand assets through Starbucks and Starbucks Select brands. In the face of market fluctuations and fierce competition, leading the market growth of the high-end coffee industry remains Starbucks China's long-term strategic goal.
In the face of profound changes in the industry competition landscape, same store sales and other data will inevitably be affected in the short term. Starbucks China's focus is on staying grounded in the present and growing steadily, "said Liu Wenjuan, Co CEO of Starbucks China. The continuous growth of key business data such as net income, store transaction volume, and profit margin on a month on month basis is the current focus of attention for Starbucks China.
The unique growth model that Starbucks China is seeking requires proactive strategic choices. Liu Wenjuan further pointed out that firstly, through continuous innovation of Starbucks' unique high-end products and experiences, sales revenue should not be sacrificed at the expense of operating profit margins. Secondly, through rhythmic store expansion planning, we aim to explore huge blue ocean opportunities and ensure top-notch returns and profitability for our stores; Thirdly, continue to invest in Starbucks' partners and provide unique Starbucks experiences to our customers through them.
In the competitive environment of frequent promotional activities, we maintain a high degree of restraint and avoid price wars. At the same time, we adopt targeted and precise pricing strategies to create new sales growth and cultivate customers' consumption habits, which is consistent with our high-end positioning. "Liu Wenjuan said, for example, Starbucks China fully upgraded its Star Enjoy Club membership system in the third quarter, adding Diamond Star membership level for the first time to reward the most loyal Star fans with exclusive gifts and services, and also added a star exchange mechanism, allowing every star of all members to be exchanged.
Specifically, as of the end of the third fiscal quarter, Starbucks China Star Enjoy Club had a record 22 million active members in 90 days, an increase of 1 million from the previous quarter, with a total membership of over 132 million. Among them, the consumption frequency of the most loyal Gold Star and Diamond Star members has increased. The proportion of member sales continues to maintain a historical high, reaching 75%.
In addition to the 'roll experience', Starbucks China is also increasing the frequency of innovation. In the third fiscal quarter, beverage innovation accelerated with the launch of 17 new drinks, which also attracted new members, especially young Generation Z customers. Belgian black chocolate star ice cream has become the best-selling beverage in summer; The new fresh coffee series drinks are particularly popular among Generation Z, especially in the afternoon.
It can be seen that Starbucks China is taking multiple measures to firmly implement differentiated growth policies, rather than blindly joining the price war. In Liu Wenjuan's view, although the market environment in which Starbucks China operates has undergone significant and permanent changes, the Chinese business remains strong and profitable, with first-class returns and abundant growth opportunities. "We are confident in the future of Starbucks China and the further growth of the domestic coffee market