21st Century Business Herald reporter He Hongyuan reports from Beijing
Starbucks China has entered a new governance pattern.
The company disclosed that starting from September 30, 2024, Molly Liu will be appointed as the CEO of Starbucks China, while Belinda Wong will continue to serve as the Chairman of Starbucks China.
Last year, Liu Wenjuan was appointed as the co CEO of Starbucks China, jointly leading the Chinese business with the then Chairman and CEO of Starbucks China, Wang Jingying.
In the future, Molly will be responsible for leading the company's operations in the Chinese market, focusing on driving sustained growth in the Chinese business Starbucks said.
In fact, this is just a part of Starbucks' personnel changes. On August 13th, the company announced that Brian Niccol, the current Chairman and CEO of Chipotle, will become the Chairman and CEO of Starbucks. Laxman Narasimhan, who previously served as the Chairman and CEO of Starbucks, has been announced by the board to "step down immediately", and Starbucks Chairman Mellody Hobson will become the Chief Independent Director.
On September 11th, Brian Nichol released an open letter outlining his future plans, as he had just taken office as CEO of Starbucks. The letter mentioned some issues with the former CEO, Haytham. Nicole pointed out that in Starbucks stores in the United States, the menu may be too complex, the products may be inconsistent, and the waiting time may be too long. Everyone generally believes that we have deviated from the core, "he wrote.
Soon after, the CEO of Starbucks North America, who had served at the company for 11 years, announced his retirement. The parachuted executive recruited by Eslite - Starbucks Executive Vice President and Global Chief Product Officer - has been "found to be missing" on the official website.
This may just be a part of Nicole's adjustment to Starbucks.
Schultz's favorite person
Returning to Starbucks China, CEO rotation appears to be quite frequent.
In August 2021, Wang Jingying stepped down as CEO and handed over the job to Cai Dexi. But only a year later, Wang Jingying returned as CEO and Cai Dexi left Starbucks. Cai Dexi was previously the COO of Starbucks.
In 2012, Liu Wenjuan joined Starbucks China as a project director. Prior to this, she worked at McKinsey. In 2016, Wang Jingying was promoted to CEO of Starbucks China, and Liu Wenjuan began serving as Vice President of Digital Innovation at Starbucks China.
Starbucks stated that as the head of its digital innovation business, Liu Wenjuan has laid the foundation for Starbucks' digital transformation in China, launching digital businesses such as "Dedicated Star Delivery" and "Coffee Quick" digital ordering, and making them an important engine for the company's business growth.
In addition, Liu Wenjuan has created Starbucks' membership system - the "Star Enjoy Club". Starbucks also stated that as the former Chief Operating Officer, Liu Wenjuan is responsible for accelerating store layout, bringing Starbucks to more cities, and successfully launching multiple new coffee categories to accelerate product innovation pace.
On October 2, 2023, Liu Wenjuan became the Executive Vice President and Co CEO of Starbucks China. At that time, it was just a short time after taking office at Hexihan.
One year later, Nathan resigned and Liu Wenjuan took over.
The attitude of Starbucks founder Howard Schultz may be key. According to a report by China Entrepreneur Magazine, on March 23rd of this year, Schultz had a conversation with Lu Xiongwen, Dean of the School of Management at Fudan University. In the end, Lu raised a sensitive question in a tactful way: Starbucks' prices are too expensive for students, can they be cheaper?
Molly, "Schultz shouted Liu Wenjuan's name to the audience. He explained half jokingly, "Whenever I encounter difficult questions, I call Molly
As a comparison, two months later, Schultz publicly admitted that Starbucks' strategy had flaws. He published an article on LinkedIn stating that Starbucks needs to "improve its mobile order and payment experience, and thoroughly reform the way new drinks are developed, focusing on high-quality products that can make the company stand out.
Since then, Starbucks has been searching for someone who can replace Eslite.
Hobson stated in a media interview on August 13th that a few months ago, Starbucks' board of directors began discussing the company's leadership issues, and he made an invitation to Nicole through someone.
Major adjustments?
Currently, Starbucks is undergoing a significant period of adjustment.
Nicole emphasized that Starbucks will return to its original intention. We are committed to enhancing the store experience - ensuring that our space presents the visual, olfactory, and auditory representation of the Starbucks brand. Our store will become a place that attracts customers to stop, with comfortable seating, thoughtful design, and a clear distinction between 'take out' and 'dine in' services, "he said in the open letter.
This means that Starbucks will place more emphasis on offline experiences rather than blindly pursuing short-term performance.
Returning to the Chinese market, the price war continues here.
On July 23rd, Kudi Coffee announced its official plan to open 8000 convenience stores in the second half of the year. At the same time, the company also set a goal of expanding to 50000 convenience stores over the next three years. At the end of February, Kudi stated that the store expansion had reached a scale of 7000 stores and would enter a period of stable expansion.
Synchronized with expansion is the price war. On May 24th, Kudi Coffee announced another three-year promotion, the "9.9 yuan promotion for the entire session".
This pattern has already had an impact on Luckin. The company's Q2 2024 results show that profits continue to shrink. In the current period, Luckin Coffee's revenue was 8.403 billion yuan, a year-on-year increase of 35.5%; Net profit was 871 million yuan, a year-on-year decrease of 13%. Last quarter, Luckin was in a loss making state.
Behind it lies the impact of price wars. This impact includes both Luckin's participation in price wars and the erosion of profits from low-priced products, as well as consumers switching to other companies. In May 2023, Kudi Coffee launched the "9.9 Every Day" promotion, and since then, a coffee price war has been raging. Less than a month later, Luckin Coffee announced the launch of its store anniversary promotion, launching 9.9 yuan per week coffee items. In June, it announced the launch of a regular 9.9 yuan per week discount, which will last for at least two years.
At present, unlike Kudi's 9.9 yuan discount, Luckin Coffee is offering special prices on some products, with fluctuating discounts. In the current period, Luckin Coffee's self operated same store sales decreased by 20.9% year-on-year, while the growth rate in the same period of 2023 was 20.8%.
Looking back at Starbucks, it has also launched various promotional activities, although the company has always emphasized not engaging in price wars.
The financial report will not deceive people. In the third quarter of fiscal year 2024 (as of June 30, 2024), Starbucks China's same store sales decreased by 14% year-on-year, with a 7% decrease in same store transaction volume and a 7% decrease in average order value.
At the end of June, Starbucks China had 7306 stores, an increase of 213 from the previous quarter and a 13% increase from the previous year. As the store scale continues to expand, Starbucks' revenue in China for the current period was 733.8 million US dollars, a year-on-year decrease of 11% and a month on month increase of 5%.
As a result, it seems difficult for Starbucks China to adjust its market strategy like Nicole did for the US market, as it is likely to increase costs. The market seems to place more emphasis on price.
Of course, Nicole has not yet directly made various demands on Starbucks China.
An adventure
From the recent strategic changes of Starbucks, we can feel Liu Wenjuan's ideas to a certain extent.
On June 20th, the brand announced changes to its membership system, with the highlight being the integration with Hilton in the membership ecosystem. Specifically, members of both parties can join each other's membership system through their respective apps and other channels. In addition, at the membership level, Starbucks has added "Diamond Star". For regular members, Starbucks has added the redemption of 3 stars and 5 stars in addition to the original "9 stars for a designated medium drink" and "1 star for the corresponding drink".
Under this change, in the current period, Starbucks Star Enjoy Club's 90 day active members increased by 1 million to 22 million compared to the previous quarter, with a total membership of over 132 million.
However, various strategies have never been able to completely salvage Starbucks' declining sales trend.
In addition, Liu Wenjuan once again emphasized on behalf of Starbucks China that there will be no price war. We will continue to focus on the high-end coffee market, seeking high-quality, profitable, and sustainable growth. Based on the present, we will steadily grow without sacrificing operating profit margins for sales. Secondly, we will explore huge blue ocean opportunities through rhythmic store expansion planning, and ensure first-class returns and profitability of our stores. Thirdly, we will continue to invest in our partners, "she said during the financial conference call at the end of July.
Liu Wenjuan also added that Starbucks China has adopted targeted and precise pricing strategies to create sales growth.
At present, Liu Wenjuan's focus may be on two points, membership system and digitalization.
This has been her long-standing weakness and has also been recognized by the headquarters. In the aforementioned open letter, Nicole emphasized that in order to support the development of Starbucks' US business, it is necessary to increase technological investment, enhance partner and customer experience, improve the supply chain, and improve the APP and mobile order platform. Starbucks also directly stated that Liu Wenjuan's insights and experience in the Chinese market can provide support for global business decisions.
Can this save Starbucks' performance?
At least based on last quarter's performance, Liu Wenjuan still needs to work hard.