Luckin "besieged" Kudi, but pushed Starbucks to the brink of change.
In January 1999, Starbucks, a coffee company from Seattle, USA, opened its first store in China at Beijing International Trade Center. For many years, Starbucks firmly held the top spot in the Chinese coffee industry and China became its second largest market globally.
The transformation will occur in 2023. This year, Starbucks not only lost its position as the largest coffee brand in China, but also quietly lowered its profile and started regular discounts under the "price war".
Recently, some media outlets have revealed that Starbucks is exploring various options for its Chinese business, including the possibility of selling business shares. A Starbucks spokesperson responded to this by stating that the company is committed to the development of its business in China and the maintenance of its partnerships, and is working hard to find the best development path, including exploring strategic partnerships.
In other words, Starbucks' China business will continue, but there may be adjustments to its future business model and capital structure.
"Coffee Brother" changes ownership
At present, Starbucks China has been completely surpassed by Luckin Coffee (hereinafter referred to as "Luckin") in terms of both the number of stores and revenue scale.
The turning point in store size occurred in December 2019, when Luckin Coffee's stores grew to about 4900, surpassing Starbucks for the first time. However, due to the significant disparity in product prices and brand positioning between the two companies, the market did not consider them as direct competitors. It was not until the second quarter of last year that Luckin Coffee surpassed Starbucks in single quarter revenue and became the largest coffee company in China, leading to a change in the industry's competitive landscape.
Drawing: Water Hibiscus
Starting from 2023, Luckin Coffee has accelerated its expansion efforts to "encircle" its competitor, Kudi Coffee, by elevating store expansion and increasing market share to the company's strategic level, and opening up franchise opportunities in some regions. As of the end of the third quarter of this year, the total number of Luckin stores has exceeded 21000, while Starbucks has less than 7600 stores in the Chinese market.
The significant disparity in store size has further boosted Starbucks' performance in China.
According to the latest quarterly financial reports disclosed by both companies, Luckin Coffee's revenue in the third quarter was approximately 10.18 billion yuan, while Starbucks' revenue in China was only 784 million US dollars (equivalent to approximately 5.68 billion yuan), which is about half of Luckin Coffee's.
The management of Starbucks stated that its performance and profitability in the lower tier markets are better than those in first and second tier cities, and it will continue to expand to third and fourth tier cities in the future. It has also explicitly stated that the store scale will reach 9000 by 2025.
Compared to local coffee brands in China, Starbucks' expansion speed and goals are slightly slower. At present, it still adopts a direct sales model in the Chinese market, while Kudi Coffee, which mainly operates under a joint venture model, has exceeded 10000 stores in less than two years and has loudly announced its goal of "exceeding 50000 stores by the end of 2025".
Industry insiders believe that the transformation of McDonald's and Yum! Brands China (the parent company of KFC) from a direct sales model to a franchise model is worth considering in light of the recent news that Starbucks' China business may undergo adjustments.
Franchising is similar to franchising, which refers to the operator paying a certain fee to the enterprise to obtain the right to use the brand, trademark, etc., and operating according to a unified brand and service system.
Yum! Brands previously spun off its China business from the group, splitting Yum! Brands China into an independent company and adopting a franchise model. McDonald's once encountered the problems of "not adapting to the local environment" and slow development in the Chinese market, until 2017 when it established a joint venture with CITIC Capital, CITIC Group, and Carlyle Investment Group to transform China into a franchise market, resulting in significant improvements in store expansion and business operations.
"Lowering the body" does not work
In August of this year, Starbucks welcomed a new CEO, Brian Niccol, who implemented a series of strategic reforms, including overturning the "price war" advocated by the previous CEO and canceling buy one get one free and 50% off promotions in the North American market.
How to deal with the "price war" in the Chinese coffee market, the new management has not yet made clear guidance for change, but this has always been a hot topic of concern for investors at Starbucks' performance exchange meetings.
At the end of September this year, there were executive personnel changes in Starbucks China. The "soul figure" Wang Jingying stepped down as CEO of Starbucks China, but will continue to serve as Chairman of Starbucks China, and her position will be taken over by Liu Wenjuan.
Although Starbucks China has repeatedly stated that it has no intention of getting caught up in low prices, it has already taken practical actions to lower its profile.
Starting from 2023, many consumers have found that Starbucks, which originally costs 35 to 40 yuan per cup, can be purchased on platforms such as Dianping and Meituan for only 25 yuan or even lower; On food delivery platforms, you can even buy two cups for less than 30 yuan, and one cup for less than 15 yuan.
The 'price for quantity' policy has helped Starbucks temporarily achieve performance growth in China, but the situation has changed again this year
According to a reporter from the International Finance News, its average order value in the Chinese market decreased by 8%, 7%, and 8% year-on-year in the first three quarters of this year, with a larger decline compared to last year. However, its trading volume also declined for three consecutive quarters, resulting in lower revenue in the Chinese market compared to the same period last year.
Note: Starbucks' first quarter financial report usually starts on October 1st each year. For the convenience of readers' understanding, the performance statistics in this article correspond to the natural quarter.
Comparable store sales can better reflect the actual operational situation of individual stores. This year, Starbucks' mature stores in China that have been open for more than a year have experienced a decline of over 10% in comparable store sales for three consecutive quarters, with a decrease of 14% in the last two quarters.
Drawing: Water Hibiscus
In fact, in addition to quietly lowering prices, Starbucks has also taken the initiative to adapt to the pace of the Chinese tea beverage market this year, accelerating the speed of new product launches. On average, it has launched more than 20 new products per quarter this year, which is close to the speed of Luckin Coffee's new product launches last year. Previously, Starbucks only launched about 30 new products in the Chinese market each year and was criticized by consumers for its slow pace of product launches.
In order to attract consumers, Starbucks even filmed a down-to-earth short drama. In September, the short play "I Open a Starbucks in Ancient Times" was broadcast on the Tiktok platform. Starbucks said that the short play had brought 1.35 million buyers and added more than 30 million fans to the company's account.
The many changes in prices, products, and marketing reflect Starbucks' development anxiety in the Chinese market.
Under the trend of consumer downgrading, Starbucks' core competitiveness, which relied on the "third space" attributes of its stores and high-quality coffee and lifestyle, is gradually being eroded. Affordable coffee is emerging, and the market is still undergoing rapid changes. How to seek its own development advantages in the new market trends is also a common challenge faced by Starbucks.
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