Starbucks is no longer popular in China?

31/07/2018

 

Starbucks 2018 global third-quarter revenue increased 11.5% (6.31 billion USD), profits increased 23.3% (850 million USD), both exceeded Wall Street expectations, but sales in the Chinese market fell 2%, becoming the world ’s worst market sales.

 

In 2017, Starbucks sales in China increased by 7%, and in the first two quarters of 2018, it increased by 6% and 4% respectively. In the third quarter, there was negative growth, and the downward trend was obvious. The rapid development of Chinese brands such as Luckin Coffee has challenged Starbucks. To enhance its competitiveness, Starbucks announced that it will launch its delivery service in China.

With the rise of the middle class, the Chinese coffee market will be huge, but this market is still far from mature, leaving room for imagination in the cultivation of coffee culture.

At present, Starbucks has 3,400 stores in bustling districts, office areas and shopping malls in over 140 cities in China. “It costs a lot of rent to open the stores in the core area. This is Starbucks gets close to consumers. It is also the secret of this company’s rapid occupation of the Chinese market,” Jeffrey Towson, a professor at Peking University who studies new retail in China, stated, “However, the decline in store sales seems to indicate that the “magic” of these stores to quickly drive consumption is fading.

 

Starbucks stated that the company is concerned about long-term opportunities and long-term development, not just sales.

 

Jingying Wang, CEO of Starbucks China, stated that in China, 70% of Starbucks growth comes from new stores. The core strategy of the Chinese market in the past three years is to increase expansion, cultivate the Chinese coffee market by opening new stores, and share the coffee experience with those who have never tried Starbucks.

China coffee market is emerging to break the Starbucks monopoly.

Luckin Coffee has opened 600 stores in half a year, which is nearly one-sixth of the total number of Starbucks stores in China in 19 years.

Luckin Coffee focused on the delivery service and formed a differentiated competition with Starbucks. In addition, the price of a cup of Luckin Coffee is 1.7 USD dollars cheaper than Starbucks. Jeffrey Towson believes that Luckin Coffee’s low-price strategy will bring a strong impact on Starbucks.

In order to adapt to the digital revolution of China consumer market, Starbucks will also launch delivery services in China at the end of 2018. Previously, Starbucks’ online business has been limited to attracting more members with digital products and promoting physical store coffee purchases.

 

In China, delivery has become a way of life. For Starbucks, the delivery service will be a powerful measure to its stores.

 

In 2018, Starbucks chose to open the world’s largest offline store in China: at the end of 2017, the company opened the world’s largest Starbucks Reserve Roastery in Nanjing Road, Shanghai, and built it into a “smart store” with Alibaba’s AR technology. By the end of 2018, Starbucks also plans to open 200 coffee shops with a bar to showcase coffee production.

China is still the fastest-growing market for Starbucks stores. Starbucks China plans to open 600 stores a year and expand to 100 cities by 2022, pushing the number of Chinese stores to 6,000. China’s revenue in five years tripled in 2017. Starbucks’ Chinese market will exceed the United States.

Yunlei Chen, professor of marketing and associate dean of the Shanghai Institute of Advanced Finance at Shanghai Jiaotong University, said that unlike the western countries where coffee is the main beverage, for Chinese consumers to drink coffee is also the pursuit of brand and store environment, and Starbucks is still one of the most valuable coffee companies in the coffee industry. The stores’ style and uniform service are still competitive.

Starbucks most mature market is in The United States. The United States, Canada, and South America contribute 70% of Starbucks’ revenue. However, in June, Starbucks announced that it will close 150 stores in America in 2019. It is believed that Starbucks’ US market is approaching saturation. This is why Starbucks places great emphasis on the Chinese market.

 

From the competitive trend, in the United States, coffee giants JAB’s Panera Bread, McDonald’s coffee, Blue Bottle Coffee and Philz Coffee are snatching Starbucks customers.

 

New customers attributed the increase in third-quarter, and the consumption levels of these customers increased. In the third quarter, Starbucks increased 1.9 million active members, increasing by 14%.

Starbucks COO Roz Brewer stated that he is very pleased with that at least Starbucks’ performance is on track.

Starbucks also said that the coffee alliance with Nestlé will be completed in the fourth quarter. Starbucks announced in May that it has established a coffee alliance with Nestlé, hoping to leverage it to sell products to more countries and regions and to expand sales channels for these products.

In the first half of 2018, Starbucks fell into the racial discrimination storm. Since June, Chairman of the Board of Directors Howard Schultz resigned, and the CFO Scott Maw’s retirement has also shocked the market. Starbucks stocks fell about 10% during 2018.

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