On December 23rd, a media article titled 'Some shopping malls are considering closing Starbucks' sparked heated discussions. As mentioned in the article, the cooperation condition with Starbucks is that the revenue will be deducted in segments, that is, after the revenue reaches a certain amount, there will be a certain amount of rent generated. This year, its business has not reached the standard, so it wants to liquidate Starbucks.
Brands like Starbucks are also facing the risk of liquidation now? When Starbucks is no longer the "flagship" of shopping malls, the reasons behind it are complex. Taking this as a starting point, we see that the competition in the domestic coffee market is becoming increasingly fierce.
On December 16, the Starbucks Xintiandi store in Shanghai, which has been open for 24 years, officially ended, with "tears of the times", "the end of youth" and other regrets.
Located in Shikumen, Shanghai, Starbucks Zhenxuan Xintiandi Store is known as the "city famous" meeting point. As the seventh Starbucks store in Shanghai, it has accompanied the city for 24 years. Recently, due to the adjustment of the business type of Xintiandi Business District, Starbucks Zhenxuan Xintiandi Store will end its lease on December 31.
Starbucks customers were injured by the chaotic punch of 9.9 yuan
In the past two years, most of the attention in the coffee market has been focused on the rapid expansion of chain coffee brands such as Luckin Coffee, Kudi Coffee, and Lucky Coffee. They have also launched 9.9 yuan coffee successively to intensify competition and continue to compete in terms of low prices and scale.
Founded in 2022, Kudi Coffee was the first to launch a 9.9 yuan promotion in February 2023, and further reduced it from 9.9 yuan to 8.8 yuan in May of that year. Luckin Coffee followed suit, and a year and a half later, although Luckin Coffee was once reported to have reduced its 9.9 yuan promotion, it seems that this battle is far from over.
As early as May this year, Li Yingbo, Chief Strategy Officer of Kudi, stated that the company was prepared for a three-year "9.9 yuan promotion".
Luckin Coffee also released a big move. On May 20th, Luckin Coffee launched its oat latte in cooperation with OATLY, adding oat milk options to its 9 products. It is worth noting that Luckin Coffee has also included oat latte in the "9.9 per week" promotional menu, breaking the conventional price of oat milk in the market.
Faced with the trend of "low price competition", Starbucks has also made its own choices.
It can be observed that Starbucks is distributing coupons on a large scale within its app and mini program, including the "39.9 two cups" and "49.9 three cups" available after 4pm. On Meituan, Tiktok and other group buying platforms, Starbucks also launched discounts such as "five cups for 108 yuan" and "ten cups for 249 yuan". Starbucks, which used to spend around 30-40 yuan, now costs an average of only around 20 yuan per cup.
Starbucks is also conducting "promotions" on e-commerce platforms
Compared to domestic brands that now charge less than 10 yuan for coffee, Starbucks' efforts are relatively insignificant. It can be seen that Starbucks is very cautious about price wars. Starbucks China Co CEO Liu Wenjuan said that in the competitive environment of frequent promotional activities, we maintain a high degree of restraint and avoid price wars. At the same time, targeted and precise pricing strategies have been adopted to create new sales growth and cultivate customers' consumption habits.
Why did this' low price competition 'affect Starbucks?
Chinese consumers who no longer take pride in "clocking in at Starbucks"
Starbucks will continue to compete with coffee represented by Luckin Coffee in the squeezed market. But the important thing is, will Chinese consumers who no longer take pride in "checking in at Starbucks" still pay the bill?
A Deloitte China report for 2021 is also revealing changes in Chinese coffee consumers.
The report shows that consumers in first - and second tier cities with the highest acceptance of coffee have turned their purpose of drinking coffee into a physiological appeal and psychological dependence to refresh their minds. Only 37% of people use coffee as a social activity, and 13% consider drinking coffee as a way to showcase their personal taste.
The latter two are the reasons why Starbucks once occupied the Chinese market in a large scale.
Starbucks insists on opening its stores around high-end hotels, shopping malls, and office buildings. Starbucks also adopted the strategy of European luxury stores: not relying on advertising in mass media, because it firmly believes that every store is the best advertisement.
This is also what Howard Schultz, the father of Starbucks, is known for. The concept of "third space" he proposed is eye-catching: "Coffee shops should be a good place for customers to go in their daily lives, another comfortable social place besides home and work
Under the marketing slogan of the third space, Starbucks once became a sought after trend among urban white-collar workers who value taste and have a petty bourgeois atmosphere.
Once upon a time, perhaps people were still filled with filters when it came to Starbucks coffee. However, the trend of clocking in, taking photos, and sharing at Starbucks seems to have quietly passed. Everyone's consumption mentality is also undergoing changes. Coffee, as an imported product, was regarded by many people as a symbol of foreign style when it first entered China. Drinking a cup of Starbucks can elevate one's level and taste. But now, with the rapid development of China's economy, countrymen people have greatly improved their knowledge and experience. They no longer look up to many foreign brands, and no longer need to decorate and improve their image through some external brands. Therefore, many people's consumption mentality is becoming more mature and pragmatic.
For consumers, if there is not much difference in coffee taste, there is no need to deliberately choose a more expensive brand. On the contrary, if one deliberately decorates oneself with a seemingly high-end cup of coffee, it will actually appear comical and ridiculous. So, as Starbucks' decorative attributes become weaker, it will also lose a lot of market demand as a result.
Starbucks takes action
Faced with the current market upheaval, it has become inevitable to re-examine development strategies.
Starbucks has chosen a strategy of "continuously sinking" since 2024. On July 31st, Starbucks China released its financial report for the third quarter of the 2024 fiscal year ending on June 30th, 2024. Starbucks China added 213 new stores and entered 38 county-level markets, with a year-on-year increase of about 13% in the number of new stores. The scale of stores in lower tier markets has further expanded. 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.
In addition to entering the lower tier market, Starbucks has also begun to explore its food delivery business. For a long time, Starbucks has taken pride in the concept of the third space, creating a significant brand image for its physical coffee shops and attracting consumers to shop in stores for business and leisure purposes. However, as the attractiveness of Starbucks coffee shops weakens, Starbucks has begun to proactively deliver coffee to consumers.
Meanwhile, on November 21st, there were market reports that Starbucks is studying various options for its China business, including the possibility of selling equity, and Starbucks has informally assessed the interests of potential investors, including domestic private equity firms in China.
In a statement to the media, a Starbucks spokesperson said, "We are fully committed to our business and partners, as well as to developing in the Chinese market. We are working hard to find the best growth path, including exploring strategic partnerships
Besides Starbucks, other specialty coffees are also undergoing changes. Recently, the first store of Ora Coffee, a new brand under Piye Coffee, which is described as the "founder of Starbucks" by the outside world, opened in Beijing. Compared to the average price of 30+yuan per person, Ora Coffee's prices are significantly more friendly. The 15 yuan American style latte and 20 yuan latte have been praised by consumers as "very similar to Manner", and the American style latte at a discounted price is even sold for only 9.9 yuan per cup.
Although Starbucks is currently facing challenges such as price wars, strong competitors, and sluggish consumption, it still holds considerable value in the Chinese market. Will it still stand out in the future?
Comprehensive self: Pengpai News, Daily Economic News, Salt Finance, Sanlian Life Weekly, First Financial, China Business News, Interface News