BEIJING — In a surprising turn of events, Starbucks, once the poster child of successful international expansion in China, is now facing significant challenges in the country. Despite its rapid growth in the past, with over 3,200 stores added between 2017 and 2020, the company's revenue has stagnated in recent years, with a decline of $700 million between 2021 and 2024.
The coffee giant's struggles in China can be attributed to a maturing market, increased competition, and shifting consumer preferences. The rise of domestic competitors, such as Luckin Coffee, which has more than doubled its store count since 2022 and now has roughly 6,000 more company-operated stores than Starbucks, has forced the company to re-evaluate its strategy.
Luckin's success can be attributed to its grab-and-go model, which allows customers to quickly purchase coffee through a mobile app, and its ability to offer steep discounts, making it a more attractive option for price-conscious consumers. Additionally, the company's focus on localization, with a variety of flavors and partnerships with local players, has helped it to expand quickly and efficiently.
The Chinese market has become increasingly competitive, with other players such as Cotti Coffee and Manner offering drinks at significantly lower prices than Starbucks. The company's premiumization strategy, which has been successful in the past, may no longer be effective in a market where consumers are prioritizing value and affordability.
Furthermore, rising nationalism in China has also had an impact on Starbucks' business, with some consumers opting for domestic brands over international ones. This trend is expected to continue, with consumers increasingly seeking out patriotic options and supporting local businesses.
Despite these challenges, experts believe that there is still room for Starbucks to grow in China, particularly if the company can optimize its offerings and focus on premium growth with a local twist. The appointment of a chief growth officer in December 2024 is seen as a step in the right direction, as the company seeks to steer itself back on course in the Chinese market.
With a population of over 1.4 billion people, China remains a critical market for Starbucks, and the company's success in the country will be closely watched by investors and industry analysts. As the company navigates the complex and evolving Chinese market, it will be crucial for Starbucks to adapt to changing consumer preferences and find a way to differentiate itself from its competitors.
As the discussion comes to a close, it's clear that Starbucks is at a crossroads in China. The company's current model of operating all establishments itself may soon give way to a more asset-light approach, potentially through licensing or joint ventures. This shift could mitigate earnings volatility, operational risk, and brand risk, making it a prudent move in today's complex geopolitical landscape.
Starbucks' exploration of "strategic partnerships" suggests that the company is indeed considering its options, although the exact path forward remains uncertain. The decision to adopt a licensed or franchised model in China could have significant implications for the company's growth and profitability in the region.
Ultimately, the question of who will build out Starbucks' presence in China – the company itself or a local partner – is a critical one for investors to consider. As the company navigates this key debate, one thing is clear: the future of Starbucks in China will be shaped by a delicate balance of risk, opportunity, and strategic decision-making. As the coffee giant continues to evolve its approach in this vital market, all eyes will be on its next move, and the potential impact on its bottom line.
