Starbucks Loses Lead in China Coffee Race

MONDAY, NOVEMBER 20,2023

◈ Starbucks Loses Lead in China Coffee Race

 

Starbucks is losing its prime spot among chains racing to meet China’s growing thirst for coffee.

 

Luckin Coffee has surpassed Starbucks as China’s biggest coffee chain by sales and units, reports by the companies show, a comeback for the Chinese chain after an accounting scandal that stalled its growth.

 

Flush with capital and under new leadership, Luckin now operates about 13,300 stores, with all but a handful located in China. That is roughly double Starbucks’s 6,800 locations in the country. To fuel its growth, Luckin has tapped rapid delivery services, mobile payment options and offerings such as a cheese-flavored latte that has been a hit with Chinese taste buds.

 

Seattle-based Starbucks, the world’s largest coffee chain, for decades has counted expansion in the world’s second-most-populous nation among its top priorities. Former CEO Howard Schultz has said China represents one of Starbucks’s biggest opportunities for growth—although it is a complicated place to do business. China is now Starbucks’s second- largest market by stores and revenue after the U.S.

 

Traditionally a tea-drinking society, China consumes little coffee compared with many other countries, but Chinese demand is growing, companies say. Analysts expect China to become the world’s largest consumer market in the next several years. Big Western brands selling to Chinese consumers face rising competition from local brands, as consumers begin to show a preference for them.

 

Starbucks sales in China are growing, the company said, along with competition from Chinese rivals. Luckin declined to comment.

 

Kiki Pang, a Guangdongbased marketing executive, drinks coffee about twice a week. She often orders a Luckin latte for delivery to her office in the afternoon while working, and pays through the WeChat app.

 

“Starbucks used to be quite popular among young Chinese consumers,” said Pang, 26. “Now that young people in China have more beverage options, the dynamics have changed.”

 

Starbucks sought to establish a first-mover advantage after opening its first cafe in China in 1999. Schultz personally cultivated relationships in the country. The chain branched out from the country’s largest cities into smaller ones, building hundreds of new stores a year in the country and catering to coffee drinkers looking to linger in cafes.

 

The pandemic badly hurt Starbucks’s Chinese business, with its same-store sales in the country falling 17% in its 2020 fiscal year compared with 2019. Now, many Chinese consumers are continuing belt-tightening habits formed during the pandemic.

 

Starbucks executives have remained steadfast on China. The company said in November that it aims to add around 1,000 stores in China a year, growing to 9,000 by 2025. Executives said China would one day become Starbucks’s largest market. “I am very confident that is only the beginning,” Starbucks China Co-CEO Belinda Wong said at the November investor event.