Starbucks China CEO Wang Jingying: has no intention of participating in the price war

Text / Electrical

On January 31, Starbucks announced its results for the first quarter of fiscal year 2024. Global same-store sales were up 5 percent, same-store transactions were up 3 percent, and average order value was up 2 percent. Consolidated net income increased 8% to a record $9.4 billion.

It is worth noting that the performance of Starbucks in the Chinese market is particularly outstanding. As of December 31, 2023, Starbucks China reported net income of $735 million in the first quarter, up 20% year-over-year, after adjusting for the impact of foreign exchange changes. Same-store sales increased by 10% and same-store transactions increased by 21%.

Interestingly, Starbucks China Chairman and CEO Wang Jingying reiterated that Starbucks has no intention of participating in the price war. But it is interesting to note that she said that she will speed up the sinking speed and enter more county-level markets.

From the current point of view, Starbucks has entered 857 of China's 3,000 cities above the county level.

01 The price of concern

"No intention to participate in the price war", but the average order value of customers in a single quarter fell by 9%

Although Wang Jingying said that Starbucks has no intention of participating in the price war, judging from the just-released financial report, Starbucks' prices in China have been declining.

Judging from the financial report, Starbucks China's customer unit value fell by 9% in the current fiscal quarter. Starbucks China said that the decline in average customer value was mainly due to factors such as the intensification of the promotional environment.

In the conference call, Wang Jingying said that the 9% decline mainly came from two aspects:

First, the sales volume of higher-priced goods has decreased, and such goods account for a relatively small proportion of the sales mix;

Second, targeted promotions and personalized offers are being tried to encourage consumers to increase the frequency of purchases.

This means that although it said that it would not participate in the price war, Starbucks is indeed "discounting". This is closely related to the current competitive coffee track.

Recently, the World Coffee Portal released a report showing that in the past 24 months, the number of East Asian brand coffee shop market has increased by 12% to 119,000, of which the Chinese market accounts for 42%, and China has surpassed the United States to become the world's largest brand coffee shop market, reaching 49,691.

According to the report, the change in this number is related to the growth of small stores and takeaway stores, mainly from Luckin and Cudi Coffee, which added 5,059 and 6,004 new stores respectively in 2023, and Starbucks also opened 785 stores.

According to Node Finance, there are more and more peers in the Chinese market competing for business with Starbucks, and price war has become a must for competition.

But 9.9 yuan for a cup of coffee, Starbucks will most likely not be able to do it. But from the perspective of China's wealth structure, Starbucks prices in China have not been cheap, before the International Labor Organization (ILO) did a global user can buy a daily salary how many cups of Starbucks research, the results show that in New York, Americans can drink about 30 glasses a day. According to the average salary in Japan, you can drink 21 cups a day, while South Korea has 27 drinks, and the survey shows that China has only 6 drinks.

Increasing discounts is still the first keyword in the coffee track in 2024.

02 The sinking of the focus

Clarify the three major strategic adjustments and enter the blank market

After the release of the earnings report, Starbucks outlined three key elements of its China strategy:

The first, localized coffee product and customer experience innovation;

second, continuous investment in technology and digitalization;

Third, open up more blank markets.

Although it cannot play the label of 9.9 yuan like Luckin in terms of price, Starbucks is also gradually sinking and attacking the county-level market.

Starbucks Global CEO Nashan pointed to the key elements of Starbucks' China strategy, which is to increase the proportion of new stores opened in lower-tier markets and new counties. Wang Jingying said that Starbucks' new stores continue to provide best-in-class store profitability and return on investment. In the past few years, Starbucks' new store profitability in county-level markets has also been better than that of first-tier cities. Therefore, Starbucks will continue to accelerate its sinking and enter more county-level markets.

In terms of the number of stores, Starbucks China added 169 new stores in the first quarter, entering 28 new county-level markets. This year marks the 25th anniversary of Starbucks' entry into the Chinese market, and the number of Starbucks stores in the Chinese mainland market has exceeded 7,000.

In terms of the pace of sinking, as of the first quarter, Starbucks only entered 857 of China's nearly 3,000 cities above the county level. In recent years, the development of regional county economy, the rise of young people in small towns and the return of talents from the high-line market have accelerated the growth of the third-tier to fifth-tier coffee market, and also allowed the coffee industry to enjoy the dividends brought by the sinking of the market.

Starbucks has always been positioned as the preferred brand in the high-end coffee market in China, and this positioning will continue in 2024. But it remains to be seen whether exploring the sinking market while maintaining the high-end will hinder Starbucks' trip to the county.

According to Node Finance, Starbucks will make certain choices when entering the county-level market, and first enter the high-quality county-level market. For example, there are top 100 counties in China, and these county-level markets are relatively good industrial advantages and characteristics, such as Kunshan. Starbucks Baidu map shows that Starbucks has nearly 40 stores in Kunshan, the first of the top 100 counties, and also has one in Sanhe, Hebei Province, which ranks lower.

Sinking, this is the second keyword of the coffee track in 2024.

03 Competition of concerns

Foreign monks, can they sell this cup of Chinese-flavored "foreign coffee" well?

In the new year, the competition on the coffee track will not stop, and the fierce battle continues. With the continuous attention of the primary and secondary markets to the consumption track, coffee, as a key layout focus, will become the core of the fierce battle.

How to make a good cup of Chinese coffee, "Node Finance" believes that it may be considered from three points:

First, product innovation. Product is always the core of a coffee brand, and if a coffee brand wants to retain users continuously and stably, it is natural to work hard at the product level to attract and retain consumers through continuous product innovation.

Taking Luckin as an example, in the past year, it has launched a series of tea and coffee, as well as the successful launch of the popular sauce-flavored coffee. On the other hand, Starbucks, although there are occasional quarterly new products, there does not seem to be such an out-of-the-circle product as soy sauce coffee. The more competitive the market, the more popular products are needed, so as to gain more consumers' favor. If there are no bright spots, then consumers will gravitate towards the "price factor".

Starbucks has previously co-branded with various IPs, such as Disney, Swarovski, ANNA UI, etc., but most of them are still limited to cooperation with Starbucks peripheral products, such as launching cups and bags with different themes.

Second, the continuous improvement of the supply chain. Good products are inseparable from the improvement of the supply chain. In 2023, Luckin Coffee and Cudi Coffee will also increase their layout in the supply chain. For example, in July this year, Cudi Coffee held the unveiling ceremony of the East China Supply Chain Base in Dangtu, Anhui Province, which is the world's first supply chain base of Cudi Coffee. After all, low prices are not a moat, the supply chain is the line of life and death.

Third, an operating system for efficient management. If the operation cannot guarantee quality, do not talk about efficiency. If you want to launch a popular product, it depends on the perfect operation system within the system. For example, the entire process of popular products from proposing, designing, to landing, to opening stores and site selection depends on efficient system support.

To put it simply, its own operational innovation and system are the third key words of the coffee track in 2024.

In 2024, the coffee track will continue to be hot, and the three keywords of low price strategy, sinking strategy, and its own operation will determine Starbucks' chances of success in the Chinese market.