Source of this article: Times Finance Author: Zhang Xuemei
2024 marks Starbucks' 25th year in the Chinese market. On the morning of May 1, Beijing time, it handed over its report card for the second quarter of fiscal year 2024, continuing to lead the high-end coffee market.
In Q2 of fiscal year 2024, which ended March 31, Starbucks (SBUX.US) had net revenue of $8.56 billion and net income attributable to common shareholders of $772 million. Among them, Starbucks China's profit margin continued to maintain sequential growth, while the store operating margin maintained a double-digit good performance.
China is Starbucks' second largest market, and Starbucks Global CEO Na Sihan has repeatedly put the Chinese market in an important position when talking about the company's future development. However, in recent years, local coffee brands have seized the market with the advantage of low prices, which has also brought changes to the domestic coffee track.
In the face of the challenges of the external environment, Starbucks has played a role in the strong, efficient and agile operational capabilities it has cultivated over the years, and has successfully built a new "moat" for the brand by accelerating product innovation and focusing on the sinking market.
Starbucks, which holds a number of classic products such as Furui White and Frappuccino, has opened a "volume" on the new speed, with 27 new items in the Q2 fiscal quarter. In addition, its penetration into the sinking market has been further deepened, successfully covering about 900 county-level cities.
"I firmly believe that the Chinese market is full of unlimited opportunities, and Starbucks is confident in the long-term development of the Chinese market. Nasihan said.
The number of members reached a new high, and Starbucks led the high-end track
With a large and growing customer base, strong operating capabilities, and a rich and profitable store portfolio, Starbucks' business continued to demonstrate strong resilience in the Q2 quarter.
During the reporting period, Starbucks' 90-day active members exceeded 21 million, reaching an all-time high, and the total number of members continued to grow, exceeding 127 million, a record high. At the same time, its membership sales continued to grow, with the proportion of sales increasing to 75%, a record high, and the consumption frequency of Venus members also increased.
This is the result of Starbucks China's 25 years of deep brand power. According to Starbucks' Brand Tracker Survey, Starbucks continues to be the top choice brand for the "non-home-based coffee scene" among Chinese customers of all city levels and age groups, continuing to lead in brand affinity, with the highest brand awareness, familiarity and purchase intent.
As a company positioned as "not just selling coffee, but also providing experience", Starbucks is committed to creating a pleasant "third place" for customers outside of their homes and offices, with an emphasis on relationship-oriented. Starbucks said that more and more customers are turning to Starbucks as a coffee ritual to start their daily life, and the store's breakfast sales have increased by more than 50% compared to pre-pandemic levels, and the connection between the brand and customers continues to deepen.
In order to better serve its customers, Starbucks continues to engage with more and more communities. In the Q2 quarter, Starbucks China added 118 net new stores, up 14% year-on-year, bringing the total number of stores to 7,093.
At the same time, it is also improving its channel capabilities, and its multi-channel strategy continues to play an advantage. In the Q2 quarter, Starbucks China's digital business accounted for 52% of sales, continuing to be the highest in history. Among them, the sales of coffee express business accounted for 26%, a record high, and the same-store sales of special star delivery increased. In January this year, Starbucks launched a new special delivery series "Frozen Latte", which is another attempt after its "Tea and Coffee" delivery series in August last year.
Nashan said that the China team achieved sequential margin growth under revenue pressure with strong operational capabilities. "Our store single-store business performed healthy and profitable, with all stores, including new stores, continuing to deliver double-digit store operating margins. ”
Launched 27 new products to accelerate localization innovation
At present, domestic coffee brands are expanding aggressively and fighting price wars, and Starbucks is facing a more complex market environment and needs to grasp market demand more accurately.
To this end, Starbucks China continues to strengthen the localization and differentiation of its brands. In the summer of 2023, it will launch a raw coffee series, a mousse concentrate series in August, a strong / series in October, etc., and the new Longjing Bamboo Tea Latte this spring has become the best-selling Spring Festival tea drink at Starbucks in the past five years.
It is worth mentioning that in January 2024, the "light roast" core espresso, Gold Roast Espresso, will be launched nationwide, which is the first time in 25 years that Starbucks has launched another core espresso in the Chinese market. Prior to this, its American, latte, mocha, Frappuccino, etc. were all based on "classic concentrates". Unlike the classic concentrated and rich nut and caramel aromas, the gold roast concentrate has a light citrus and floral fruity aroma that better reflects the rich layers of the product.
With its fast and efficient product innovation capabilities, Starbucks China launched a total of 27 new products in the Q2 quarter, doubling the number of new products in the previous quarter and tripling the number of new products in the same period last year. At the end of March, Starbucks broke through the boundaries of coffee innovation and brought a wonderful combination of "coffee + olive oil", which exceeded expectations after its launch. It is reported that the Yilan series of drinks will be promoted to nearly 2,500 stores across the country in May.
Nasihan said the strong performance of beverage innovation is a testament to the opportunity for Starbucks to further enhance its product innovation capabilities in China. On the other hand, Starbucks has also narrowed the distance with consumers by co-branding Disney and launching a limited edition for the Year of the Dragon. In January this year, its co-branded national-level animation "Havoc in the Heavenly Palace" launched a frozen latte that can be "transformed" into layers on the way to delivery, equipped with a golden hoop stick-shaped straw, integrating the classic IP of Monkey King into the product, so that customers can revisit the classics in consumption and harvest emotional value.
In addition to continuous product innovation, Starbucks has also invested in related technologies to create a more digital operating environment for its stores, which has also further enhanced the work experience of its partners (employees).
On March 23, 2024, Starbucks founder Howard Schultz said in an interview at Fudan University that innovation is not only needed in the customer-facing business, but also in the partner-facing (employee) side. "I think Starbucks is a very special company where we build our brand from the inside out, looking for brand value through culture. ”
Starbucks has always adhered to a "partner culture," in which all full-time and part-time employees are called partners. In the Q1 quarter, Starbucks China achieved a record retention rate of full-time partners at Starbucks China stores, and Starbucks China was also recognized as a "2023 Best ESG Employer" by leading HR consulting firm Aon.
This past April was Starbucks' Global Service Month, and it organized a variety of "green" public welfare activities in the community, stores, and online channels, such as recycling idle and donating reading corners to rural primary schools. Since 2024, the Starbucks Beijing Charity Foundation's Future Star Community has confirmed to fund 121 projects, including animal-friendly, age-friendly, female-friendly, and disability-friendly.
If a company's financial report examines profitability, ESG reporting examines sustainability in the social dimension. Wang Jingying, Chairman and CEO of Starbucks China, said that Starbucks' goal is to pursue high-quality, profitable and sustainable growth.
Covering about 900 county-level cities, the sinking market brings new stories
Thanks to the promotion of coffee consumption in China by coffee brands such as Starbucks, coffee has long developed from a niche dining and leisure method to a popular product, with a large market space and rapid growth. Now is undoubtedly a good time to expand rapidly and seize the market.
USDA data shows that China's coffee consumption in China has shown an overall growth trend from 2017 to 2023, with China's coffee consumption reaching 4,200 thousand bags in 2022/23, an increase of 44.83% over 2017/18. According to CIC data, China's per capita coffee consumption in 2022 is about 11.3 cups per year, far lower than the global average of 75.2 cups per year.
In an interview at Starbucks Reserve Shanghai Roastery last May, when he visited China for the first time as Starbucks CEO less than a year into his tenure, he said his biggest curiosity was about the growth space, "How can we make sure that we make the right investments in the Chinese market to take advantage of the growth space in the Chinese market." ”
Over the past year, Starbucks' actions in the sinking market may have given the answer. Starbucks still has a leading position in China's high-end coffee market, and while maintaining its high-end positioning and middle-class customer base, it has been able to find its own other growth curve in the sinking market with its strong brand power and consumer loyalty.
Wang Jingying said that by the end of 2023, Starbucks had covered 857 of China's nearly 3,000 cities above the county level. In fiscal year 2024, Q2 continues to grow, with Starbucks entering 20 new cities, covering nearly 900 county-level cities. The number of 90-day active members in the sinking market has grown rapidly, reaching a record high, and the membership growth rate has exceeded that of high-tier cities. At the same time, membership sales have grown considerably, with sales growth twice that of high-tier cities, which have shown huge market potential.
Nashan also further clarified the three key elements of Starbucks China's strategy in the future: increasing significant technology investment, improving omni-channel capabilities, digitally empowering stores, providing more locally relevant coffee innovations, and further expanding new stores in lower-tier markets, especially in new county-level cities, in view of the strong economic benefits of new stores in lower-tier markets.
As early as September 2022, Starbucks released its 2025 China Strategic Vision at its Global Investor Conference, which plans to open 3,000 additional stores in China at an average rate of one new store every nine hours in the next three years, bringing the number of stores to 9,000. It is foreseeable that Starbucks will continue to tap more and more increments in the sinking market.