In the current Chinese beverage market, if you want to ask which industry is the most prosperous, coffee must be the best, in today's cafes everywhere, a special phenomenon is emerging, Starbucks has declined, Luckin has risen against the market, what should we think of the sudden change in the coffee market?
1. Starbucks' revenue declined and its market value evaporated, but Luckin rose sharply against the market
This year's May Day holiday can be described as a month for coffee companies to shine on Kyushu, a few happy and a few sad, the joy is undoubtedly the new coffee giant Luckin, and the worry is undoubtedly the old giant Starbucks.
According to a report by Donews, Luckin Coffee announced its financial results for the first quarter of 2024. According to the financial report data, Luckin Coffee's total net income in the first quarter was 6.278 billion yuan, a year-on-year increase of 41.5%. The number of stores in the first quarter increased by 2,342, bringing the total number of stores to 18,590.
From the perspective of store operation, Luckin Coffee's self-operated store revenue in the first quarter was RMB4.580 billion, an increase of 45.8% from RMB3.140 billion in the same period in 2023. The profit at the self-operated store level in the first quarter was RMB321 million, with a profit margin of 7.0% at the self-operated store level. Revenue from associated stores was RMB1,508 million in the first quarter, an increase of 32.8% from RMB1,135 million in the same period in 2023.
Luckin Coffee further expanded its store size during the quarter, with a net new store opening of 2,342 stores, including 2 stores in Singapore, and the total number of stores increased by 14.4% quarter-on-quarter. As of the end of the first quarter, the total number of Luckin Coffee stores reached 18,590, including 12,199 self-operated stores and 6,391 affiliated stores. Luckin Coffee stores are located in more than 315 cities in China.
According to the 21st Century Business Herald, in the second quarter of fiscal year 2024 (January 1 to March 31, 2024), Starbucks' revenue, earnings per share and other data are lower than market expectations. In particular, same-store sales fell 4% year-on-year, the first decline since 2020, compared to the previous consensus of a 1.46% increase. Some analysts pointed out that Starbucks reported results in the quarter may be the worst of all large companies so far.
According to the financial report data, Starbucks' net profit attributable to ordinary shareholders in the second quarter of fiscal year 2024 was US$772 million, down 14.96% year-on-year, and its operating income was US$8.563 billion, down 1.8% year-on-year. Same-store sales fell 4% in the fiscal second quarter, compared to analysts' expectations of a 1.46% increase, and U.S. same-store sales fell 3% in the fiscal second quarter, while analysts expected an increase of 2.31%.
Although the average spending amount increased by 2%, it did not fully offset the impact of the previous decline. In an effort to boost sales, Starbucks tried a series of new strategies, including afternoon sales and the launch of new products such as lavender lattes, but the results showed that these initiatives did not significantly improve performance.
Affected by the results news, on the day of the release of the quarterly report, Starbucks' stock price fell all the way, closing down 15.88% to $74.44, and its market value evaporated about 115 billion yuan in just one day.
2. What should I think of the change of ownership of coffee rivers and lakes?
Coffee, a beverage originating from the West, has been developed in the Chinese market for many years and is now gradually integrated into the daily life of consumers. However, with the continuous changes in the market, the coffee industry has also ushered in a new pattern change. Starbucks, as a leader in the global coffee chain brand, has suffered from declining revenue and evaporating market value in the Chinese market in recent years, while Luckin Coffee, as a rising star, has risen sharply against the market and shown strong development momentum. What trends do you reflect behind this change in the coffee market, and how do you see it?
First of all, the ups and downs of Starbucks and Luckin are actually expected. In fact, Starbucks' revenue decline and Luckin's surge are partly a reflection of market expectations. With the rapid growth of the number of Luckin stores and its continuous attempts at product innovation and service models, more and more consumers have begun to see Starbucks as a strong competitor. This expectation has affected investors' confidence in Starbucks to some extent, causing its stock price to fluctuate.
Secondly, Starbucks, which is at the high-end but trapped in the high-end. In the early years, Starbucks successfully built a high-end image when it entered the Chinese market through its unique coffee culture, comfortable environment and high-quality service. This positioning satisfied the Chinese consumers' pursuit of quality life and novelty at that time, so Starbucks quickly became successful in the Chinese market. Over time, Starbucks became more than just a place to drink coffee, but a cultural symbol and a place to socialize. Many people choose to party, work or rest at Starbucks, and "bring a Mac or iPad to pretend to type in Braille" and "take photos and send them to Moments" have become a habit for many people to go to Starbucks, which further deepens Starbucks' high-end image in the hearts of Chinese consumers, which is undoubtedly the biggest success of Starbucks in the early years.
With the rapid development of China's economy and the deepening of globalization, coffee culture, as a foreign way of life, has gradually taken root and flourished in Chinese society. Consumers are also increasingly aware of coffee, no longer seeing it as a simple drink, but are beginning to pursue the quality and taste of coffee.
Consumers' demand for coffee quality is gradually increasing. They began to pay attention to the details of the coffee beans, such as the origin, roasting process, and production process, and had higher expectations for the taste, aroma, and flavor of the coffee. At the same time, consumers are becoming more sensitive to the price of coffee. They are willing to pay a higher price for high-quality coffee, but at the same time expect to get the best value for their money. In addition, the volatility of the economic environment has intensified consumers' pursuit of a sense of value. In the case of an unstable economic environment, consumers' purchasing power is restricted to a certain extent, and they begin to pay more attention to the cost-effectiveness of consumption and pursue a value-for-money consumption experience. However, Starbucks did not adjust its strategy in time in the face of this change. On the one hand, its brand premium and high-end positioning limit its flexibility in price to a certain extent, and it is difficult to adapt to consumers' pursuit of cost performance. On the other hand, Starbucks has failed to keep up with the pace of the market in terms of product and service innovation, resulting in its gradual loss of advantage in the fierce market competition. As a result, Starbucks' market demand began to decline.
Third, the strong rise of China's local coffee brands. At present, consumers' demand for coffee has begun to develop in the direction of more daily and localization. Driven by this trend, a number of domestic coffee brands that are more in line with the consumption habits of Chinese people have begun to emerge and rise rapidly. Among them, brands such as Luckin, Cudi, and Manner have gradually become popular, on the one hand, these domestic coffee brands do not pursue the size of the store, but focus on the small and refined business model. Compared to traditional coffee shops, their storefronts tend to be smaller, more flexible, or even more straightforward. However, it is precisely this small size of the store that allows them to be closer to the consumer and provide more convenient services.
What's more, these local coffee brands also focus on interaction and communication with consumers. They establish a close connection with consumers through online and offline means, understand their needs and feedback, and continuously optimize their products and services. For example, Luckin Coffee provides consumers with convenient services such as ordering, payment, and points through online platforms such as WeChat mini programs, and also interacts and communicates with consumers through social media and other channels, enhancing consumers' sense of belonging and loyalty to the brand.
Fourth, the superposition of price war and product innovation has promoted market change. Recently, the price war has swept across the country, highlighting the increased sensitivity of consumers to coffee prices. With the popularization of coffee culture and the deepening of consumers' awareness of coffee, they have begun to pay more attention to the cost-effectiveness of coffee. In such a market environment, some coffee brands with low-price strategies have sprung up, and they have quickly attracted a large number of consumers by lowering prices and improving quality. In contrast, high-end coffee brands such as Starbucks have suffered a certain degree of damage to their market position due to their higher prices.
On the other hand, the continuous emergence of coffee innovation has also brought new vitality to the market. Innovative coffee products such as Chu Orange Latte, Little White Pear Latte, Geisha Series, Raw Coconut Series, and Toasted Coconut Series not only meet consumers' demand for diversified coffee tastes, but also promote the diversified development of the coffee market. These innovative products have attracted the attention and love of a large number of consumers through their unique taste and flavor. At the same time, some coffee brands have also launched more distinctive coffee products through co-branded cooperation, such as co-branded products such as sauce latte, which further enriched the market choice and further impacted Starbucks' original market structure.
Although China's local coffee companies are showing strong momentum, the coffee market will become more competitive in the long run. As domestic and foreign brands increase their investment in the Chinese market, how to accurately grasp consumer demand while maintaining innovation vitality will become the key to determining whether enterprises can continue to grow. For Starbucks, adjusting its market positioning, optimizing its cost structure, and truly playing its own cost-effective ratio will be an important path for it to revitalize. For local brands such as Luckin, maintaining product and service differentiation, enhancing brand loyalty, and avoiding homogeneous competition are the only ways to consolidate their market position. Therefore, it is still unknown who will kill the deer in the coffee rivers and lakes.