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    In China, Starbucks Feels the Heat From Homegrown Coffee Chains

    Amid a dip in sales driven by competition from affordable local brands, Starbucks is under fire for high prices and lower service quality. In response, the company is upping efforts to enhance customer experiences and tailor its product offerings.

    Minutes after Jian Tong settled on a couch at a Starbucks and opened her laptop, a member of staff informed her that seating was for customers only.

    Embarrassed and only needing a quick corner to address a sudden work emergency without intending to stay long, Jian left the store in eastern China’s Zhejiang province immediately. “It was very upsetting, unlike any service I’ve encountered at other coffee outlets,” she told Sixth Tone.

    This sentiment is echoed widely on Chinese social media platforms, where many patrons have expressed similar frustrations about being pressured to purchase or vacate Starbucks outlets across the country. The growing discontent was underscored when a video of a customer being asked to leave a Starbucks for not ordering went viral on microblogging platform Weibo, amassing about 60 million views, and sparking widespread debate.

    Responding to the uproar, a spokesperson for Starbucks China told Sixth Tone that the company does not have a policy that denies seating to non-purchasing visitors. “We welcome everyone to our stores and are committed to providing high-quality beverages and services,” the spokesperson said.

    However, customer service concerns are just one of several issues troubling Starbucks, long hailed in China as a beacon of Western-style coffee culture.

    Recent data tells a troubling story for the U.S. coffee giant: In the first quarter of 2024, Starbucks’ sales in China plummeted by 11%, with the average order price also dropping by 8%. It also contributed to the company’s first decline in quarterly sales within the past three years, with “same-store sales in the Chinese market expected to decline in the single digits.”

    Despite its extensive network of over 7,000 stores generating billions of yuan in annual sales since its 1999 debut, Starbucks is struggling with fierce competition from local brands such as Luckin Coffee, which offers more affordable alternatives.

    In 2020, Starbucks held a 16.2% market share among café and bar brands in China, falling to 13.6% by 2022. In contrast, Luckin Coffee’s market share rose from 3.3% in 2020 to 9.1% in 2022, eventually overtaking Starbucks in 2023 to lead China’s coffee sales. That year, the on-premise coffee market in China ballooned to 162.4 billion yuan ($22.4 billion), more than doubling in size from three years prior.

    Luckin’s rise has been attributed to its aggressive expansion strategy. Unlike Starbucks’ larger, more traditional cafés, Luckin has focused on opening over 18,500 smaller, strategically located outlets primarily in office buildings, catering to on-the-go professionals. The company has also fueled its visibility among younger consumers with viral marketing campaigns and high-profile collaborations with other major brands, such as baijiu giant Kweichow Moutai.

    “I drink coffee every day, but affording Starbucks daily is challenging,” says Li Yunyi from the southern tech hub of Shenzhen. For her, Starbucks is reserved for group activities at work or during business trips, often due to its availability in transport hubs like railway stations and airports.

    Luckin Coffee’s rapid ascent has ignited a fierce price war among domestic coffee chains like Cotti and Nowwa. Eager for a larger market share, many of these competitors are prioritizing immediate revenue over sustainability, offering popular coffee options for as low as 9.9 yuan.

    Meanwhile, Starbucks charges 27 yuan for a tall Americano and up to 43 yuan for specialty cold brews. “The price war has shown us that coffee is a daily necessity that should be affordable. However, the high prices at Starbucks no longer match the quality they offer,” says Li.

    During a January earnings call, Starbucks CFO Rachel Ruggeri underscored a slower-than-expected recovery in China’s coffee market, attributing it to heightened consumer caution. The company also pointed out that the decline in sales was primarily due to a reduction in occasional purchases.

    According to Yang Keke, a coffee brand consultant, the growth of China’s coffee market is primarily fueled by consumers seeking refreshment amid increasing work pressures. But in this competitive area, Starbucks struggles with price, quality, and availability.

    “While Starbucks once thrived on creating a sense of community and atmosphere, cost-cutting and a shift toward profit-oriented strategies since 2018 have diminished these experiences, eroding the brand’s recognition among consumers,” asserts Yang.

    Despite challenges in the market, Starbucks remains committed to deepening its presence in China. In a May earnings call, Starbucks CEO Laxman Narasimhan outlined the company’s strategy to introduce more localized products, increase technical investments, and expand into smaller cities and counties.

    And during a visit to China in March, founder Howard Schultz emphasized that Starbucks will not engage in the ongoing price wars but will instead focus on fostering community connections through quality coffee.

    In recent months, Starbucks has upped promotional efforts, offering coffee for as low as 14 yuan on major e-commerce platforms. The move even triggered a response on social media, when a hashtag, “Starbucks triggered by 9.9-yuan coffee,” trended on Weibo.

    Yang cautions that competing on low prices could further damage Starbucks’ business outlook. Instead, he suggests that the brand should concentrate on enhancing its service. “It will take years for Starbucks to regain its former reputation,” he says.

    He advocates for a strategy focused on justifying its premium pricing through improved in-store experiences. “The right path is to prove that the high price is worth the consumption,” he adds, emphasizing that along with product improvements, a better in-store experience could be achieved without a substantial increase in costs.

    Chen Chen, a work-from-home designer from the eastern Jiangsu province, recalls fond memories of his college days spent at a nearby Starbucks, where sunlit seating and friendly interactions with baristas made it a cherished spot for group study. However, his recent visits have been disappointing due to a decline in the store’s upkeep and atmosphere.

    Despite this, Chen defends the policy of asking non-purchasing visitors to leave, arguing it helps maintain a better environment for paying customers. He says: “It’s time to bring back a more likable Starbucks.”

    Additional reporting: Huang Yang; editor: Apurva. 

    (Header image: VCG)