"The 9.9 Gale" finally reached Star Dad.

More and more migrant workers are finding that Starbucks, which used to make them feel embarrassed about paying, is quietly lowering its prices.

Many long-time Starbucks fans told "Finance Without Borders" that they have received many coupons for "39.9 for two cups" and "49.9 for two cups" in their Starbucks card wallets. On many e-commerce platforms, Starbucks has also launched promotions such as "106 yuan, 103 yuan for 5 cups" and group discounts. "On average, less than 20 yuan per cup, there is definitely a gap compared to 9.9, but it has already decreased a lot compared to Starbucks' previous pricing," one consumer commented.

On social media platforms such as Xiaohongshu, there are also many posts teaching how to "get cheaper Starbucks". Not long ago, Starbucks' annual "Earth Day free coffee" event triggered a phenomenon of queuing and checking in at many stores.

In the Chinese coffee price war of 9.9 yuan, Starbucks' price reduction has become an established fact. However, not long ago, Howard Schultz, the founder of Starbucks, who visited China, once again stubbornly stated, "Starbucks is not interested in joining the price war." This "double-sided attitude" of words and actions is increasingly evident in Starbucks' layout in the Chinese market—whether it is expanding into counties, or attempting to localize products and marketing. For more than 20 years, Starbucks has been working hard, but it seems to have become the least understanding presence in China.

Why has Starbucks, with its "stubborn" attitude, secretly lowered its prices?

In the past year, led by Luckin Coffee and followed by others, the "9.9 yuan" low-price strategy has become the basic operation of the industry, turning the Chinese coffee industry into a competitive red ocean. However, unlike the candid attitude of its competitors, Starbucks has always appeared very "stubborn" about the matter of "lowering prices".

Not only the founder Howard Schultz, but also Wang Jingying, the CEO of Starbucks China, has repeatedly stated in public, "Starbucks is not interested in getting involved in a price war."

However, the financial report data quietly contradicts this. Starbucks China's Q1 financial report for the 2024 fiscal year shows that although overall revenue, same-store sales, and same-store transaction volume are all showing positive growth, the average customer spending in Chinese stores in that quarter has decreased by 9% compared to the same period last year. The volume has increased, but the price has declined. Despite emphasizing that the "decline in customer spending" is due to "targeted promotions and personalized incentives to encourage consumers to increase their purchase frequency," this also indicates that Starbucks has actually lowered its prices in China.

While claiming not to participate in the coffee industry's price war, Starbucks has quietly lowered its prices through various promotions and the layout of emerging channels. The reasons for Starbucks' self-lowering of prices are multiple, both being involuntarily involved and intentional.

First, the current consumer market is experiencing a low-price cycle, and for the relatively high-frequency essential beverage industry, low prices have become a necessary weapon. Over the past year, although the momentum of the coffee industry's "price war" has slowed down, such as the targeted adjustments to price strategies by giants like Luckin, low prices have clearly become the most direct means of attracting new customers for new players and the key action to increase the consumption frequency of existing customers.

Not long ago, KCOFFEE, a brand under Yum China Holdings, earned a wave of goodwill among consumers through a limited-time "all items at 9.9" promotion. According to observations by "Caijing Wuji," at least in terms of marketing and products, players such as Luckin and KFC have not stopped emphasizing "low-price strategies." However, the players' methods and actions in "lowering prices" have become more diverse and concealed, specifically manifested in the following two points:

• On the product side, there are increasingly more "combination price reductions." Coffee players are adept at promoting sales of products at different price points through "star products + other products" combination promotions.

• On the marketing side, "lowering prices" is packaged as a promotion of brand value through matching typical brand activities. Typical examples include MANNER's "coffee with a cup" activity and Starbucks' "Earth Day free coffee" event.

Next, the price war between online e-commerce platforms and local life giants has also brought a tailwind to Starbucks' "low prices".

In its last quarter financial report, Starbucks specifically mentioned the continued growth of its digital business (Starbucks Delivers and Starbucks Now). Starbucks has been on Douyin (TikTok) in China for many years, and currently, its official account has over 5 million followers. As early as 2021, according to media reports, Starbucks China's live streaming gross merchandise volume (GMV) exceeded 12 million, leading the coffee industry on Douyin.

Observations from "Caijing Wuji" found that in the Douyin live streaming room of "Starbucks China", taking advantage of the local life trend on Douyin, Starbucks China has reaped the benefits of group buying. According to the "Douyin Group Buying National Weekly Ranking", in the first three weeks of April this year, Starbucks China's rankings were 25th, 39th, and 77th respectively.

Starbucks also started cooperating with Meituan for food delivery very early, integrating member data, and the cooperation between the two sides is not limited to delivery, but also extends to Meituan's live streaming content. Last April, Meituan launched its first food delivery live stream, and in June, it promoted the first food and beverage festival on June 18th. During last year's Meituan 618 promotion, Starbucks introduced exclusive new products for Meituan delivery, and with the help of the 19.9 yuan Meituan coupon, it attracted a wave of new customers.

It can be said that in the competition of local life between Meituan and Douyin, under the official traffic tilt and large subsidies, the giants are fighting, and Starbucks, as a leading business, is reaping the benefits.

However, under the above external factors, Starbucks' choice to "lower its price" is also inseparable from internal factors.

Starbucks China once released its 2025 China strategic vision in 2022. In this plan, Starbucks set a radical goal of "reaching 9,000 total stores in China, doubling net income, and quadrupling operating profit." This also forces Starbucks to make more transformation attempts in the Chinese market.

Returning to the pricing strategy, low price is not actually a strategy; low-cost low price is the strategy. Objectively speaking, Starbucks' advantages and disadvantages in the "price war" in the Chinese coffee industry are quite obvious.

The advantage is that Starbucks has a complete supply chain, so it can better control costs. At the same time, as Starbucks accelerates its expansion in the lower-tier market, it can secure relatively lower rent relying on brand strength, reduce heavy asset costs, and spread the scale advantage to share costs and ensure profitability.

But the disadvantages are also evident. The aftermath of the low price is actually the erosion of Starbucks' high-end positioning. The high-end positioning is the differentiation of the Starbucks brand, but it is also the fundamental reason for its "duality" in the Chinese market today.

On one hand, adhering to high-end positioning, on the other hand, pleasing young people.

A coffee industry insider once mentioned to "Caijing Wuji" that the biggest side effect of the price war in the coffee industry over the past year is: "It makes consumers feel that a cup of coffee should only cost 9.9." He further explained that for mass-market coffee (referring to mid-to-low-end), such as Luckin, and even convenience store coffee, "trading price for volume" can be acceptable. But for high-end coffee like Starbucks, this shows a clear disconnect with its brand positioning.

This is also why, when facing Chinese consumers, especially the main coffee consumer group - the younger consumers who are more likely to accept coffee, Starbucks shows its duality: on one hand, it insists on a high-end Western petite bourgeois style, and on the other hand, it descends from its pedestal to actively please the young people in China.

Changeability is the most obvious characteristic of this generation of young Chinese people. They can afford luxury bags and also rush to buy toilet paper in Pinduoduo's live streaming rooms. They can pay for expensive healing services and also go on special forces tours. Returning to the coffee industry, in order to please this changeable group of young people, referring to the practices of coffee players like Luckin, actually provides Starbucks with the "answer":

First, in terms of products, on one hand, it must satisfy consumers' curiosity by continuously introducing new products at a high frequency, and on the other hand, it needs to stabilize its menu and create coffee drinks that are more suitable for Chinese consumers.

Second, in marketing, it must be "creative and capable," and the old tricks such as joint marketing and private domain operations have become the standard in the coffee industry due to the practices of Luckin and others.

Third, in terms of channels, it needs to consider "how to get closer to consumers" in specific locations and city layouts.

Starbucks is also doing this, but it is doing it in a very "awkward" way.

First, in terms of products, Starbucks has indeed made attempts to localize flavors and improve its speed of introducing new products.

In October last year, the "Intense" series developed by the Starbucks China team, which was called "completely new from the inside out," was seen as Starbucks intensifying its "milk coffee" signal, and the concept of sweeter "milk coffee" came from Starbucks' competitor - Luckin's coconut latte. Starbucks also tried to launch "tea coffee" and even launched a "braised pork flavor" latte for the Chinese New Year, but compared to Luckin and others, there is a gap in speed and reputation, and people's real favorites from Starbucks are still in the "toffee nut latte" series.

The reason for the decreasing number of popular products is the awkwardness of Starbucks' product flavors. On one hand, Starbucks is indeed trying to cater to the Chinese taste, but it wants too much in specific product development.

For example, in the "tea coffee" category, Starbucks launched the first phase of the Starbucks Special Star Delivery Space series in 2023, which was tea coffee. However, the selling point of the "Space Series" is "born for delivery," playing the experience card of "delivery to home = in-store consumption." On the other hand, from the perspective of product flavors, the launched osmanthus-flavored Tieguanyin latte and plum hawthorn black tea Americano, combined with "famous tea + fruity + milky" elements, did not achieve the desired results in practice.

Another typical example is the "wine coffee." In fact, Starbucks had launched "whiskey barrel-aged coffee" in 2020, but the "wine coffee" really exploded in the public sphere only after the joint launch of "Sauce Fragrance Latte" by Luckin and Moutai.

In addition to the dilemma in product thinking, although Starbucks is trying to please young people in its marketing, its marketing cannot impress young people. For example, in the field of cross-border joint marketing, which domestic coffee brands are already familiar with, Starbucks is also actively following suit. Last year, Starbucks China collaborated with "Journey to the West" and specifically launched new products such as "Flowing Frozen Latte" and a series of peripherals. This was also the first time Starbucks had a beverage collaboration with a Chinese local IP.

However, solely from the perspective of IP attributes, Starbucks' current actions appear to be relatively conservative in terms of innovation. Compared to domestic players' cross-industry and cross-category collaborations, to some extent, Starbucks' collaboration with "Journey to the West" is a safe choice, but it has not generated a significant breakthrough effect.

At the same time, in terms of channels, Starbucks is actively expanding its "third space" into county towns. During the last quarter's earnings call, Wang Jingying revealed that as of the last quarter, Starbucks had covered 857 out of over 3,000 county-level and above cities, with 27 new cities added, and over 70% of the new stores were in fifth-tier cities.

The county town is the next battleground for coffee giants. According to the data from "Narrow Door Catering," as of now, Starbucks accounts for about 5.5% of the number of stores in fourth- and fifth-tier cities and below, while Luckin Coffee accounts for about 16%. Starbucks lags far behind domestic players, and for Starbucks, which has a concentration of stores in first- and second-tier cities, attacking the county area is undoubtedly a protracted battle.

3. Why is it that the harder you work, the more unfortunate you become after 25 years in China?

Starting from the opening of stores in China in 1999, Starbucks' 25 years of "China practice" has proven the saying: the harder you work, the more unfortunate you become.

On one hand, there is the effort to localize by copying homework, but on the other hand, it seems that they are becoming less and less understanding of China.

Where is the core problem? Essentially, Starbucks overestimated the inherent model of "high unit price + strong space + Western style" in the growth of the coffee market in China. This model does not lack room for growth, but their expectations were too high.

Chain coffee brands represented by Starbucks have verified two simple rules in the process of traversing the consumption cycle in the past, which is also the consensus of the entire history of the coffee industry:

The first consensus is the homogenization of the base. As the industry develops into the middle and later stages, the degree of homogenized competition in the coffee industry will become higher and higher. Especially as coffee consumption habits mature, the competition of store categories becomes more concentrated on traditional single-origin coffees with higher coffee content. The gradual slowdown in store taste innovation is an inevitability.

And this will lead to one conclusion: the differences between the products of chain coffee brands will become smaller as time goes by, and no brand can monopolize a single product. Luckin's past "coffee and milk tea" has confirmed the above rule.

The second consensus is the stratification of coffee demand. In the long run, consumers' coffee demand will eventually be differentiated into the following three categories—

First is functional demand, with low requirements for taste, price sensitivity, and low brand loyalty, such as a $0.99 cup of Americano, consumers drinking Luckin, Luku Coffee, or convenience store coffee, essentially no difference; second is the upgrade demand, these consumers aspire to quality and taste, relatively insensitive to price, and pay more attention to the brand; third is the curiosity demand, where coffee serves as a social currency, with low requirements for taste, brand, etc., such as the special blends launched by various regional coffee shops.

This long-term "big consensus" has bred the global coffee giant Starbucks, but the Chinese coffee market also has its own "small consensus," which is the difference between universality and uniqueness, and this is exactly where Starbucks needs to catch up and learn.

The "small consensus" is reflected in two aspects:

First is the gene. Chinese coffee does not have a historical gene of taste, which means that the coffee giants are destined to take on the role of market educators. The emergence of Luckin undoubtedly raised the level of competition, but it cannot be simply assumed that the current Chinese coffee market is already "oversupplied," and there is still room for demand to be tapped.

Second is competition. Starbucks' biggest competitor, Luckin, to some extent rose in the mass market that Starbucks overlooked, combined with the development of China's mobile internet, and this part of the population brought Luckin a traffic dividend, laying the foundation for its subsequent scale effect. This is also the reason why Luckin entered the "era of ten thousand stores" earlier than Starbucks in a short period of time.

The combination of the big consensus and the small consensus, in the short term, under the aggressive goals of Starbucks, will continue to roll in the Chinese market. At this stage, more Chinese coffee brands are seeking more models, more methods, making more attempts, and Starbucks' practice has confirmed this point. In the future, this industry will still see new players and new imaginations.

Reference:

1. Guojin Securities: Insights into the Japanese coffee industry's supply side—competition and endgame of chain coffee.