From fancy price cuts to frequent joint ventures, Starbucks can hardly remain immune in China

Why is it that Starbucks has taken many measures in China but still cannot remain immune? This article analyzes the situation Starbucks faces in China to further understand the situation of the coffee industry.

On June 20, Starbucks China announced that the Starbucks Rewards membership system has undergone a major upgrade. More than 100 million Starbucks Rewards members have now started to enjoy a "Star Lifestyle".

The upgrade includes: "breaking the circle" for the first time to join hands with Hilton Group to jointly innovate the membership experience and launch a series of special gifts; adding Diamond Star membership level for the first time; in addition, the Star Rewards Club will also add new star redemption mechanisms and gameplay.

It seems like an upgrade of the membership system, but if we combine this move with the current situation of price war in the coffee market and some of Starbucks’ recent “price reduction” actions, iBrandi believes that, to some extent, this is still one of Starbucks’s fancy moves to join the price war.

Obviously, in the current coffee market where price is king and marketing is dominant, it is difficult for Starbucks to continue to lie flat if it wants to find a sense of presence in the market. After all, no one wants to attract attention in the way Manner did.

1. From fancy price cuts to frequent joint ventures, Starbucks cannot remain immune in China

Let’s start with Starbucks’ membership system upgrade.

“This is the most groundbreaking upgrade of the Starbucks Rewards Club since its establishment,” said Liu Wenjuan, Starbucks Executive Vice President and Co-CEO of Starbucks China. “Today’s ‘breaking the circle’ is just the beginning. In the future, we will continue to break through the Starbucks ecosystem and work with more like-minded brands to create gifts and services that everyone truly loves.”

Starbucks wants to "break the circle", or in other words, Starbucks really needs to let more consumers choose it.

After Starbucks and Hilton "joined forces", members of both parties can join each other's membership system through their respective apps and other channels and enjoy a number of special benefits.

Starbucks members who register as new members of Hilton Honors through the joint membership event will receive 500 Hilton Honors bonus points; Hilton Honors members who register as Starbucks members through the joint membership event can not only start accumulating stars immediately, but also receive a 1-star reward; customers who become joint members of both parties and sign up for the Starbucks double star-earning event through Hilton's official channels will enjoy double star-earning rewards during stays at designated Hilton hotels, designated Starbucks stores and online purchases, etc.

In addition to the "breaking circle" cooperation with Hilton, Starbucks has also adjusted the mechanism and gameplay of star redemption. For example, the Star Rewards Club has added a new diamond star membership level for the first time. Gold or Jade Star members who accumulate more than 100 growth points each year will be upgraded to diamond star members and enjoy the exclusive gifts and superior services created by Starbucks. For example, when using stars, in addition to the customized requirements of "9 stars for a designated medium cup of drink" and "1 star for a larger cup, an extra concentrate, and a pump of syrup", 3-star and 5-star options have been added, which can be used to redeem different levels of drink discounts or "special star delivery" free shipping, etc.

In summary, Starbucks is enriching the gameplay and content of "Stars", while also reducing the cost of accumulating stars, or increasing the speed of accumulating stars, and lowering the threshold for becoming a Starbucks member and enjoying discounts. Obviously, this "breaking the circle" upgrade is very attractive to both new and old users, which is why, in the view of iBrandi, this upgrade of the Star Rewards Card can be regarded as one of Starbucks' ways of "fancy price reduction".

In fact, this is not the first time Starbucks has cut prices in a "fancy" way.

Earlier, topics such as #Starbucks is getting anxious# and #9.9 trend finally reaches Starbucks# were also on the hot search list on Weibo.

At that time, netizens posted their purchase orders on social platforms, saying that they paid 17-19.9 yuan for two cups of Starbucks. In other words, one cup cost less than 9.9 yuan. Although after "investigation and experiment", it was found that the "9.9 yuan Starbucks" may be an extreme discount achieved by consumers using various subsidies on the platform, similar to the discounts on major platforms during Double Eleven.

However, although it has not yet reached the extreme of 9.9 yuan per cup, Starbucks has indeed reduced prices in some ways.

For example, Starbucks began to frequently issue "gift coupons" on the App, such as "10 yuan off for orders over 60 yuan, 15 yuan off for orders over 75 yuan", "55.9 yuan for three cups", "45.9 yuan for two cups" for multi-cup combinations, and "25% off for one cup", "30% off for any frappuccino", etc. In addition, Starbucks' Douyin live broadcast room has also launched coupons for three cups at 69.7 yuan, two cups at 34.9 yuan, and designated drinks at 14.9 yuan. In other words, on Starbucks' official channels, you can also buy products for 15-25 yuan a cup using coupons.

In April this year, Starbucks officially launched a "student card" promotion, which allows full-time undergraduates, postgraduates and doctoral students to enjoy the promotion by binding their student information on the China Higher Education Student Information and Career Center. The promotion includes a coupon for a medium-sized American coffee for a monthly purchase of 30 yuan, a coupon for each month starting from the next month, and a 19.9 yuan Frappuccino coupon for the first card opening.

The purpose of Starbucks's action is also very clear. It hopes to attract or "break the circle" to consumers who do not belong to it - college students. After all, for college students, drinking coffee is not necessarily their rigid need, and even if they want to drink it, more cost-effective coffee brands, including Luckin Coffee, are the first choice for most college students.

In addition to the "fancy" price cuts, another sign that Starbucks is having trouble remaining immune to the Chinese coffee market is that the frequency of its joint ventures in the Chinese market has increased, as has its level of dedication.

On January 16, 2024, Starbucks, an American coffee brand, officially announced its first joint collaboration with an IP related to Chinese local culture - Journey to the West.

It is worth mentioning that Starbucks has obviously planned this long ago, as 2024 is the 60th anniversary of the release of Havoc in Heaven. In terms of the specific content of the joint venture, Starbucks has also carried out a full-scale image combination with the Monkey King Sun Wukong from the aspects of beverage R&D creativity, beverage production, takeaway delivery, and product peripherals.

Not only did they launch limited edition Monkey King straws, they also arranged riders dressed as the Monkey King to carry out delivery in Shanghai, Chengdu, Hangzhou and other places, making the magic visible all the way, evoking customers' good memories and redefining the delivery experience.

The collaboration with Journey to the West seemed to have fired the first shot of Starbucks' joint ventures in the Chinese market. In the following days, Starbucks continued to have joint ventures in the country.

In April, Starbucks officially launched new co-branded products with Disney, including Water Lily Flavored Latte, Wasabi Pistachio Latte, and Haruno-flavored Latte, which respectively correspond to the three characters Alice, the Mad Hatter, and the Cat in the classic fairy tale "Alice in Wonderland".

On May 7, Starbucks China announced the launch of new draft coffee drinks - Pineapple Lemon Draft Coffee and Light Gold Draft Coffee. At the same time, it cooperated with Tencent QQ's classic emoticon package "QQ Yellow Face" to equip designated large cups of drinks with QQ Yellow Face ice cups.

It is worth mentioning that in this collaboration, Starbucks also has some "fancy" price cuts. With this collaboration, QQ users who become Starbucks members can receive Starbucks designated beverage coupons on the QQ platform to experience this new raw coffee, and QQ members can enjoy exclusive preferential prices.

And just one week later, Starbucks launched a plus version in collaboration with QQ's classic emoji package.

On May 16, in addition to the newly designed QQ yellow face ice cup design, a series of peripherals including the cups were also launched.

Although the frequency is not as high as Luckin Coffee and Coodi, it is a breakthrough for Starbucks. After all, for a long time before, Starbucks was not a fan of joint brands, and even if it was a joint brand, it would generally only be a low-key joint brand on the cups it sells or other small peripherals.

In particular, from the Monkey King 2 to the QQ emoticons that have grown up with today’s young white-collar workers, whether it is the choice of co-branded partners or the creation of peripheral supporting products, although the performance is not satisfactory, compared with the past, it can be said that Starbucks has been "full of sincerity."

2. Starbucks is anxious and conflicted, still wavering between compromise and adaptation

From fancy price cuts to frequent collaborations, it is obvious that Starbucks is really anxious.

In fiscal year 2023 (ending September 2023), Starbucks' revenue was US$36 billion, a year-on-year increase of 12%, a record high, and its net profit attributable to shareholders was US$4.125 billion, a year-on-year increase of 25.69%; fourth-quarter revenue was US$9.374 billion, a year-on-year increase of 11.4%, also a record high.

But after entering 2024, Starbucks' financial report has become slightly sluggish.

In the first quarter of fiscal year 2024, Starbucks' revenue was US$9.425 billion, an increase of about 8.2% year-on-year, and its net profit was US$1.024 billion, an increase of nearly 20% year-on-year, both slightly lower than market expectations; in the second quarter of fiscal year 2024, Starbucks' revenue was US$8.56 billion, a decrease of 2% year-on-year; its net profit was US$770 million, a decrease of 15% year-on-year. In contrast, Starbucks has been lowering its growth expectations.

Although Starbucks said in its financial report that the decline in both revenue and net profit was due to the North American market, in fact, as Starbucks' most critical market, the Chinese market is not optimistic. Chinese coffee consumers are not as easy to "control" as before.

In contrast to the main theme of the Chinese coffee market, even though Starbucks has always said that it will never participate in price wars, its financial report data has already reflected some problems: shy Starbucks has been quietly "lowering prices."

Starbucks China's Q1 financial report for fiscal year 2024 shows that although overall revenue, same-store sales, and same-store transaction volume all showed positive growth, the average customer unit price of Chinese stores in that quarter fell by 9% year-on-year. The volume has increased, but the price is falling. At that time, in response to the "decline in customer unit price", Starbucks China repeatedly emphasized that it was "trying targeted promotions and personalized discounts to encourage consumers to increase the frequency of purchases", but this also shows that Starbucks has actually lowered its own price in China.

In particular, in the next month after Starbucks released its Q1 financial report, Starbucks China received another piece of news that made it feel even more crisis-ridden.

On February 23, 2024, Luckin Coffee announced its fourth quarter and full-year financial report for 2023. In 2023, Luckin Coffee's annual revenue was RMB 24.9 billion, a year-on-year increase of 87.3%. Compared with Starbucks China's total revenue of US$3 billion in fiscal year 2023 (October 2022-September 2023), Luckin Coffee's revenue scale has exceeded Starbucks China in terms of total revenue in fiscal years.

By Q2 of fiscal year 2024, the number of Starbucks stores in China increased from 6,243 in the same period last year to 7,093, but revenue fell from US$763 million to US$705 million, a year-on-year decrease of approximately 8%.

Obviously, Starbucks' unsatisfactory revenue in the Chinese market is largely due to the 9.9 price war. Faced with the changes and extreme involution of the Chinese coffee market, even the big brother of the global coffee market needs to adapt and compromise.

As for why Starbucks China is unwilling to directly and openly join the price war, it is obvious that it is still wavering between price and tone. This problem is not difficult to find, but it is difficult to solve completely.

Starbucks opened up the Chinese coffee market with the concept of the "third space" and successfully created a high-end and comfortable brand image. Consumers can drink high-quality coffee in Starbucks stores, as well as enjoy a comfortable environment and attentive service. For a long time before, this unique consumer experience also made Starbucks stand out in the fiercely competitive coffee market.

In fact, Starbucks China has always insisted on using brand and culture to create its own "third space".

For example, on June 6, the 2024 Cultural and Natural Heritage Day, in order to show respect for China's intangible cultural heritage, Starbucks' third intangible cultural heritage concept store in China and the first in Jiangsu officially opened in Suzhou Yanlord Warehouse Street.

For Starbucks, temporarily lowering prices may attract more consumers, but it will damage its high-end brand image that it has carefully built over a long period of time.

Another problem brought about by price vs. tonality is low price vs. high operating costs.

Even with some coffee shops, as mentioned above, Starbucks's focus in the Chinese market is still the "third space", and its store layout is still mainly concentrated in relatively high-end shopping malls, office buildings and communities, where the rent and operating costs are relatively high. Different from Luckin Coffee and Kudi, which are the kings of cost-effectiveness, Starbucks has invested more in store location, decoration design, equipment procurement, store services, and operations.

After the price reduction, Starbucks' profit margin will be compressed, which may directly affect its subsequent profitability and sustainable development, especially since it is easy to reduce prices but difficult to raise prices.

3. Conclusion

Let’s get back to the upgrade of Starbucks China’s membership system.

According to the latest data, as of March 31, 2024, the number of active members of the Star Club exceeded 21 million in 90 days, reaching a historical high. The total number of registered members continued to grow, exceeding 127 million. In the second quarter of fiscal year 2024, sales from members continued to grow, accounting for as much as 75%, also setting a record high.

Obviously, in addition to attracting new users, Starbucks is also trying to increase the repurchase rate and retention rate of its high-net-worth users. After all, these people are the cornerstone of Starbucks in the Chinese market today. Compared with the "new users" of Kudi and Luckin, Starbucks still bets on high-net-worth users who match its own brand tone. The high-profile official announcement of cooperation with Hilton is also one of its operations to maintain its brand tone.

But at the same time, whether it is quietly launching campus cards, trying personalized promotions, attacking the sinking market, increasing the frequency of co-branding, speeding up the frequency of new product launches (Starbucks China launched a total of 27 new products in Q2, which is twice the number of the previous quarter and three times the same period last year), etc., these are also Starbucks' compromise and adaptation in the Chinese coffee market.

Starbucks will certainly not join the 9.9/cup price war, but it will be difficult for Starbucks China to remain immune.

Author: Sober

Source: WeChat official account: "iBrandi Pinchuang (ID: ibrandi)"