Starbucks Facing More Challenges In China Than Just Luckin Coffee – CoffeeTalk

Starbucks is considering strategic options, including a possible stake sale, as the country accounts for less than 10% of its revenue. In the September quarter, same-store sales tumbled 14% from a year earlier, worse than the 6% decline in the US. The company’s home-grown brand Luckin Coffee Inc. has staged an amazing comeback after being delisted from the Nasdaq for accounting fraud in 2020. However, Starbucks is only the tip of the iceberg, as the Chinese brand is drawn into a relentless price war with arch-rival Cotti Coffee.

Cotti Coffee, set up by Luckin’s disgraced founders who were exiled after being embroiled in the accounting scandal, is expanding rapidly, luring young coffee lovers with cheap brew. It already has 10,000 stores, more than Starbucks’ 7,600. However, Luckin’s financials are suffering, and same-store sales have been declining this year. Meanwhile, Cotti’s management shows no sign of slowing down, planning to operate 50,000 stores by 2025.

Penetrating China is key for a big market still new to drinking coffee, and Starbucks’ franchise model allows them to grow so quickly. Starbucks has been venturing into smaller cities, where retail sales are more resilient and the penetration rate is lower. However, the verdict is still out on whether this strategy will pan out, as Starbucks’ novelty can wear off quickly in small towns.

Starbucks’ most lucrative offerings, Frappuccino and cold, sugary refreshers, are hitting the wall in China, as milk-tea chains like Chabaidao and Chagee offer exotic fruit and herbal tea blends with whipped cream on top. Allowing in a local, more entrepreneurial partner is essential for Starbucks’ survival in the world’s second-largest economy.

Read More @ Macau Daily Times