Starbucks China Faces An Identity Crisis As It Fails To Adapt To China's Cutthroat Market – CoffeeTalk

Starbucks is facing an identity crisis in China as it tries to revive its fortunes amid fierce domestic competition. The company’s “third place” store format is expensive to upkeep, and customers have become less willing to pay higher prices for its drinks since the Covid pandemic and ongoing economic downturn. Starbucks has been trying to adapt to its business by introducing the cafe experience to China in the 1990s and expanding its footprint in tandem to bring its total number of stores there to over 7,800

New initiatives have been launched rapidly since new CEO Molly Liu took over in late 2024. These include a cheaper line of tea-based drinks and sugar-free options, and tie-ups with the move Zootopia and Taiwanese rock band Mayday, all under the aegis of a new chief growth officer. Liu’s understanding of the Chinese market enables different ideas to be discussed and approved more easily. Starbucks’ new product innovation and marketing campaigns this year show it is digging deeper to explore the demand of Chinese consumers. They want new products, they want emotional connection with brands, and they need some comprehensive, immersive experiences.

There are signs of a turnaround, with sales returning to growth since late 2023 in China, with Starbucks CEO Brian Niccol attributing the success in an earnings call last month to “beverage innovation” and changes to “non-coffee pricing.” From the potential investors’ perspective, it isn’t necessary to have large stores if Starbucks aims to capture the needs of busy professionals who are unlikely to linger, though some shops should maintain in-store experiences. Cutting the number of staff in stores is also an option, as many local chains only have one employee as orders are mostly taken online.

Jessica Gleeson, a former Starbucks China executive who now runs her own retail consultancy in Shanghai, said the risk is that the new investor doesn’t understand Starbucks’ positioning in China and turns it into just another “transactional” coffee chain. The low-end of the market is already crowded, so Starbucks China will regain past glory only if consumers like Jelly Li can be persuaded to become regular customers again.

Starbucks is facing a identity crisis in China as it tries to salvage its legacy business amid fierce domestic competition. The company’s new product innovation and marketing campaigns show it is digging deeper to explore the demand of Chinese consumers, but the lack of a clear strategy persists. The Chinese management team is now experimenting with different ways to bring people in, such as making more stores pet-friendly, providing free-to-use study rooms, and targeting store openings in heritage or scenic sites. Regardless of the direction Starbucks China takes, it will regain past glory only if consumers like Jelly Li can be persuaded to become regular customers again.

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