Starbucks On The Slide In China?

Key Points

  • China is the second most important market (19% of all stores) for Starbucks, only behind the US.
  • During Q4 2021, Starbucks’s China store sales are showing a decrease of 7%.
  • Increased direct competition could pose potential threats to Starbucks' market share in China.

Is Starbucks Losing its Stronghold in China?

During Q4, Starbucks (SBUX) saw a decline in its sales as it missed its own targets in China. Whilst they have been quick to blame COVID-19, they were also quick to revise their comparable sales to growing 18-20% in China, down from a previous range of 27-32%. In this article we attempt to look at some other drivers behind this trend.            

1. History

In 1999, Starbucks opened their first store in Beijing. Since then, they have opened 5,100 stores in 200 different cities within China. In the 1990's, foreign-owned companies were not allowed in the retail and F&B sectors in China, so Starbucks entered the market by collaborating with local enterprises.

Starbucks had 3 partners to start with:

  • Beijing Meida Coffee Limited had the rights in Northern China.
  • Taiwan Uni-President Enterprises (1216.TW) had the rights in Suzhou, Zhejiang, and Shanghai.
  • Hongkong Maxim’s Caterers Limited had the rights in Southern China.

Starbucks initially went profitless for its first nine years within China, before turning larger profits off the back of the rising middle class and the influx of multinational companies.

2. Competition

During the recent years, Starbucks has seen increasing competition from both domestic and international chains. Starbucks' commanding market share previously came from being affordably priced while maintaining its quality and its large brand recognition. However, the competitive landscape in the coffee industry is rapidly changing as more chains that focus on either being cost-effective (Manner) or quality oriented (Lavazza) are appearing.

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Disclaimer: Our content is intended to be used solely for informational and educational purposes, and not as investment advice. Always do your research and consider your personal circumstances ...

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