Baiguan · China
TIER 4 Tue, 20 May 2025 10:02:45 +0000
No, it isn't simply because it costs more than Luckin ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ | | ---|---|--- | | | Forwarded this email? Subscribe here for more --- --- Become a paid subscriber to gain access to our exclusive Discord group reserved for paid subscribers only. * * * # Why Starbucks is failing big in China ### No, it isn't simply because it costs more than Luckin | | Amber Zhang --- | May 20| | | ∙| | Preview ---|---|--- | --- --- | | | --- | | --- | | --- | | --- | | READ IN APP --- _***Disclaimer:** This post is not sponsored by any of the companies mentioned, and I do not currently hold stock in any of them._ Starbucks recently announced that it is exploring strategic options for its China business, including a possible stake sale. In one of my inaugural Baiguan posts, "_Who's Luckin's real Rivalry "_ published in March 2023, I noted that Starbucks was already lagging behind the domestic giant in both store expansion and product innovation. Two years on, a fresh wave of coffee and tea chains--Cotti Coffee and Mixue's budget brand LuckyCup (幸运咖) among them--has swept across the country, and Starbucks now seems to be losing on all fronts. | | ---|---|--- Based on a panel of offline stores we track at BigOne Lab (Baiguan's parent company), Starbucks' offline sales have been declining year-on-year since 2024, while its competitor Luckin has consistently recorded double-digit growth. The number of orders per month per customer at Starbucks has also declined from ~2.5 to only ~1.6 in recent months. Upgrade to paid | | ---|---|--- So how did this happen, and why is Starbucks failing in China? And is there a chance for it to get back in the game? In China, people drink coffee for two main reasons. The first is purely functional: an energy boost. For white-collar workers who rely on a daily caffeine jolt, taste and brand loyalty matter least. And these consumers--concentrated in big cities--make up only a small slice of the country's population. Take Beijing, one of China's highest-paying cities, as an example. In 2023 the average monthly salary was about ¥15,701 (≈US $2,178) [*]. A Luckin Americano costs roughly ¥13, versus about ¥30 at Starbucks. An office worker can comfortably buy a Luckin Americano every workday if desired. For them, an affordable cup from a shop near the office is "good enough"--and every domestic chain can meet that need. Therefore, many attribute Starbucks' decline to the lower prices of domestic competitors such as Luckin and Cotti Coffee. **Price, however, is not the only factor --and it is probably not even the most important one.** A decade ago, when Starbucks entered China, it carried the aura of a high-end Western lifestyle. Simply drinking coffee felt stylish back then, and Starbucks stores doubled as social venues: business meetings were held there, and taking a date to Starbucks was considered fancy. But Starbucks was never the sort of place people visited daily for a quick caffeine fix, the way they pop into Luckin today. That aura has faded as coffee has become commonplace and lost its cachet as a fashion statement. Consumers have returned to what really matters to them: flavour. As I noted in "_Who's Luckin's real Rivalry "_ last year, **China is a tea-drinking culture.** Once the social-status element disappears, taste becomes critical--and it is no surprise that almost every coffee chain in China nowadays sells milk tea, while milk-tea chains sell coffee. For instance, Luckin already offers six milk-tea flavours and two lemonades. I had an interesting field observation over the Labour Day holiday: I visited my grandmother in Leshan, a city of just over three million people in Sichuan province (yes, that counts as "small" by Chinese standards). In a downtown mall, a Starbucks and a Luckin sat side by side. Starbucks was empty; its barista had nothing to do. Luckin, meanwhile, was swamped, and I waited ten minutes for my drink (it was ~11am). While I was waiting, I quickly scanned through the orders on its counter and found that almost no one ordered a plain Americano except me--most orders were some kind of flavoured coffee beverage, and about one-third ordered milk tea. To survive in China, Starbucks must look beyond Luckin and other coffee specialists; it is competing with the entire universe of beverage chains. For many Chinese consumers, coffee is simply one more grab-and-go drink. ### Starbucks' real problem Starbucks' real problem is not price. As a matter of fact, there are plenty of boutique coffee shops that charge more than Starbucks in first-tier cities such as Shanghai, and even in smaller places like Anji. **The core issue is that Starbucks ' menu lacks "烟火气".** The Chinese term **" 烟火气"** can be hard to render precisely in English, yet it captures what many Chinese diners ultimately seek--whether in a drink or a meal--so I'll do my best to convey its spirit. Upgrade to paid ## Continue reading this post for free in the Substack app Claim my free post Or upgrade your subscription. **Upgrade to paid** --- | | | Like --- | | Comment --- | | Restack --- (C) 2025 Baiguan Room 707B, Building A, Tianhengdasha, Dongzhimenwai Street, Dongcheng District, Beijing, China Unsubscribe