Starbucks Corporation (NASDAQ: SBUX) facing increased competition in China, has been compelled to resort to discounting practices it previously aimed to avoid.
Despite efforts to focus on sustainable growth without engaging in price wars, the Seattle-based company found itself issuing more discount coupons across various platforms to sustain its presence in the market.
With sales weakening in its two largest markets, the United States and China, Starbucks is under pressure from investors.
Following Luckin Coffee’s (OTC: LKNCY) surpassing Starbucks in annual sales in 2023, seizing leadership in the country’s coffee market, the company’s market share in China has been challenged.
While initially reluctant to engage in price wars, the use of discount coupons by Starbucks became more widespread in 2024.
The company offers discounts of up to 30% on its most frequently ordered coffees and buy-one-get-one-free coupons easily accessible through mini-programs, live streams on Douyin, and third-party delivery platforms.
The increase in promotional activities coincides with Starbucks reporting an 11% decline in same-store sales in China during the second quarter and a revision in its annual sales forecast.
Having held a 13.6% market share in 2022 and facing a deflationary environment and weak consumer sensitivity, Starbucks has been compelled to compete somewhat on price.
Starbucks China CEO Belinda Wong and founder Howard Schultz have emphasized the company’s commitment to quality and profitable growth rather than focusing on price competition.
However, market realities have led to a change in strategy with Starbucks becoming more active in promotions and social media to maintain its market share.
The company’s artificial intelligence data analytics engine, “Deep Brew,” aims to target discounts to specific customers at the right time, although Starbucks declined to comment on the current use of promotional strategies.
Competitors of Starbucks, including Luckin Coffee, are aggressive in discounting. While Luckin offers lattes at significantly discounted prices with coupons, other chains like Cotti and KFC’s KCoffee offer even lower-priced options.
Luckin’s rapid store expansion and discounting strategy have contributed to surpassing Starbucks’ sales in China in 2023. While Starbucks may be more selective in its promotional offers, the company is aware of the need to adapt to market conditions.
Analysts suggest that Starbucks must continue to differentiate itself by offering a premium in-store experience, leading in innovation, and emotional value to remain competitive in the Chinese market.
The strategic response of the coffee chain to the changing competitive landscape demonstrates its efforts to balance responding to market pressures in China’s coffee sector while maintaining its premium brand positioning.
Source: investing.com
