The Wall Street Journal this morning reports that Starbucks is struggling in China “as local upstart Luckin Coffee wins over a new kind of Chinese customer - one who wants their caffeine jolt delivered in minutes. The company’s sudden rise has put Starbucks, Luckin and McDonald’s Corp. in a race to build the delivery system best tuned to the frenetic Chinese market.”
The story points out that “the battle to bring on-demand coffee to China shows how important delivery has become for Western companies doing business in the country, as well as how quickly competitors can emerge in the world’s second-biggest economy. Consumers in the densely packed cities of the world’s most populous nation have grown accustomed to ordering meals and consumer goods for rapid delivery. In some cities, so many orders arrive simultaneously that office and apartment buildings have installed robots to receive deliveries and avoid crowding elevators.”
As Starbucks expanded in China, it was with stores designed to appeal to affluent and aspirational Chinese consumers, with delivery an afterthought. Luckin, on the other hand, focused on delivery from the outset, and sometimes put its stores just feet away from Starbucks location … it was in-your-face marketing that did not shrink from the challenge of facing off against the coffee behemoth.
The result: “Starbucks surprised investors last year when same-store sales in China fell 2% in its fiscal third quarter ended in July, partly because of tough competition for deliveries. Sales improved in the past two quarters, but growth is considerably slower than before Luckin began expanding.”
The Journal goes on to report that “Starbucks plans to open nearly 600 stores in China this year on top of the 3,700 it operates there now. Luckin plans to open about 2,500 stores in China this year, which would bring its total to 4,500. Both companies hope delivery will entice consumers to crave coffee more often and make more profitable purchases at physical stores.”
The story points out that “the battle to bring on-demand coffee to China shows how important delivery has become for Western companies doing business in the country, as well as how quickly competitors can emerge in the world’s second-biggest economy. Consumers in the densely packed cities of the world’s most populous nation have grown accustomed to ordering meals and consumer goods for rapid delivery. In some cities, so many orders arrive simultaneously that office and apartment buildings have installed robots to receive deliveries and avoid crowding elevators.”
As Starbucks expanded in China, it was with stores designed to appeal to affluent and aspirational Chinese consumers, with delivery an afterthought. Luckin, on the other hand, focused on delivery from the outset, and sometimes put its stores just feet away from Starbucks location … it was in-your-face marketing that did not shrink from the challenge of facing off against the coffee behemoth.
The result: “Starbucks surprised investors last year when same-store sales in China fell 2% in its fiscal third quarter ended in July, partly because of tough competition for deliveries. Sales improved in the past two quarters, but growth is considerably slower than before Luckin began expanding.”
The Journal goes on to report that “Starbucks plans to open nearly 600 stores in China this year on top of the 3,700 it operates there now. Luckin plans to open about 2,500 stores in China this year, which would bring its total to 4,500. Both companies hope delivery will entice consumers to crave coffee more often and make more profitable purchases at physical stores.”
- KC's View:
