Starbucks’ Chinese Myth

By orchioo Apr25,2023

Sometimes online surfing and offline experience are quite different. For example, I recently saw a hot search on Weibo: # Why are fewer and fewer people drinking Starbucks in China? # I thought to myself, as if this was the case. I haven’t really drunk Starbucks for a long time.
Then, I took a look at the nearby Starbucks and said, “Well, there are quite a few people, and there aren’t even a few empty seats.”.
“I can even create a hot term to describe this phenomenon as the ‘anti small red book effect’. Many of the most amazing restaurant attractions in the small red book can’t be reached in reality. The ‘anti small red book effect’ is something that needs to be completed online, but it’s actually OK offline.”.
1、 Starbucks’ fiscal year and natural year are really different
#Why are there fewer and fewer people drinking Starbucks in China? The biggest basis for this hot search term is Starbucks’ latest financial report for the first quarter of the 2023 fiscal year: In China, Starbucks’ same-store sales decreased by 29%, same-store transaction volume decreased by 28%, and the average customer unit price decreased by 1%.
After conversion, the unit price per customer has slightly decreased, basically unchanged, and the sales volume has decreased by nearly 30%. That is indeed a loss of about 30% of consumers, which sounds like a trend of collapse.
However, most of the media discussed here, including well-known media such as Sanlian Life Weekly, have confused the first quarter of fiscal year 2023 with the first quarter of natural year 2023. Therefore, looking at the data alone, it is easy to think that spring is in full bloom and everything is recovering. When everyone’s tourism consumption expenditure rebounds strongly, only Starbucks is left out of favor.
In fact, the first quarter of Starbucks’ 2023 fiscal year corresponds to the three months of October to December 2022.
Looking back from October to December of last year, we can probably recall the reality at that time: first, the flow of personnel was limited, then it was liberalized, and then there was a wave of infection. Both the online and offline economies were greatly impacted.
In fact, Starbucks also stated the specific situation in its financial report: During the peak period of infection, nearly 1800 Starbucks stores had to be closed in that month, while the total number of Starbucks stores in China was close to 6100.
If you look at the financial report data of last year alone, the performance of most catering companies is not very good, such as Haidilao’s annual revenue decline of 15.8% in 2022 (but finally made a profit); The annual revenue of Jiumaojiu, which owns Taier pickled Chinese cabbage fish and hot pot, fell 4.2%, and its net profit also fell sharply; Yum! Brands China, which owns KFC, saw a slight decline in revenue last year and halved its net profit.
Therefore, taking the financial report data of last year, especially the last quarter of last year, as an example, is of little reference significance. Of course, there are indeed a small number of catering enterprises, such as Ruixing, that have achieved growth during this period.
This situation has also appeared in some recent automotive reviews. Due to the inclusion of the Spring Festival holiday in January 2023, the vehicle delivery volume of major automotive companies will significantly decrease compared to the entire month, while last year’s Spring Festival holiday was in February. Therefore, at this time, the year-on-year data for January and February are of little reference value. The year-on-year decline in January delivery by a certain automotive factory cannot be an absolute evidence of its decline.
2、 Starbucks defines the coffee space, while Ruixing defines coffee products in China
At the beginning of 2019, Ruixing was sentenced to death with a reprieve by many people due to financial fraud, which would be a repeat of the mistakes of ofo. At that time, I wrote an article titled “Rui Xing Can’t Beat Starbucks, But Not necessarily the Next of O.”.
Core point: Although Ruixing is tied to Starbucks in marketing, its business positioning is completely different from that of Starbucks. It follows the path of affordable national coffee, and Starbucks’ core competitiveness remains “the third space.”. Starbucks won’t sell more than a dozen lattes, and Ruixing won’t open a few hundred square meters of coffee shop in Shanghai’s most expensive business district. The continuous growth and low price space of the Chinese coffee market, as well as Ruixing’s low starting point at that time, provided Ruixing with an opportunity to obtain sufficient market space and high growth rate.
Four years later, Ruixing did embark on a completely different path from Starbucks and successfully survived.
The reason why we are lucky is that although it is very different from Starbucks, the Chinese coffee market is currently defined by these two companies.
Starbucks defines the spatial attributes of coffee, while Ruixing defines the product attributes of Chinese coffee.
Once you understand this, you will understand Starbucks’ situation and misconceptions in China.
The growth in our demand for coffee space is far less than the growth in demand for coffee products. The expansion of the Chinese coffee market is due to the gradual acceptance of coffee products by consumers as daily beverages, rather than our preference for a lazy afternoon in a coffee shop.https://www.slw-ele.com/
As an addictive beverage, coffee has always been considered a golden race track. Once barriers are established, it is difficult for other competitors to cross the river and attack the city. The same logic applies to the two giants of carbonated sugary beverages, Coca Cola and Pepsi. In markets outside China, they can only be defeated by time, not by rivals.
The particularity of the Chinese market lies in the huge market capacity here, and the huge gap in everyone’s consumption ability: some people are keen on private estates with boutique coffee shops to produce small quantities of rose summer handmade tea; Someone met a client at Starbucks and ordered two lattes; Someone else passed by the Ruixing stall in the office building to buy an ice American and bring it to the work station; “And the cold extracted lyophilized powder in the drawer of the migrant worker, or the unlimited supply of Nestle instant in the company’s tea room…”
Among these scenes, only when facing Starbucks is it completely directed towards space, while others, more or less, are directed towards the coffee itself.
An obvious but easily overlooked reality is that most Chinese people do not like drinking pure coffee. Deeply roasted American bitterness, lightly roasted high-quality hand brewed acid, or a small cup of concentrated coffee on top of it, for most people, is tantamount to being “difficult to drink.”.
With a deep understanding of this, Ruixing is more about making coffee themed sugary beverages than coffee. Last year we wrote an article “Ruixing, please stop adding sugar!” to roast about the increasingly sweet Ruixing drink.
Generally speaking, coffee drinks such as coconut green cold extract and lattes do not require sugar, but most of the Ruixing fancy lattes have a high sugar content, and Ruixing is sugary and sweet to the point of sadness.
But this is also an obvious reality. Human genes determine that we prefer to drink sweet drinks rather than bitter and sour ones.
Ruixing defines the essence of Chinese coffee products as making sweet coffee drinks that Chinese consumers love to drink. Under this logic, it is the rapid iteration of product research and development, category expansion, and exploration of explosive products such as raw coconut lattes.
The vertical media for tea and coffee, “Carmen,” previously wrote “Sinking Cafe Survey: Fruit coffee is under suspicion, but coffee flavored milk tea is generally popular.” This article talks about the milk tea flavor of coffee drinks, which is the essence of “adding milk and sugar”.
Some people also say that the Star Baccarat Ice Cream and many seasonal restricted drinks are also too sweet. Why didn’t you enjoy the dividends of coffee and milk tea?
The answer may be in product research and development. Ruixing has been able to launch more than 100 new products every year in the past two years, and it can completely launch two new models every week. This speed is unmatched by Starbucks.
In addition to the speed and quantity of research and development, Starbucks also has common drawbacks for foreign companies in China: slow or even no response to market demand.
In April 2021, after Ruixing launched its Coconut Latte, it sold 70 million cups a year, not only supporting Ruixing’s growth, but also making Ruixing surpass Starbucks as the first customer of Dexin Foods, a supply chain company, because the raw coconut milk in the raw coconut latte is supplied by this company to Ruixing.
Starbucks has not launched such a popular raw coconut latte at both the B end and the C end until now, but the cherry blossom latte comes every spring as promised. I complain every year that it comes out every year.
In the field of fundamentalist coffee drinks, Starbucks itself is not good at it. Taking lattes as an example, Starbucks’ unique skill in becoming famous is “producing stable products.”. However, brands such as Manner and JPG, which focus on affordable and high-quality coffee, can provide a fairly good latte at a price of 20 yuan or even less, even if it comes in small quantities and is mostly taken out.
But I never finished a large Starbucks latte.
3、 Starbucks’ China Myth: The Impossible Triangle of Space, Products, and Scale
Strictly speaking, it is not rigorous to define Starbucks’ products as inferior.
On the contrary, I believe that Starbucks’ product capabilities are stronger than any coffee shop, and it can outshine Ruixingneng, which is famous for its research and development capabilities.
For example, the cold extract of barrel brewed whisky, which is supplied in limited quantities and at limited times every summer, is two or three grades ahead of other imitations in terms of smoothness and aroma; The average level of coffee containing cocktails produced by Bar Mixato, a Starbucks distillery opened in a few cities, is also very high; Nowadays, almost every coffee shop has a cold extract of sour lime, which is also a distance from the original version of Starbucks Shanghai Bakery Workshop; Commemorating the opening of the Starbucks Milan Bakery Workshop, the Milan Song is a stunning blend of piccolo coffee and mocha coffee
However, most of the time, in most Starbucks in most cities, we cannot drink these drinks because they hinder the production of raw materials, barista requirements, and price factors, and there are no regulations to model them.
So the green aprons, who earn a small salary each month, can only take concentrated coffee from under the semi-automatic coffee machine, mix it with water and ice, or whip up milk bubbles to make industrialized ice American or Furibai for customers who do not have high expectations for taste.
At Starbucks’ Zhenxuan store bar, people who chat with black apron baristas and brew coffee style into coffee beans are only a small part of Starbucks’ overall customer base.
Howard Schultz, the soul figure of Starbucks, did not fail to foresee the product problems of Starbucks. Therefore, after he resigned as CEO and only served as chairman, he focused on promoting the development of high-end stores at Starbucks.
However, this cannot solve the impossible triangle problem of space, product, and scale. Many ordinary Starbucks stores still have bright and clean windows and smooth WiFi, but their products are still mediocre and not cheap.
Just as the 210000 Citroen C6 has all its drawbacks, but the 120000 Citroen C6 is perfect. If a large quantity of Starbucks drinks can be priced at the same price as Ruixing, I believe no one will compare Starbucks’ products. However, since it has chosen to become the best space in the best location, we have spent a significant portion of the money on Starbucks coffee, becoming rental and decoration expenses.
When people discuss whether there are fewer and fewer people drinking Starbucks in China, what is actually reflected is that in this visible wave of coffee popularization, Starbucks has not benefited from it. It is Ruixing, Manner, Nova, and Lucky Coffee that are developing new coffee audiences.
Those who are still willing to spend more than 30 yuan on a cup of coffee also have more choices, including M Stand, See Saw, Peet’s Coffee, and various local coffee brands.
It’s not necessarily that fewer people are drinking Starbucks. It’s just that four out of ten people originally chose Starbucks, but now four out of twenty still choose Starbucks.
At least, when we have a need for space, the first thing we think of is Starbucks, which has so many stores and is so easy to find.
When we only have a demand for coffee, there are too many choices.

By orchioo

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