Starbucks loses its perk in China as spending downgrade drives drinkers to cheaper brews

Starbucks has been under pressure in mainland China for years from less expensive rivals like Luckin Coffee and Cotti Coffee, but the US chain’s latest results in the market make that challenge look more like an existential threat.

The Seattle-based coffee purveyor said revenue from its 7,306 mainland stores tumbled 11 per cent year on year to US$733.8 million in the quarter ended June 30. Same-store sales slid 14 per cent in the same period amid a 7 per cent drop in transaction volume and average order value.

Once seen as a status symbol for China’s middle class, coffee has taken on a more functional role amid a nationwide spending decline. As a result, Luckin, Cotti and others are steadily eating into Starbucks’ market share by selling brews at a fraction of the price, winning the hearts of cost-conscious consumers.

The shift has added to pressure on the American coffee giant, which opened its first shop in China in 1999, especially as China has overtaken the US as the world’s biggest market for branded coffee shops in terms of outlet numbers, according to a report by World Coffee Portal late last year. The total shot up by 58 per cent last year to 49,691 outlets.

Founded in 2022 and helmed by Luckin Coffee’s former chairman Lu Zhengyao, Cotti has taken the market by storm with its all-encompassing 9.9 yuan (US$1.40) coffee menu and aggressive franchise-focused expansion strategy. Starbucks’ prices vary significantly depending on the product, but a tall latte, one of the most popular items, costs around 30 yuan.

Cotti has opened 7,500 stores in just under two years and pledged to build an additional 8,000 “express stores” in the second half of this year. Its tiniest shops, some as small as 1 square metre, are nestled inside convenience stores and restaurants, with minimal staffing and low costs.