As coffee chains in China struggle with a bitter combination of sluggish consumption and cutthroat pricing, Starbucks and Luckin Coffee regained momentum in the last quarter by focusing on lower-tier cities.
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Same-store sales were flat for Starbucks’ China operations in the quarter ended March 30, but a 4 per cent increase in transactions helped to offset a 4 per cent decline in the average tab, the company said last month. This came after the Seattle-based firm suffered an 8 per cent decline in comparable-store sales in the country in the year ended September 29.
Operating revenue rose 5 per cent year on year to US$740 million in the quarter. The company said it added 665 stores in China over the past year, bringing its total to 7,758, second only to the US at 17,122, and covering more than 1,000 of China’s county-level markets.
“The fact that Starbucks is trading a lower ticket size for better transaction volume is a positive sign,” said Richard Lin, chief consumer analyst at SPDB International, a Hong Kong-based investment bank. “It shows that the company is making efforts to defend its market share in China as price competition persists.”
However, Lin noted that it would also be important to monitor how much further Starbucks could expand beyond the wealthier cities, where customers could afford to pay for a premium brand.
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A total of 66,920 coffee shops opened across China over the past year, according to Canyan.com, a food and beverage data provider. Much of that growth was concentrated in second and “new first-tier cities” – urban centres less globally connected than Beijing or Shanghai, but rising in population and economic power.
For example, Chengdu, capital of southwestern Sichuan province, added 1,995 coffee shops over the past year, ranking third nationwide, while tech hub Hangzhou, capital of eastern Zhejiang province, ranked sixth with 1,725 new openings, Canyan.com’s data showed.