… As seen, a Chinese Starbucks location has almost twice as many reward members as one in the US. This speaks to the attractiveness of expanding in China. It’s a place where once you’ve got the trust of consumers, they stick with you.
Expanding into China hasn’t come without its challenges, though.
In 2017, Chinese company Luckin Coffee (OTCPK:LKNCY) entered the market. The company started to compete in the same segment as Starbucks and expanded at an extreme pace. Within a few years of its founding, it had opened more than 3,000 locations in China. Some analysts pointed to this as the end of Starbucks in China. However, in part because of over expanding and an accounting scandal, Luckin Coffee went bankrupt in 2021. Luckin Coffee is still operating but to a much lesser degree. So as much as this was not the end of Starbucks in China, it does point to the dynamic character of the Chinese market: Something big can happen very quickly…
… Some gloomy clouds are forming on the horizon. Chinese tea shop, Hey Tea, operates more than 1,000 tea stores in China that are aimed a premium offerings like Starbucks. This of course is an attempt on the part of the Chinese company to return Chinese consumers to mostly tea drinking now that premium tea is available to a great extent just like premium coffee. This is also somewhat different from the type of competition Starbucks faces in the US, where competitors typically are more price-focused than focused on beating Starbucks on quality (think Dunkin’ Donuts)…
