Why Starbucks is failing big in China
No, it isn’t simply because it costs more than Luckin
*Disclaimer: This post is not sponsored by any of the companies mentioned, and I do not currently hold stock in any of them.
Starbucks recently announced that it is exploring strategic options for its China business, including a possible stake sale. In one of my inaugural Baiguan posts, "Who's Luckin's real Rivalry" published in March 2023, I noted that Starbucks was already lagging behind the domestic giant in both store expansion and product innovation. Two years on, a fresh wave of coffee and tea chains—Cotti Coffee and Mixue’s budget brand LuckyCup (幸运咖) among them—has swept across the country, and Starbucks now seems to be losing on all fronts.
Based on a panel of offline stores we track at BigOne Lab (Baiguan’s parent company), Starbucks' offline sales have been declining year-on-year since 2024, while its competitor Luckin has consistently recorded double-digit growth. The number of orders per month per customer at Starbucks has also declined from ~2.5 to only ~1.6 in recent months.
So how did this happen, and why is Starbucks failing in China? And is there a chance for it to get back in the game?
In China, people drink coffee for two main reasons. The first is purely functional: an energy boost. For white-collar workers who rely on a daily caffeine jolt, taste and brand loyalty matter least. And these consumers—concentrated in big cities—make up only a small slice of the country’s population.
Take Beijing, one of China’s highest-paying cities, as an example. In 2023 the average monthly salary was about ¥15,701 (≈US $2,178) [*]. A Luckin Americano costs roughly ¥13, versus about ¥30 at Starbucks. An office worker can comfortably buy a Luckin Americano every workday if desired. For them, an affordable cup from a shop near the office is "good enough"—and every domestic chain can meet that need.
Therefore, many attribute Starbucks’ decline to the lower prices of domestic competitors such as Luckin and Cotti Coffee. Price, however, is not the only factor—and it is probably not even the most important one.
A decade ago, when Starbucks entered China, it carried the aura of a high-end Western lifestyle. Simply drinking coffee felt stylish back then, and Starbucks stores doubled as social venues: business meetings were held there, and taking a date to Starbucks was considered fancy. But Starbucks was never the sort of place people visited daily for a quick caffeine fix, the way they pop into Luckin today.
That aura has faded as coffee has become commonplace and lost its cachet as a fashion statement. Consumers have returned to what really matters to them: flavour. As I noted in "Who's Luckin's real Rivalry" last year, China is a tea-drinking culture. Once the social-status element disappears, taste becomes critical—and it is no surprise that almost every coffee chain in China nowadays sells milk tea, while milk-tea chains sell coffee. For instance, Luckin already offers six milk-tea flavours and two lemonades.
I had an interesting field observation over the Labour Day holiday: I visited my grandmother in Leshan, a city of just over three million people in Sichuan province (yes, that counts as "small" by Chinese standards). In a downtown mall, a Starbucks and a Luckin sat side by side. Starbucks was empty; its barista had nothing to do. Luckin, meanwhile, was swamped, and I waited ten minutes for my drink (it was ~11am). While I was waiting, I quickly scanned through the orders on its counter and found that almost no one ordered a plain Americano except me—most orders were some kind of flavoured coffee beverage, and about one-third ordered milk tea.
To survive in China, Starbucks must look beyond Luckin and other coffee specialists; it is competing with the entire universe of beverage chains. For many Chinese consumers, coffee is simply one more grab-and-go drink.
Starbucks' real problem
Starbucks’ real problem is not price. As a matter of fact, there are plenty of boutique coffee shops that charge more than Starbucks in first-tier cities such as Shanghai, and even in smaller places like Anji. The core issue is that Starbucks’ menu lacks "烟火气".
The Chinese term "烟火气" can be hard to render precisely in English, yet it captures what many Chinese diners ultimately seek—whether in a drink or a meal—so I’ll do my best to convey its spirit.