Starbucks is caught in the middle of a price war in China.
The coffee giant’s same-store sales in China declined 8% in fiscal 2024.
But just a decade ago, sentiment around expansion in China looked very different. The chain grew relatively unchallenged for many years in the country.
Historically, China is a tea drinking nation. Experts largely credit Starbucks for introducing out-of-home coffee as a concept to the country when it opened its first store in 1999.
“China was viewed as a fertile growth opportunity just given the urbanization of the population, a growing middle class, as well as proclivity for Western brands,” said TD Cowen managing director Andrew Charles.
The company was once so bullish on its China growth that former CEO Howard Schultz even stated that the country might one day be a larger market for Starbucks than the U.S.
While China is still Starbucks’ second largest market behind the United States, growth has stalled.
Revenue in China remained unchanged from fiscal 2022 to fiscal 2024, hovering at about $3 billion.
Starbucks has been hurt by competition, most notably Luckin Coffee, which ended its fiscal 2024 with nearly triple the number of stores that Starbucks has in China.
Starbucks charges significantly more for a latte and an Americano than most of its peers. It is struggling to get consumers to buy its premium offering as the Chinese middle class faces increased pressure, coupled with an outlook of further economic decline in 2025.
“What’s shifted in China more recently is the expansion of sort of the everyday coffee occasion with the lower priced competitors. And I do think maybe that’s sort of reduced frequency for the more premium aspirational Starbucks occasion there,” said Morgan Stanley executive director Brian Harbour.
Watch the video to learn about what could be in store for the future of Starbucks in China.
