As Starbucks faces stiff competition for its brew in China from fast-growing, low-cost rivals who have chipped into its market share, the coffee chain is increasingly being dragged into a price war it says it wants to avoid.
The stakes are high for Starbucks, which has come under growing pressure from investors recently due to weaker sales in its two biggest markets - the United States and China.
While the Seattle-based company has got its work cut out in the world's second-biggest economy, where its rival Luckin Coffee pipped it to the top spot on annual sales for the first time in 2023, management is convinced it does not need to get into a race to the bottom on prices.
"We are not interested in entering the price war," Starbucks' China CEO Belinda Wong said in January. "We are focusing on capturing high quality but profitable, sustainable growth." Those sentiments were repeated by founder Howard Schultz on a visit to Shanghai in March.
However, analysts, Reuters checks and Chinese consumers posting on social media point to an increase in discount coupons being offered by Starbucks through its own mini-programs, as well as via the coffee-maker's livestreams on Douyin, and third-party delivery platforms popular for ordering coffee.
In effect, Starbucks has made it relatively easy for Chinese consumers to buy its most commonly ordered coffees with 30% discounts or two-for-one coupons without dropping their listed prices, sliding down a slippery slope of increased discounting towards a potential price war.
While Reuters was unable quantify just how much Starbucks' use of discount coupons has increased and the firm declined to comment on its coupons policy, these types of discounting practices were once a rarity from the U.S. coffee maker. In 2024, however, they have become easily available.
Walker Shen, 38, is an office worker from Shanghai who frequently uses discount coupons to buy his daily coffee. He has noticed an increase in push notifications from Starbucks in recent months offering him 30% off coupons.
"I think less people are drinking Starbucks now," Shen said, adding that "most people aren't that demanding when it comes to quality," meaning fewer consumers were willing to pay a premium for Starbucks.
The emergence of a price war in the coffee sector in China comes amid a persistent deflationary environment, exacerbated by weak consumer sentiment as the economy struggles to recover and wages stagnate.
Unfortunately for Starbucks, says Jason Yu, greater China managing director of market research firm Kantar Worldpanel, it doesn't really have a choice but to compete to some degree on price in a market where low cost battles have become "the new normal".
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