Competition in China's coffee market intensifies as Starbucks enhances its loyalty program
Starbucks Announces Major Upgrades to Rewards Program in China Amidst Challenging Coffee Market
Starbucks, the global coffee giant, has announced significant updates to its Rewards program in China, aiming to attract more consumers in the competitive coffee market. The changes were unveiled on June 19 and introduced on the company's app the following day.
The updates come as Starbucks' revenue dipped by 3% during the second quarter of this year, primarily due to a 11% drop in comparable store sales. The decline was fueled by a 8% reduction in average ticket size and a 4% decrease in transactions. Despite opening 118 net new stores in China during the second quarter, it wasn't enough to counterbalance the revenue sag.
Starbucks is not alone in facing challenges in China's coffee market. Competition includes domestic chains like Luckin Coffee and Cotti Coffee, as well as international players like Tim Hortons and Costa Coffee. To stand out, Starbucks is focusing on deeper engagement with social media, live streaming, product innovation, and digital transformation.
One of the ways Starbucks is enhancing its presence in China is through strategic partnerships. On June 20, the company announced a collaboration with the Hilton Group, allowing members of both loyalty programs to earn bonus points and access reciprocal benefits. This is the first time Starbucks is partnering with a hotel brand in China.
Another notable partnership is with the Xiaohongshu app in China for an exclusive collaboration. Starbucks has also secured investments from private equity firms like Boyu Capital, The Carlyle Group, EQT, Sequoia China, and Primavera Capital, though these are investors rather than operational partners.
To attract more high-spending customers, Starbucks has introduced a new membership tier, diamond members, which precedes the gold tier and offers more exclusive privileges. To become a diamond member, a green or gold member must earn 100 growth points annually, equivalent to spending about RMB 5,000 (USD 687) per year.
In addition to the new tier, the mechanics of the membership system have been modified to provide more equal benefits to welcome and green members. Laxman Narasimhan, CEO of Starbucks, emphasized that the company remains steadfast in fortifying its premium brand.
Upgrading the membership system is part of Starbucks' broader strategy to tighten its edge in the Chinese market. The company is also investing in product innovation, as evidenced by its partnership with the Hilton Group, which could lead to unique coffee offerings tailored for hotel guests.
The highly competitive environment in China, including the strong tea segment, has hindered Starbucks' growth. However, Starbucks' competitive advantages beyond pricing will help it stand out in the long run. The company is committed to providing a superior customer experience, which is a key differentiator in the Chinese market.
The changes in the Starbucks Rewards program in China are part of the company's efforts to attract more consumers and maintain its position in the competitive Chinese coffee market. With these upgrades, Starbucks hopes to continue delivering exceptional experiences to its customers in China.
