Starbucks ventures into lower-tier cities in China to seek new growth

Starbucks, the American coffee chain has charted its expansion plan in China with the greatest number of new stores set to open in new tier-1 cities by 2025, indicating the coffee giant is heading towards the new territory to seek opportunities.

As per the plan disclosed by Starbucks, more than 60% of stores are set to open in tier-1 and new tier-1 cities which is around 70 cities in China, and there will be on average one new store opening every 9 hours in the upcoming 3 years by 2025. The largest number will be focusing on new tier-1 cities which is up to 30.67%, followed by tier-1, tier-2 and tier-3 cities, representing 29.57%, 16.49% and 7.96%, respectively. 

With this goal in mind, local markets such as Wenshan, a county-level city in Yunnan province situated in southwestern China, which is lesser-known compared to other touristy areas, has been placed on the list that Starbucks plan to conquer in the next few years. 

Wenshan welcomed its first ever Starbucks coffee shop in September 2022. According to staff working at the store, “it’s relevantly easier to implement sales strategies in this city with up to 90% of customers being attracted by the marketing promotion here.”

It’s believed to be an inevitable wave for top brands to deepen their push into lower-tier markets and leverage their business development, which holds huge potential in terms of consumption power and houses more than 70% of the country’s population. 

Starbucks made its debut in China in January 1999 and after decades of evolution, consumers, especially those living in tier-1 and tier-2 cities have built up the habit of drinking coffee on a daily basis with a 67% market penetrationwhich is on par with tea drinking.

Given the fact that more and more emerging domestic coffee brands are rushing into the industry with higher end quality products and yet more accessible prices, it is no surprise that the American coffee giant’s market share is decreasing day by day. 

According to a financial report released by Starbucks, the total net profit of 2022 accumulated to only 3.3 billion USD, down 21.9% yearly. The performance of the net profit for Q4 2022 was even more undesirable and garnered 0.9 billion USD with a downturn of 50%.

As a result of the factors highlighted, Starbucks is making a shrewd move by foraying into lower-tier cities to further capture the Chinese market and its reinvention plan ushers the coffee giant into a new era of growth.


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