Starbucks China records high performance in county-level stores

Starbucks China has reported stronger performance from its newly-opened county-level stores compared to those in higher-tier cities, reinforcing its penetration strategy despite a decline in store sales due to heightened competition. The company is exploring "strategic partnerships" in China.

In the fourth quarter, the company's revenue in China reached $783.7 million, marking a 6 percent increase from the previous quarter despite a 7 percent decline year-on-year, according to its fourth quarter and full fiscal year results of 2024 released on Wednesday.

In the fourth quarter, it also faced a 14 percent decline in comparable store sales in China, driven by an 8 percent decrease in average ticket prices and a 6 percent drop in comparable transactions, influenced by intensified competition and a soft macro environment affecting consumer spending.

For the fiscal year 2024, Starbucks China added 790 new stores, a 12 percent year-on-year increase.

In the fourth quarter, the coffee house chain opened a net increase of 290 stores, entering 78 new county-level markets.

By the end of the quarter, the company operated a total of 7,596 stores, covering nearly 1,000 county-level markets.

"The company accelerated its expansion into lower-tier cities and new county-level markets, where the performance of newly opened stores continue to exceed that of those in higher-tier cities," according to Starbucks.

In the fiscal year 2024, Starbucks China entered 166 new county-level markets, nearly doubling the number from the previous fiscal year. Half of the newly added stores are located in lower-tier cities, marking a historical high for this segment.

"With less saturated competition, lower rents, labor and management costs, and stable spending power of higher-income local residents in county-level markets, we see relatively larger profit margins for major corporations and international brands," said Zhu Danpeng, an independent food and beverage analyst.

Brian Niccol, chairman and chief executive officer, highlighted on an earnings call that the company's Chinese market reached an all-time high of 23.5 million active members during the quarter, with 2.2 million net new members compared to the previous year.

Despite this, comparable sales declined due to pressures from non-member traffic, increased discounting in a highly promotional environment, and lower sales of high-ticket items influenced by consumer sentiment, he said.

Niccol also discussed the possibility of seeking partnerships to aid growth in the Chinese market, saying, "I need to spend time there to better understand our operations and the market… We need to figure out how we grow in the market now and in the future. In the meantime, we continue to explore strategic partnerships that could help us grow in the long-term."

In fiscal year 2024, Starbucks China has accelerated its innovations and efforts to get more engaged with local consumers.

The company launched 78 new beverages in 2024. It also adopted promotional strategies to stimulate new sales growth by introducing the afternoon tea schedule.

The company ventured into short-form content on Douyin with "I Run Starbucks in Ancient Times," which was listed in the "Hot TV Series Ranking" and garnered over 170 million views and more than 1 million interactions. Various brand collaborations were carried out including a partnership with Yunnan farmers for the "Art Museum in a Coffee Cup" and those with Disney's "Alice In Wonderland" and YONEX.

wangzhuoqiong@chinadaily.com.cn