China’s coffee war has become the hottest showdown in global retail. What started out as an unlikely contest between Starbucks and a handful of local start-ups has now turned into a bitter feud. Facing homegrown rivals and eroding brand power, Starbucks has agreed to sell a majority stake in its China business to Boyu Capital, creating a $4bn joint venture. That marks a shift from dominance to survival.
Local rivals such as Luckin and Cotti are expanding rapidly in China, slashing prices and catering to local tastes. Meanwhile, chains known for other drinks are moving into the same space and fighting for the same customers. Tea and bubble tea giants including Mixue and Guming are now a significant presence both in physical stores and delivery apps. That means Starbucks no longer competes only with local coffee peers.
Of those peers, Luckin Coffee alone has more than 26,000 outlets across China, more than three times Starbucks’ reach. A long list of smaller rivals add to the competition, pouring even cheaper lattes into an increasingly cost-sensitive consumer market. That means Starbucks’ premium pricing strategy is no longer viable.