International Tax Panorama

Starbucks have just announced their China sales for the last fiscal quarter and it isn’t good news for the coffee giant. 

Starbucks’ comparable sales in China fell 29 percent in the last fiscal quarter, including a 42 percent decline in December. Well, here are the top reasons why Starbucks failed to dominate in China:

1. Covid: Well, Starbucks have cited Covid as the main factor, pointing to lockdowns causing store closures as well as lower traffic to their office based stores along with reduced domestic and international travel meaning their stores in travel terminals have also seen closures and less traffic. 
2. Rival brands like Luckin and Manner Coffee performed better than Starbucks. Luckin managed to fight its way back to the top and actually overtook Starbucks in March last year as the coffee chain with the most stores in China. While many Starbucks coffees cost more than RMB 30 per cup, whereas the average price of a Luckin coffee is RMB 15. 
3. With the rise in popularity of coffee culture and the number of coffee chains increasing, Starbucks has become less of a status symbol. 

In the past Starbucks was a hub for white-collar workers to bring a laptop and get some work done while drinking a cup of coffee. However, as Starbucks became more popular its stores became more busy and noisy, making it a less than ideal spot to work. This has led to more of these workers opting to choose smaller, quieter coffee spots now that there are more available.

4. Growth of more speciality coffee chains and independent coffee shops, by the end of 2020 there were approximately 108.5 thousand coffee shops in China with 77 percent of these being independently owned.
5. Also independent coffee shops have also managed to feed into today’s prevalent wanghong culture with quirky locations in the hutongs or experimental coffee flavor combinations in a way that just isn’t accessible for Starbucks.