When private equity investors and Chinese tech companies were invited to pitch ideas for reviving Starbucks Corp.’s fortunes in China, the advice was strikingly similar: copy the local rivals that have been outperforming it.
Suggestions included opening smaller outlets, hiring fewer staff, and lowering prices—mirroring the strategy that helped Luckin Coffee Inc. surpass Starbucks as China’s largest coffee chain two years ago by selling drinks at roughly a third of Starbucks’ prices.
Most prospective buyers want a controlling stake in the Seattle-based company’s China arm. While Starbucks insists it will only work with an investor aligned with its vision, the talks have left its Chinese management uneasy, fearing the brand they’ve cultivated over decades could be reduced to just another budget-focused chain.
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The stake sale has exposed Starbucks’ struggle to redefine itself in China, where intense competition and shifting consumer behavior have challenged foreign brands. How Starbucks adapts will determine whether it thrives like McDonald’s or stumbles like Apple.
“Cost-conscious consumers are opting for cheaper options,” said Mark Tanner, managing director at Shanghai consultancy China Skinny. “Competing on price risks a race to the bottom that would wipe out margins.”
Starbucks declined to comment, pointing instead to previous statements about its China recovery and the ongoing stake sale process.
From Market Pioneer to Market Lagging
Since introducing its café culture to China in the 1990s, Starbucks has expanded to more than 7,800 outlets, riding the wave of China’s economic boom. But in recent years, nationalism and waning willingness to pay premiums have eroded Western brands’ appeal.
Some American brands have adapted successfully: KFC has localized its menu and offers year-round meal deals, while Sam’s Club leverages exclusivity and health-conscious products to target China’s middle class. Starbucks, however, has found itself caught in between—maintaining costly “third place” stores while struggling to justify its higher prices amid post-pandemic frugality.
Former China CEO Belinda Wong largely stuck to the company’s Western playbook, resisting proposals for a lower-priced spinoff or more localized marketing. That changed after Molly Liu became CEO in late 2024. She introduced cheaper tea-based drinks, sugar-free options, and collaborations with the film Zootopia and Taiwanese rock band Mayday—moves approved under a newly appointed chief growth officer.
“Starbucks is now digging deeper to meet Chinese consumers’ demands for novelty, emotional engagement, and immersive experiences,” said Roolee Lu, director at consultancy Mintel in Shanghai.
The strategy has shown early results: Shanghai store managers reported Mayday-themed drinks lifted their May sales by up to 20%, while China sales overall returned to growth in the most recent quarter. CEO Brian Niccol credited “beverage innovation” and adjustments to “non-coffee pricing.”
Unclear Path Ahead
Despite the rebound, Starbucks’ long-term direction remains murky—particularly over the role of its large-format stores. Some see them as essential to the brand’s identity; others view them as a costly burden. The company is experimenting with pet-friendly locations, free study rooms, and scenic outlets like its new café at Yunnan’s Yulong Snow Mountain.
Potential investors suggest Starbucks doesn’t need sprawling outlets to serve busy professionals, proposing smaller shops with minimal staff and online ordering. But former Starbucks China executive Jessica Gleeson warns that an ill-informed investor could reduce Starbucks to just another transactional chain in an already crowded low-end market.
Ultimately, Starbucks’ revival hinges on winning back customers like 32-year-old musician Jelly Li of Guangzhou. Sitting in a Shanghai Starbucks overlooking the Oriental Pearl Tower, she found her orange-flavored ice-shaken espresso underwhelming.
“Starbucks taught me to enjoy coffee in college,” she said. “Now I need coffee every day—but I no longer buy it from Starbucks.”
