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Amid fierce industry competition, Starbucks China has firmly adhered to a differentiated growth strategy.

On July 30, local time, Starbucks, the global coffee chain giant, released its financial results for the third quarter ending June 30, 2024. Starbucks achieved total net revenue of US$9.114 billion in the third quarter, an increase of 1% at a constant exchange rate.

Among them, Starbucks China achieved net revenue of US$733.8 million, a 5% increase from the previous quarter excluding the impact of exchange rate fluctuations. The overall operating profit margin achieved double-digit growth for two consecutive quarters, mainly due to successful beverage innovation, localized holiday foods and increased frequency of member consumption during breakfast hours.

In terms of store expansion, Starbucks opened 526 new stores worldwide in the third fiscal quarter, and as of the end of the third fiscal quarter, the total number of stores was 39,477. There are 7,306 stores in China, accounting for more than 18% of the total number of stores worldwide.

Starbucks China Co-CEO Liu Wenjuan said that Starbucks China continues to adhere to a healthy and steady development path. "Our profitability is healthy and excellent, and we will continue to expand our operating profit margin. We will focus on continuing to drive month-on-month growth in key business data, continue to invest in China for the long term, and are confident in the long-term development opportunities in the Chinese market and our ability to achieve success."

In the third quarter, many indicators of Starbucks China increased month-on-month, and the number of new stores increased by 13% year-on-year

"Over the past year, the industry has seen unprecedented store expansion and large-scale price wars, even at the expense of same-store sales and profitability. This has resulted in significant and permanent changes to the market environment," said Starbucks global CEO Nathaniel Nussheim in a conference call following the earnings report.

In the face of fierce market competition, Starbucks China has made some progress in important areas. In the third fiscal quarter, Starbucks China's three key business data, net income, store transaction volume, and profit margin, continued to grow month-on-month.

Nashan introduced that in the third fiscal quarter, Starbucks store transaction volume, weekly sales and overall operating profit margin and other indicators further increased month-on-month. The number of Starbucks China Star Rewards Club members increased by 1.6 million year-on-year, and the number of active members reached a record 22 million. Starbucks partners also exceeded customer expectations, and received the highest scores ever in customer connection and store operations in the monthly customer experience survey. At the same time, the retention rate of full-time partners in stores hit a new historical high.

Starbucks China is also continuing to explore blue ocean opportunities. In the third fiscal quarter, Starbucks China's store scale in the sinking market further expanded. In this quarter, 213 new stores were added, and 38 new county-level markets were entered. The number of new stores increased by about 13% year-on-year. On the one hand, Starbucks China continues to increase the density of first- and second-tier cities, and on the other hand, it is also accelerating its entry into county-level markets. At present, Starbucks China has 7,306 stores in more than 900 county-level markets.

"With the emergence of affordable coffee, the lower-tier cities have become a new battlefield for coffee companies." According to a report released by iiMedia Research at the beginning of this year, the coffee market in first- and second-tier cities is highly competitive, and third- and fourth-tier cities have become important markets for coffee companies to compete. The lower-tier cities give brands the opportunity to create a new brand matrix. In order to increase market share, coffee companies should customize new categories for their customer base, establish deep links with consumers in the lower-tier markets, and expand new scenarios to enrich the life fragments of lower-tier users.

According to Starbucks China executives, at the current pace of store openings, the number of new stores opened in the Chinese market this fiscal year will break the record.

It is worth noting that Starbucks' new stores also continue to achieve first-class returns and profitability. Among them, the transaction volume of stores has steadily increased, partly due to the increase in the frequency of member consumption during breakfast hours and the increase in purchases by occasional customers during the afternoon and evening hours. The transaction volume has achieved month-on-month growth and quarter-on-quarter growth.

Starbucks China is determined to stick to its differentiated growth strategy. Executives said, "Stay firm in the high-end market and do not engage in price wars."

As consumption becomes more cautious and competition in the coffee market becomes increasingly fierce, "roll prices" have become the norm in the industry.

Compared with mass brands in the industry, Starbucks' preferential strategy is not its response to the current price war. On the contrary, Starbucks China, which is positioned as a high-end coffee brand and focuses on the third space, is seeking a unique growth model, seeking high-quality, profitable and sustainable growth.

Over the past 25 years, the Starbucks China team has built local business and accumulated unique brand assets through Starbucks and Starbucks Reserve brands. Amid market fluctuations and fierce competition, leading the market growth in the high-end coffee industry remains Starbucks China's long-term strategic goal.

"Faced with a profoundly changing competitive landscape in the industry, data such as same-store sales will inevitably be affected in the short term. Starbucks China's focus is to stay in the present and achieve steady growth." Starbucks China Co-CEO Liu Wenjuan said that the continued month-on-month growth in key business data such as net income, store transaction volume, and profit margins is Starbucks China's current focus.

Starbucks China's pursuit of a unique growth model requires proactive strategic choices. Liu Wenjuan further pointed out that, first, through continuous innovation of Starbucks' unique high-end products and experiences, it does not sacrifice operating profit margins in exchange for sales. Secondly, through a rhythmic store expansion plan, it taps into huge blue ocean opportunities and ensures first-class returns and profitability of stores; third, it continues to invest in Starbucks' partners and through them continues to provide customers with a unique Starbucks experience.

"In a competitive environment with frequent promotional activities, we maintain a high degree of restraint and avoid price wars. At the same time, we have adopted a targeted and precise pricing strategy to create new sales growth and cultivate customers' consumption habits, which is consistent with our high-end positioning." Liu Wenjuan said, for example, Starbucks China fully upgraded its Starbucks Club membership system in the third fiscal quarter, adding a Diamond Star membership level for the first time to reward the most loyal fans with exclusive gifts and services, and also added a star redemption mechanism so that every star of all members can be redeemed.

Specifically, by the end of the third fiscal quarter, Starbucks China's Starbucks Club had a record 22 million 90-day active members, an increase of 1 million from the previous quarter, and a total of more than 132 million members. Among them, the consumption frequency of the most loyal Gold Star and Diamond Star members increased. The proportion of member sales continued to maintain a historical high, reaching 75%.

In addition to the "voucher experience", Starbucks China is also increasing the frequency of innovation. In the third quarter, beverage innovation accelerated, launching 17 new beverages, and also attracted new members, especially young Z-generation customers. The Belgian Dark Chocolate Frappuccino became the best-selling beverage in the summer; the new draft coffee series of beverages are particularly popular among the Z-generation, especially in the afternoon.

It can be seen that Starbucks China is taking multiple measures to firmly implement a differentiated growth policy rather than blindly joining a price war. In Liu Wenjuan's view, although the market environment in which Starbucks China operates has undergone significant and permanent changes, the Chinese business remains as strong and profitable as ever, with first-class returns and abundant growth opportunities. "We are confident in the future of Starbucks China and the further growth of the domestic coffee market."