Starbucks is making a notable entry into China’s burgeoning milk tea sector, a market that has recently seen explosive growth and fierce competition. This strategic move comes in response to the rapid success of local competitors like Luckin Coffee, which has been transforming the landscape of China’s beverage market.
Starbucks China has unveiled a series of milk tea beverages, including the Longjing Green Grape Americano and the Dahongpao Pear Latte. However, the standout products are the Longjing Green Grape Milk Tea and the Dahongpao Pear Milk Tea, which mark the coffee giant’s first venture into milk tea on its Chinese menu. This expansion into milk tea follows closely behind Luckin Coffee’s introduction of its Jasmine Light Milk Tea, a product designed to rival Chagee’s popular offerings. Luckin’s innovative approach has paid off, with over 44 million cups sold in just a month, paralleling the success of its sauce-flavored latte from the previous year.
China’s tea market is undergoing rapid transformation, with new players and shifting consumer preferences. Starbucks, a longstanding benchmark in the industry, faces intense competition from local brands like Heytea, which aspires to be the “Starbucks of tea,” and Chagee, which aims to surpass Starbucks in sales by 2024. Luckin Coffee has explicitly targeted Starbucks, aiming to surpass its revenue by the end of 2023. The entry of these local competitors has altered the dynamics of the market, pushing Starbucks to adapt and innovate.
Starbucks’ milk tea products diverge from those of its competitors by incorporating tea bags into its preparation. Unlike Luckin and Chagee, which use jasmine tea as a base, Starbucks employs camellia-flavored Dahongpao tea bags and Longjing jasmine tea bags—two per serving. This method requires steeping time, which is why Starbucks is offering these milk teas exclusively through its delivery service. The approach aims to ensure that the flavors are fully developed by the time they reach customers.
However, this strategy has met with mixed reviews. Some customers have reported that the tea flavor is too subtle due to inconsistent steeping times during delivery. For instance, Yolanda, a Starbucks customer in Beijing, noted that her milk tea lacked flavor initially but improved after a 30-minute wait, aligning more closely with Chagee’s offerings. Despite these challenges, some consumers appreciate the natural taste that the tea bags provide, contrasting with the artificial flavors common in other brands.
Starbucks has faced significant challenges in China this year. In the third quarter of fiscal 2024, the company reported an 11% decline in revenue to USD 730 million, with same-store sales dropping by 14%. The company has struggled with decreasing traffic, particularly during off-peak hours, which milk tea chains dominate. In response, Starbucks has implemented discounts and promotional offers, such as buy-one-get-one-free deals and reduced prices on multiple drinks, to attract customers.
The company’s milk tea initiative is part of a broader strategy to adapt to changing consumer preferences and competitive pressures. Starbucks has previously experimented with tea bags in drinks like the Osmanthus-flavored Tieguanyin Latte and the Plum Hawthorn Black Tea Americano. The introduction of milk tea is a natural extension of this trend, aiming to appeal to both coffee and tea enthusiasts.
Starbucks’ foray into China’s milk tea market reflects a strategic adaptation to a rapidly evolving beverage landscape. As competition intensifies, particularly from local brands like Luckin Coffee and Chagee, Starbucks must navigate pricing challenges and consumer preferences to maintain its foothold. The success of this new product line will be crucial in determining whether Starbucks can leverage its global brand to capture a significant share of the Chinese milk tea market.
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