A one-dollar price increase for a cup of Starbuck’s Grande Americano last week sparked an online uproar in China, shedding light on Starbucks’ hidden troubles under its superficial prosperity.
Starbucks’ recent price rise has triggered a crisis amid fierce global competition and emerging manual pore-over coffee culture.
Starbucks, the largest coffeehouse chain in the world, was founded in 1971 in the U.S. and expanded to Hong Kong in 2000. The first Starbucks store in Hong Kong is located in Exchange Square, Central—the heart of Hong Kong’s most vibrant trading hubs.
According to the Hong Kong Professional Coffee Association, there are about 250 independent coffee shops in Hong Kong, with Starbucks taking the lead in being the largest chain in the city with over 170 stores. It is even a tiny number in comparison to China, where Starbucks has already opened 5,500 stores in over 200 cities.
Although Starbucks has been taking a prominent market space, it has run into profit stagnation since the fourth quarter of 2021. Starbucks reported a 3% decrease in its international sales and a 14% decline in sales in China in the first quarter of 2022.
Rising Cost Due to Supply Chain Disruption
“Starbucks is already quite expensive, and if it (the price) goes up any more, it’s going to be a bit painful,” said Gillian Ji, a student from the University of Hong Kong.
The price adjustment on February 16th is the second price increase in the past four months in mainland China. Starbucks also increased the price of most handcrafted drinks by HK$2 a cup in Hong Kong earlier in September 2021.
Starbucks had already announced it would further ramp up prices in 2022 to offset soaring costs due to increasing inflation, supply chain disruptions as well as rising labor costs—prompting the decision to raise its coffee prices globally.
The main factor of the price rise is the surge in the cost of coffee futures. The current price of coffee futures has hit the highest price in nearly ten years.
In a statement from Starbucks Hong Kong, the company said it had purchased coffee 12 to 18 months in advance to ensure adequate supply for its roasting plants and thereby reducing pricing volatility for its customers. The company said, “We seek to minimise any price increases for our customers, but there are many factors that contribute to our pricing decisions, which we need to take into account.”
Other major coffee chains in Hong Kong, including Pacific Coffee, The Coffee Academics, and NOC, have yet to pass higher costs on to their consumers.
Fierce Market Competition Amid Emerging Niche Brand
Starbucks’ success has been built on elegant coffee, the rich tradition behind the beverage, and customers’ sense of belonging towards the coffee chain.
The reason consumers love Starbucks is the pride they take in its “coffee culture”. Starbucks is not selling the coffee, but the concept of a third space: a powerful sense of atmosphere.
No one could expect that Starbucks’ “arrogance” would cause so much ridicule on social media.
“Starbucks’ service is horrible—rude staffs (who) refuse to help. No one cleans the table. Always…” a netizen tweeted on Twitter.
Last December, an undercover reporter had found that two Starbucks stores in Wuxi, China, were repeatedly using expired ingredients, changing expiration dates, and selling overnight food. The news leak further devastated Starbucks ’ image as well as its credibility.
Meanwhile, another blow to Starbuck’s future might be the increasing number of new cafes across countries globally—a phenomenon that is most likely going to further weaken Starbucks’ competitive edge.
People are pursuing higher quality and artisan coffee. They don’t want to see “videos on making coffee” or “videos on coffee culture” with the brand name, but another concept of coffee: sitting in a quiet corner, peaceful music playing in the background, as the delicious aroma of freshly brewed coffee fills up the room—just like the first Starbucks store that only sold coffee beans. What people are seeking is an elevated touch to their coffee-sipping experience which brings out a pure, authentic coffee spirit.
Many niche brand coffee shops have their own blend or pure coffee to differentiate themselves from their competitors. For example, Project C even displays different kinds of coffee beans and lets customers smell them before purchase.
In comparison, Starbucks’ creative ability is visibly declining.
In 2019, Starbucks launched a series of “Sour Gummy Worms Refreshers “, which netizens ridiculed as tasteless. In 2020, products such as lasagne and pasta were blacklisted by many people as the concept wasn’t well-received. Last year, Starbucks was stuck in a grim situation where the customers evaluated its “Frozen Caramel Frappuccino” as underwhelmed and lackluster.
The increasing popularity of Pour-Over Coffee
Manual pore-over coffee has caused a craze in recent years. When coffee becomes a part of life, making coffee by hand becomes a concrete manifestation of the sense of ritual. From selecting beans to grinding them, each step of the brewing process will determine the final flavour of the coffee, which is also a unique experience that no coffee shop can replicate.
The pandemic has accelerated the growth of at-home gourmet coffee preparation. Stringent dine-in services restrictions have significantly affected coffee orders at coffee outlets
Where to go
The scale of China’s fresh ground coffee market continues to thrive, according to the “Analysis Report on Market Demand and Investment Planning of China’s coffee Industry” released by Qianzhan Industry Research Institute.
The coffee market size reached 58.8 billion yuan in 2020, a 6.5% increase compared with 2019. China consumed only 0.1kg of coffee per person, far less than Japan—a country with somewhat similar dietary habits. The coffee consumption was even far less than the United States, Brazil, and Germany. The future of coffee is bright in China and the country’s market of freshly ground coffee still has a vast space for development.
After decades of uncertainty, whether the “giant ship of Starbucks” can withstand the washing baptism of the new wave and maintain the leading position in the market, remains a big question as the company faces rigorous challenges.
Story by Joyce Gao Zhuo