Starbucks will cut prices to revitalize sales in China. It is its second key market

Global coffee chain Starbucks will cut prices on a range of tea-based drinks in China to attract summer shoppers. Amid intensifying competition and consumers' growing spending caution, the company is taking aggressive steps to revive sales in its second most important market, explained Bloomberg. 

Starbucks on Monday announced a price cut of five yuan ($0.7) on average for non-caffeinated cold drinks in China, setting a minimum price of 23 yuan. More than a dozen products will be affected, including frappuccinos, iced tea and chai lattes, reported the company on local social network Weixin. 

The lower prices should attract Chinese consumers to non-coffee offerings during the summer season, according to a statement. «Coffee in the morning, not coffee in the afternoon,» is what Starbucks called the new service scenario on its page.

For Starbucks, such promotion of discounts through its own official channels is a rarity: for a long time the chain has maintained a premium positioning in China - amid growing competition from players with cheaper drinks, Bloomberg comments on the change in approach.

China is the second largest market for Starbucks after the United States. For the second quarter of fiscal 2025, ended March 30, Chinese consumers brought the company $739.7 million in revenue: a 5% increase over the same period last year, the company said in the filing. China's share of total revenue thus amounted to 8.4%. At the end of the quarter, the number of Starbucks coffee shops in this country reached 7758: more only in the United States.

Meanwhile, persistent price wars in a variety of product categories - from cars to fast food - have pushed China's consumer prices into deflation for four straight months, according to government data released Monday, Bloomberg notes. Consumers have become more restrained in spending because of a slowing economy and concerns about job retention, wrote Reuters.

High competition in this market is putting pressure on Starbucks - companies such as Luckin Coffee and Cotti have set prices for their drinks as low as 8-10 yuan. And large online companies JD.com and Alibaba, which are actively entering the food delivery market, allow you to buy coffee for as little as 2.9 yuan - with the help of promotions and coupons, the agency reports. The development of the tea business in China may help the U.S. company to counter local tea chains, Bloomberg believes.

At the same time, Starbucks' efforts to offer more tea drinks in China contrast with new CEO Brian Niccol's efforts to restore business in the U.S. - he has pivoted to optimizing the menu with a focus on coffee, the agency writes. 

A Reuters source close to Starbucks made it clear that the price cut was not a response to tough price competition, but was needed to attract more customers in the afternoon. The agency recalls that earlier the company said that it does not intend to participate in price wars, but has already introduced drinks of smaller volume and issued coupons.

Since taking office in September 2024, Starbucks CEO Brian Niccol has begun reorganizing coffee shops to make them more welcoming and give them a new lease on life - after price hikes, long lines and boycotts related to the company's perceived stance on the war in the Middle East scared customers away.

Starbucks fell short of analysts' forecasts for quarterly revenue and earnings in the second quarter of fiscal 2025, with net income dropping by an immediate 50% from a year ago. Comparable sales fell for the fifth consecutive quarter. 

On Monday, June 9, quotes of Starbucks after the opening of the main trading first went into a small plus - by 0.5%, but then lost the gained and became cheaper by 0.3% (at the time of publication of this text). Since the beginning of the year, the company's shares have lost about 2% of their value, but over the past month they showed growth of 4%;

Of the 35 analysts tracking Starbucks securities, more than half - 18 - advise holding the stock in their portfolios (Hold rating). Another 15 recommend buying (Buy and Overweight), and only two suggest selling (Underweight and Sell), shows MarketWatch. That said, the Wall Street consensus price target is just under $90 per share of the coffee giant's stock, which is nearly the same as the last close of trading on June 6.