Starbucks evolves China strategy with all-day food café
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Starbucks evolves China strategy with all-day food café

Last Friday, coffee-house kingpin Starbucks announced that it would continue to evolve its strategy in China, offering all-day food and cocktails at a new location in Shanghai. The Starbucks Reserve Bakery Café, as it will be known, is the brand’s first in China. It will feature freshly prepared food from its Princi Italian bakery and have a “mixology” bar, where patrons can purchase alcoholic beverages.

Starbucks’ share price has appreciated by 12% so far this year

19 02 graphstarbucks

Source: Yahoo Finance

The company has created, and benefited from, a growing coffee house culture in China, but it faces new challenges as home-grown competitors try to muscle in on a market that – until now – has really just been all about Starbucks. Introducing all-day food and alcohol has long been a talking point at Starbucks, and the company is trying a similar strategy in its number one market, the US. Both there and in China, the company remains a market leader – but one which is seeing slower sales growth than it’s used to.

Starbucks China CEO Belinda Wong had the following comment to make in a statement from the company: “Today marks yet another significant milestone as we take everything we have learned around coffee and our relentless pursuit for food innovation, to create a new exciting all-day cafe dining and Italian aperitivo experience.”

New players in the space include local discount brands like Luckin Coffee – and it’s easy to see how a consumer-base that has been educated by Starbucks might feel savvy enough to recognise a good deal and not have to buy from the biggest names on the market. If that happens, then it will mirror an evolution in the luxury sector where just “being in China” is no longer enough – now, you have to offer something that the suddenly sophisticated consumers in the country judge to be the winning product or service.

Despite the threat of an evolving market and domestic start-ups, investors should have faith in Starbucks. Not only has it spent more-than a decade building the market in which it competes (when it comes to China), but it has consistently proved to be a savvy competitor that gets the lead in the country. Last month the company beat estimates on the back of Chinese strength, and analysts have also touted the strength of its recent delivery partnership with Alibaba. However the company’s new café goes down, it’s clear that Starbucks is not resting on its laurels.

Disclosure

Dominion holds Starbucks in its Global Trends Managed Fund.


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