China’s rapidly changing coffee market awaits Starbucks CEO Nicole

During Starbucks’ fourth-quarter earnings call, new CEO Brian Nicol told investors the company needs to spend more time in China to understand the challenges.

The company’s domestic same-store sales plummeted 14% due to a decline in customer traffic and lower average spend per customer. Nicol told CNBC’s Andrew Ross Sorkin that he plans to visit the country in the first or second week of December to better understand the business.

Here’s what he sees when he visits.

The Chinese startup is gaining popularity in the coffee sector, competing with more than 7,300 Starbucks stores in the country.

Luckin Coffee, which was once listed on the Nasdaq, ran into accounting problems and was delisted. But despite this, the Chinese coffee chain is growing rapidly in China, with more than 20,000 stores by the end of the third quarter.

And it’s not the only one. Other local competitors include Cotti Coffee, Manner, M Stand, Seesaw and Nowwa.

Luckin, Cotti, and Manner are the most aggressive when it comes to pricing.

For example, in Beijing, a small latte that costs $4.22 at Starbucks sells for $2.25 at Luckin, $1.75 at Cotti, and $2.11 at Manner. And it doesn’t come with the usual deep discounts. For example, one recent day Luckin offered a promotion where most drinks were sold for 90 cents.

Many of these Chinese chains have small stores and are often staffed by two baristas or, in the case of manners, one barista. The food menu is limited and seating is limited to a couple of folding chairs. However, the drinks are generally consistently less than half that of Starbucks.

Starbucks is rolling out an express version of its coffee stores in China called Starbucks Now, where most patrons can order and pick up drinks through the app. The interior is more basic. Still, there are no special discounts compared to traditional Starbucks.

Price is an important consideration for Chinese consumers as the economy slows down. At the same time, many people want to maintain a similar lifestyle, and consumers want to save as much as possible without compromising too much on quality.

In coffee competitions, Chinese chains keep their coffee interesting by frequently changing their menus and experimenting with combinations that go far beyond the traditional cappuccino.

Mix coffee with fruit juice to give it a floral aroma, and thicken it with rice or cheese. Chinese brand Manor prides itself on using only locally grown beans and training baristas to use semi-automatic coffee machines.

M Stand and Seesaw compete in the upscale market with more indulgent concoctions, including M Stand’s all-time hit: lattes in edible oatmeal cookie cups.

However, in most cases, with so many options readily available, coffee drinkers can find something that suits their taste and wallet.

In addition to its Chinese coffee rivals, Starbucks also competes with many other local chains in tea.

Specialty tea shops like ChaPanda, Auntea Jenny, and Mixue Bingcheng sell fruit and milk teas similar to those at Starbucks for about 60% less. In addition to low-priced tea drinks, Auntea Jenny also sells lattes for $2.67. The Mixue version costs 56 cents.

With more and more Chinese wanting their daily Java fix, take-home coffee is becoming widely available at tea chains and convenient marts.

Starbucks also faces international challengers, including: tim hortonsCosta Coffee, mcdonalds and kentucky fried chicken.

Despite fierce competition in China, Starbucks still has its fans.

Starbucks’ main selling point in China is that it is still seen as a great place to hang out with friends and check on work contacts.

Unlike many other establishments in the country, Starbucks stores are perfect for important meeting points, with a unified experience of comfortable interiors, comfortable seating, cleanliness, and friendly staff. Starbucks maintains its position as a high-profile and aspirational brand.