Starbucks hikes prices in China, hit by rising costs

Ding Yining
In its first price rise in China since 2018, the coffee chain increases cost of a standard large Americano and other drink products by an extra 2 yuan.
Ding Yining
Starbucks hikes prices in China, hit by rising costs

Coffee chain Starbucks' price hike of 1-2 yuan (16-32 US cents) for its large-size Americano and latte drinks has stirred heated discussion among consumers.

The price hike, the company's first in China since 2018 due to rising operating costs, is followed by similar moves in other Asian markets such as South Korea.

A standard large-cup Americano now costs 1 yuan more and so do other drinks like flat white coffee, oatmeal latte and caramel macchiato.

Local smaller coffee chains and boutique coffee stores like Luckin have been posing threats to Starbucks as they move quickly to meet local needs and tastes.

Tim Horton's also raised its prices for nine types of drinks by 1 or 2 yuan in January this year.

In the fiscal quarter ended January 2 this year, Starbucks China's comparable store sales decreased 14 percent due to a 9 percent decline in average purchases and a 6 percent drop in transactions.

Starbucks is still the largest coffee and tea chain store operator in China, according to market researcher Euromonitor. It has a dominant 41.6 percent market share followed by local chain operators HeyTea, Luckin Coffee and Nayuki's Tea.

It currently has more than 5,550 stores in the domestic market, adding about 600 new outlets from a year ago.

In an earnings call with investors earlier this month, Starbucks President and CEO Kevin Johnson cited rising inflation and a "rapid increase" in supply chain and labor cost and said he expected more price rises this year.

Starbucks hikes prices in China, hit by rising costs
Dong Jun / SHINE

The C price, the benchmark price for commodity-grade Arabica coffee on the International Commodity Exchange (ICE) in New York, hit US$2.08 in mid-2021, a sharp jump from US$1.07 per pound a year earlier.

Arabica coffee inventories certified by the ICE have been falling since September and reached a 22-year low of 1,060,242 bags earlier this month, after soaring shipping costs and unfavorable weather curbed production in Brazil, the world's largest grower and exporter.

Some consumers said they're shifting to more reasonably priced coffee such as Luckin or Tim Horton's, which normally prices an Americano or latte at around 25 yuan.

"We have much more coffee to choose from, for example Luckin has much more value for the price, so does Tim Horton's," said microblog user Yellow Mie.

For others, Starbucks is still their preferred place to hang out with friends for leisure or a short afternoon break.

Lina Wang, who usually buys Starbucks coffee for two or three times a week, doesn't expect the price rise to affect frequent consumers.

"Starbucks is close to most office buildings and offers comfortable places for business meetings and leisure gatherings," she noted.

It's expected that makers of coffee machines and instant coffee vendors may see this as a chance to sell to those who prefer home-brewed coffee.

Shanghai financial consultant Sandy Hu said she had already developed a daily routine to order a Manner coffee which has been offering a 5-yuan discount for people who bring their own coffee cup.

Cold brew coffee extract and freeze-dried instant coffee have become hot-selling items in recent years and local startups like Yongpu and Santurn Bird have already made their name among coffee lovers.

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