How does Starbucks get coffee red sea in China when branches continue to open?

Starbucks expects to more than double the number of stores in China to more than 5000 in the next five years. The picture shows a Starbucks store in a shopping mall in Tianzi Square, Shanghai.

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China is not only an important gold prospecting place for Starbucks, but also a struggling development market, bringing good news for Starbucks' profit growth every year. According to Starbucks' results for the second quarter of this year, the performance in the Asia-Pacific region is more outstanding. Not only more than 1,000 new stores have been opened in the past year, but also Q2 revenue has increased by 13% compared with the same period. China is one of the biggest contributors.

"Starbucks first entered the Chinese market 18 years ago, and its business performance has never been so strong," affirmed Starbucks president and CEO Kevin Johnson, and the key to success are "beverage, food and digital innovation". In China's highly competitive market, how does Starbucks find the vitality of innovation and change?

Innovation is a "hurdle".

From ancient times to the present, innovation is a high challenge for all enterprises, especially for products with short industrial life cycle. It is a common practice for most enterprises to increase the price of products or reduce production costs through product or technological innovation, so as to improve profitability.

This article will show you that Starbucks is looking for the vitality of innovation and change in China's competitive market.

Perfect business model and innovate product strategy

Strategic innovation is a series of innovative actions aimed at the unmet needs of consumers and efforts to enhance the competitive advantage of enterprises.

Since the announcement of the Q2 financial results, although the financial target has not met the original expectations, Starbucks announced that its future business will focus on food, because the food category can provide 20% of the revenue contribution, there is a huge profit margin.

As a result, Scott Maw, chief financial officer of Starbucks, said at the 25th anniversary of the listing of NASDAQ in the United States in June that "the top priority should be to increase the proportion of food in total revenue." It shows that Starbucks has proposed changes in business strategy, effectively pooling business resources and carrying out key actions to create value.

"adhering to the principle of service first and paying attention to the interaction and relationship with customers" is Starbucks' business philosophy.

In response to consumer demand, Starbucks bought La Boulange, a well-known bakery chain in the San Francisco area, for $100m in 2012, offering a wider range of food and beverage options in line with market trends and bringing "money" to Starbucks stores.

Then, due to the changes in Starbucks' territory planning, it was considered that the operation of the bakery did not support Starbucks' long-term planning, so it was decided to go into history in 2015. however, Starbucks continued to use La Boulange's bread formula in other food manufacturing and continued to sell it in stores in the United States.

(image source:businessinsider)

Innovation within the enterprise can lead the enterprise to improve its operating performance. Starbucks relies on its distinct value proposition and operation model to create a unique competitive advantage. In addition to food R & D in European and American markets, Starbucks has also brought this upsurge of innovation to China, ploughing the Chinese market through the diversity of food and beverage items, which can not only effectively increase the revenue of stores, but also in the face of the expansion of non-mainstream cities in China, it is also necessary to increase the favor of Starbucks brands in non-mainstream cities through catering innovation strategies.

Operation mode is a basis for enterprises to implement strategic innovation. Starbucks invests efforts and resources on food types, and at the same time, it must cooperate with a sound operation model in order to create excellent results.

Food safety concerns, product disputes hit

In fact, in order to achieve an improvement in performance, the price of drinks has been gradually raised since 2016 to make up for the lack of profitability, but the result is not as expected by relying solely on the price adjustment of coffee and surrounding commodities. (not only in Taiwan, but also in China and other regions.)

However, while thinking about how to make efforts on food in the future, BBC News pointed out that according to the results of a plainclothes survey, the ice drinks of three common local coffee brands-Starbucks, Costa, and Nero-were all tested positive for fecal E. coli, with Starbucks having the highest test value.

As soon as the news came out, Starbucks undoubtedly dealt a blow to Starbucks around the world, and Starbucks immediately replied to the Chinese market, saying that it gives top priority to providing customers with high-quality, safe and reliable food and beverages in line with the relevant national standards.

However, this is not the first product dispute, as early as the end of 2015, Starbucks was involved in a "sole door" storm, although Starbucks said that "this ingredient is in full compliance with China's relevant food safety laws and regulations, so that consumers can feel at ease to use", but the news still has a great impact on the value of the brand.

Sole door incident (image source: first Reading)

"sole door" incident: Starbucks uses a compound flour improver (azoformamide) in some pastries in Chinese stores, which is an industrial foaming agent commonly used as yoga mats, rubber soles or artificial leather to increase product elasticity; it is also added to foods such as steamed bread and bread.

With the expansion of products, the complexity of food procurement, processing, storage and transportation has increased, and food control standards have become more stringent. Food safety and product disputes have not only affected the global market. China, a gold market, is a major negative blow.

Starbucks is expanding rapidly everywhere. Starbucks can be seen in shopping malls, schools, shopping crowds and other places, not only as a coffee brand, but also as an important social place in the hearts of consumers. in addition to shouldering the characteristics of product functions, value transmission and social functions, doubts about food safety events undoubtedly have a significant impact on Starbucks' long-term development. And bury a big hidden worry for the future of the enterprise.

Looking for the vitality of innovation and change under the critical performance situation.

The focus of strategic innovation is to solve the unmet needs and problems of consumers. In response to China's vast consumer market, Starbucks has increased its investment in diet, combined with the development of its business model. Through different marketing activities, strategic innovation and business model change and other ways to strengthen the interaction and relationship with customers.

In the face of the rapid changes in the business environment, the business thinking of enterprises must also be constantly adjusted and revised, with the business philosophy as the core, create enterprise value and value transmission, and pursue to meet the needs of consumers as the goal to move forward.

From a competitive point of view, the Chinese coffee market is highly competitive. In response to the pressure brought by the market and the industry, Starbucks is moving towards a diversified product line, by increasing the variety of food items, in order to drive a larger source of food income. From the perspective of consumers, whether product diversification will be watered down in the hearts of consumers, the existence of the perception that "Starbucks is a professional coffee shop" is still an issue that Starbucks must worry about as it strives for innovation and transformation in the Chinese market.

In view of this, Starbucks also has different business strategies in China. In May this year, the Starbucks boutique bakery (Starbucks Roastery), which finally opened the first mainland market in China, opened grandly in Shanghai. Its boutique bakery is designed to play down the misgivings that the diversification of food and beverage brings non-coffee professionalism to consumers. In the future, it will also be opened in different provinces in China to re-transmit the value proposition of enterprises and find the best connection with consumers. Expand the business model and bring business benefits.

Starbucks Roastery . (image source:Starbucks)

If enterprises can effectively integrate internal and external resources in the planning of the business model, fully implement and timely play different business roles, and participate in the process of solving consumer problems, it will become an important meaning of practical strategy innovation.

How to find a piece of vitality from the coffee red sea market in China, Starbucks has to respond to market pressure and changes in consumer perception through innovative strategies and business model changes in order to effectively carry out business model actions.

How will it develop in the future? let's look forward to the transformation of Starbucks.