Innovations bolster coffee chain sales

In China, innovations in coffee and food, coupled with trendy collaborations, are stimulating sales of coffeehouse chains, including Luckin Coffee and Starbucks, encouraging them to expand and compete for younger customers and new patrons.

For instance, Luckin's collaboration with China's top liquor brand Kweichow Moutai has boosted its third-quarter revenue by 85 percent year-on-year to 7.2 billion yuan ($986.8 million), as its average monthly transacting customers surged by almost 133 percent year-on-year to 58.5 million. There were more than 30 million new customers for Luckin in the third quarter.

The Luckin-Kweichow partnership, forged in September, led to a liquor-flavored coffee drink that sold as many as 5.42 million cups worth 100 million yuan ($13.66 million) on the day of its launch.

Luckin opened 2,437 new stores during the quarter, including 11 in Singapore and up 22.5 percent quarter-over-quarter. Its store count at the end of the quarter reached 13,273, including 8,807 self-operated stores and 4,466 partnerships.

For Starbucks China, innovations in coffee and food, combined with rapid expansion, generated growth in the 2022-23 fiscal year (Oct 3, 2022 to Oct 1, 2023), with its latest financial report showing its revenue for the fourth quarter to Oct 1 rose 15 percent year-on-year to $840.6 million, with full-year revenue reaching $3 billion, up 11 percent.

In the fourth quarter, same-store sales rose by 5 percent while transaction volume rose by 8 percent; but, the average unit price per customer fell by 3 percent. Same-store sales rose by 2 percent for the full year. Same-store sales refer to the difference in revenue from a retail chain's existing stores over a certain period, compared to the corresponding period in the previous year.

In the fourth quarter, its store count rose by 326, a record, with the expansion continuing to accelerate later. For the full year, store count rose by 13 percent to 6,806.

In the fourth quarter, the number of active members of Starbucks Club (those who consumed in the past 90 days) reached a record high of over 21 million, up 22 percent year-on-year. Many of them were young customers.

Laxman Narasimhan, CEO of Starbucks, said: "We are satisfied with the performance of the Chinese market this quarter. Our revenue continues to grow every quarter, with a 20 percent increase in revenue in the second half of the year compared to the first half, demonstrating our strong growth momentum."

The CEO attributed the momentum to this year's frequent innovations like its Mousse espresso and smaller cup size of "Intenso Collection" coffee. In August, the company updated its food offerings, including the baguette sandwich, which has further fueled growth in store transaction volume and unit price per customer.

"The profitability of newly opened stores has given us full confidence to achieve the vision of 9,000 stores by 2025, which is to open 1,000 new stores annually," said Narasimhan.

In September, Starbucks China further enhanced its supply chain by opening its Innovation Industrial Park, a roastery and logistics center to offer better coffee experience for local consumers.

Quick service restaurant group Yum China said it plans to accelerate its expansion by opening 1,000 Lavazza coffee shops across the country in the next three to five years. A coffeehouse chain, Lavazza has seen its store count grow five times since its entry into the Chinese market in 2021 to more than 100 stores in 11 cities.

Jason Yu, general manager of Kantar Worldpanel China, said the strong performance of coffeehouse chains was boosted by the quick recovery of physical stores and digital retail, and reflects consumers' need for "anywhere and anytime" hangouts.

"Coffee market is fiercely competitive in China," said Yu. "Despite the overlapping consumers, coffee chains such as Starbucks and Luckin can still compete for different consumers and spending scenarios. Starbucks has strong potential in lower-tier cities where consumers have paid more attention to offline experiences."