Battered Starbucks Enters Price War

By Douglas A. McIntyre Published Jun 9, 9:15AM EDT

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Starbucks Corp. (NASDAQ: SBUX) is trying to jump-start sales in China with sharp discounts on products it sells there.
This may be CEO Brian Niccol’s best plan for picking up market share.

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Battered Starbucks Enters Price War — © Justin Sullivan / Getty Images News via Getty Images

Starbucks Corp. (NASDAQ: SBUX | SBUX Price Prediction) has counted on China to be its major growth market. That has not worked out. The United States and China are 61% of the company’s revenue. It has 7,758 locations in China, and its comparable-store sales there were flat in the most recently reported quarter.

Starbucks is taking a beating from local competitor Luckin Coffee. It has over 21,000 stores, mostly in China.

Starbucks is trying to jump-start sales with sharp discounts on the tea it sells in China. The average cut is $0.70, according to Bloomberg. This includes over 10 tea-based products, which almost certainly means thinner margins on these beverages.

Starbucks and its new overpaid CEO Brian Niccol need help. The stock has drooped slightly more than the S&P 500 in the past year. Niccol received $96 million to fix the broken coffee company. He improved the fortunes of Taco Bell and Chipotle earlier. He remains upbeat. “My optimism has turned into confidence that our ‘Back to Starbucks’ plan is the right strategy to turn the business around and to unlock opportunities ahead,” he commented when Starbucks posted its latest earnings.

In the U.S., Niccol says he will make Starbucks into a local coffee house. He has fired 1,100 people and created uniforms for baristas. He is challenged by McDonald’s and Dunkin Donuts, each of which has a large footprint in the U.S.

It is too early to tell whether his U.S. formula can work in China. Discounts may be the best way to pick up market share. However, he does not lead the industry in China, so creative solutions like discounts may be his best gamble.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.