is growing. I think they’d love to be partnering up with us in figuring out how we take this from 8000 to 20,000 (stores).” Once synonymous with the rise of aspirational middle-class lifestyles in China, Starbucks is now caught in a squeeze between slowing macroeconomic growth and a rising tide of savvy, local and value-driven competitors.  Rise in local coffee and tea chains Starbucks’ original success in China was built on aspirational appeal. In the early 2000s, sipping a macchiato inside a Starbucks cafe was a sign of cosmopolitanism. That premium image, however, now leaves the brand vulnerable in a market increasingly driven by caution, value, and cultural pride. The most visible sign of this shift is the meteoric rise of Luckin Coffee. Founded in 2017 and famously embroiled in a fraud scandal just three years later, Luckin Coffee has since executed one of the most remarkable comebacks in Chinese consumer history. As of mid-2024, Luckin has more than 20,000 stores across China, nearly triple Starbucks’ count. The chain has since become the country’s largest coffee chain by footprint. But Luckin isn’t just bigger. It’s also faster, cheaper, and arguably more attuned to the pulse of Chinese consumers. A typical Luckin latte can cost as little as 9.9 yuan (around US$1.35) after discounts, and the brand’s app-driven model rewards frequent purchases and digital engagement. Most stores are grab-and-go kiosks or counters with minimal overhead. This lean, tech-centric approach has allowed Luckin to expand rapidly, especially in smaller cities where affordability trumps ambiance. Other domestic challengers, like Cotti Coffee (founded by former Luckin executives), Manner Coffee and KFC’s K Coffee, have further eroded Starbucks’ market dominance. But the challenge to Starbucks is not just about price anymore. Chinese consumers have been embracing wellness-focused consumption. Homegrown tea brands like Heytea, Naixue and Chagee have seized on this trend by turning traditional beverages into modern-day indulgences.  According to iResearch, China’s tea drinks market by GMV grew from RMB474.8 billion in 2019 to RMB818.9 billion last year and is projected to reach RMB1.102 trillion in 2028. The consistent growth in demand for freshly made tea drinks has been driven by customers’ greater focus on health-conscious options. Starbucks has taken note.  Pricing and perception collide Earlier this month, Starbucks made a move that would have been unthinkable a few years ago: it cut prices. Prices of non-coffee drinks, including frappuccinos, iced shaken teas, and tea lattes, dropped by an average of 5 yuan, bringing some items as low as 23 yuan. It was the clearest signal yet that Starbucks understands it must compete not just on brand but on accessibility, especially in a market where consumers are increasingly cautious about spending.  According to Allison Malmsten, marketing director at Shanghai-based firm Daxue Consulting, while lowering the price is always a risk as it’s harder to keep customers if the price rises again, it seems like a measured risk under the current circumstances.  “Starbucks has been slowly falling out of popularity among Chinese consumers for some time,” Malmsten said on her LinkedIn post. “Among the rise of domestic competitors and shifting priorities in consumers, Starbucks is not seen as not worth the value-for-money.”  The cuts are part of a broader ‘all-day beverage’ strategy that positions coffee as a morning pick-me-up and tea-based drinks as afternoon indulgences. The brand will launch three new co-branded Iced Shaken Teas in collaboration with Disney’s Zootopia, along with new tea latte flavors. The release includes a broader rollout of co-branded merchandise and gift sets to enhance customer engagement. The price of foreignness Starbucks’ struggles also point to deeper headwinds facing foreign brands in China that go beyond just a slow economy. It’s the rise in nationalism.  Consumer nationalism has grown stronger in recent years, driven by Beijing’s emphasis on ‘self-reliance’ and national pride. This movement, known as guochao (meaning “national wave”), has led consumers to favour local brands that combine fashion appeal with patriotic sentiment. Chinese consumers, especially the younger generation, are increasingly choosing domestic brands, from Anta, Florasis, Perfect Diary to Heytea.  At the same time, as tensions between China and the US simmer, Starbucks, like Apple or Nike, is navigating a consumer landscape where its American roots can be both asset and liability. While no deal has been finalised, retail experts see a partnership with a local or regional investor could help Starbucks gain fresh resources, sharper local insight, and greater agility in decision-making. It might also be a sign that the company sees its China operations as requiring more tailored governance than what Seattle can offer from afar. Reuters reported earlier this year that several firms have shown interest in acquiring stakes in Starbucks’ China operations. These include private equity firms KKR & Co, Fountainvest Partners, and PAG, as well as Chinese entities like state-owned China Resources Holdings and food delivery platform Meituan.