Starbucks ups perks as rivalry brews

Starbucks China on Thursday unveiled major upgrades in its rewards program in China amid its promotional activities in an effort to gain more consumers in fierce competition of the on-premise coffee sector.

The second-largest coffee chain house in China after Luckin Coffee by store number announced major perks in its Starbucks Rewards membership program, which involves about 100 million members, including measures to introduce a new Diamond Star Card membership tier offering personalized and richer experiences, exclusive gifts and superior services. Starbucks is also collaborating with hospitality operator Hilton Group for the first time to innovate the membership experience.

"This is the most groundbreaking upgrade since the establishment of the Starbucks Rewards program," said Molly Liu, executive vice-president and co-CEO of Starbucks China.

In the second quarter of the 2024 fiscal year, sales from members continued to grow, reaching a record high of 75 percent of total sales, the company said. Currently, Starbucks has over 7,000 outlets in China, covering nearly 900 county-level urban areas and cities.

The company has denied participating in a price war waged by competitors.

On online posts by consumers buying Starbucks products at extreme discounts, coffee fans posted comments such as, "These cases are rare and require meeting many conditions to combine multiple platform discounts," according to the company.

The company has encountered a difficult second quarter this year. Comparable global store sales declined 6 percent, with comparable China store sales down 11 percent, driven by an 8 percent decline in average receipts and a 4 percent decline in comparable transactions.

Belinda Wong, chairwoman and CEO of Starbucks China, said at the earnings release, "Starbucks China has launched personalized promotional activities to increase consumer purchase frequency, allowing us to optimize sales and profits".

Starbucks strategies include developing new products. In the fiscal second quarter of 2024, Starbucks China launched 27 new products, twice the number of the previous quarter and three times that of the same period the previous year.

More activities are scheduled for afternoon business hours, directly addressing the decline in afternoon sales.

Starbucks said its goal is to pursue high-quality, profitable and sustainable growth to solidify leadership in the premium segment, and to continue focusing on high-quality coffee and people connections, providing high-end coffee experiences for Chinese customers.

Jason Yu, general manager of Kantar Worldpanel China, said, "Starbucks has had its membership benefits system in place for a long time, but the highest tier had a relatively low threshold and didn't offer much perceived value."

In the current competitive landscape, Starbucks is taking a dual approach. On the one hand, it is offering various coupons, including major promotions in livestreams, to make prices more accessible and appeal to cost-conscious consumers. On the other hand, by introducing high-end benefits like the Diamond Star Card, it aims to attract and retain middle-income group members with higher spending power, providing them with unique and delightful experiences, said Yu.