Starbucks Eyes Lower-Tier Markets! County Store Expansion Marks Strategic Breakthrough

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Starbucks' Strategic Shift to China's Lower-Tier Markets

The sudden pandemic has put the global food and beverage industry under tremendous stress, with even coffee giant Starbucks finding it difficult to remain unscathed. Facing this unexpected impact, Starbucks turned its hopeful gaze toward China's lower-tier markets.

Starting from 2020, Starbucks Corporation decided to slow down its plan to open new stores in its largest market—the United States—and increased its investment in the Chinese market's development. At the same time, it announced that it would open at least 500 new stores in China during the 2020 fiscal year (ultimately adding 654 stores in the 2020 fiscal year) and accelerate the expansion of its "Starbucks Delivers" service, which was previously only available in first-tier cities, to second-tier cities.

Until this year, according to Starbucks China's 2025 China Strategic Vision, it can be understood that Starbucks plans to add 3,000 new stores by 2025 at an average rate of opening one new store every 9 hours, planning to cover more than 300 cities in China.

Recently, Liu Wenjuan, Chief Operating Officer of Starbucks China, stated that among these more than 300 prefecture-level markets, there are nearly 3,000 county-level markets, which means Starbucks needs to conduct more in-depth exploration of the lower-tier markets.

Reading this, some might wonder: with their product pricing strategy, who would buy? Initially, this writer thought the same. But upon reflection over the past couple of years returning to my hometown, I've always noticed that the Starbucks in town is often full of people, with the average customer ordering a coffee plus a piece of cake.

Different Consumption Patterns in Different Markets

This writer observed the store situation at different time periods. In first and second-tier cities, breakfast and lunch times are always peak hours for Starbucks, but in county towns, it's quite the opposite, as people here are accustomed to having breakfast and lunch at traditional eateries or at home.

However, once lunchtime passes, students begin to arrive at the store to study, and young people gather with friends. After dinner time, many parents also bring their children to relax.

Some colleagues also mentioned to this writer that working at the hometown store is even busier than during my time in first and second-tier cities. One colleague shared that in the county town store, which has been open for three years, they've gradually noticed consumers developing the habit of coming to Starbucks for coffee and breakfast in the morning, with peak periods during breakfast, afternoon tea, and after dinner.

The Value Proposition in Lower-Tier Markets

Although product pricing is relatively high for consumers in these regions, seemingly no one finds it expensive, because everyone feels that Starbucks' environment is much better than many smaller shops, and many independent coffee shops here are not inexpensive either. Therefore, when drinking coffee, more people choose the more well-known store.

"In the past, it was difficult to find a coffee shop when returning to my hometown. Although many people have returned to open businesses now, they haven't been able to persuade local people to consume. But Starbucks is different—people of all age groups recognize the brand. Since opening, what we hear most often is 'We can finally have Starbucks near our home!'" shared one colleague.

Meeting Different Consumer Needs

Yes, for things that are commonplace in big cities, there are still many consumers waiting for the day they can enjoy the same convenience. Compared to the demand for caffeine among urban office workers, consumers in these regions have stronger needs for social settings.

Compared to the widespread distribution of stores in big cities, the distribution of stores in county towns is not as dense, so the repeat purchase rate naturally improves, giving stores more opportunities to strengthen customer connections.

Liu Wenjuan, Chief Operating Officer of Starbucks, also stated: "Consumers in county-level markets have more scenarios for coffee consumption due to social needs." For Starbucks, which has always been committed to providing customers with a third space, county-level markets are indeed a way forward.

Image source: Internet

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