Luckin Coffee’s plunge into milk tea has set off a wave, pushing Starbucks to jump in, too, as China’s beverage market keeps shifting.
Starbucks China has introduced its own tea series, offering creations like Longjing green grape Americano and Dahongpao pear latte. But what caught most people’s attention? The Longjing green grape milk tea and Dahongpao pear milk tea—marking Starbucks’ first foray into milk tea on its Chinese menu.
This move follows closely on the heels of Luckin Coffee’s debut of its jasmine light milk tea, which came with more than just a flavor twist. Mimicking the style of Chagee’s popular “Boya Juexian” series, it was a direct shot at a competitor. Luckin’s gamble paid off, selling over 44 million cups in a month—mirroring the explosive success of its sauce-flavored latte from last year. More recently, it launched a light Oolong milk tea.
In China’s rapidly expanding tea market, Starbucks has long set the benchmark. Heytea has aspired to become the “Starbucks of tea,” while Chagee styles itself as the “Eastern Starbucks,” with ambitions to overtake Starbucks China in sales by 2024. Luckin, meanwhile, has been open about its goal to surpass Starbucks in revenue by the end of 2023.
It’s a rivalry that shows no signs of cooling, but Chagee’s rapid rise has shifted the dynamic. Now, just as Luckin sets its sights on Chagee, Starbucks’ move into milk tea sends a clear signal: it sees where the winds are blowing.
Still, Starbucks isn’t copying Luckin’s playbook exactly. While Luckin mirrors Chagee’s jasmine-heavy formulas, Starbucks is introducing something new by using tea bags. Luckin and Chagee both lean on jasmine snow bud and jasmine tea as their base, mixing the tea infusions with milk. Starbucks, on the other hand, went with camellia-flavored Dahongpao tea bags and Longjing jasmine tea bags—two per serving.
There’s a catch, though. Tea bags take time to steep, so Starbucks is only offering these milk teas through its delivery service, banking on the delivery time to let the flavors develop.
It’s a strategy that’s already generating mixed reviews. On Xiaohongshu, some customers complain the tea flavor is too faint—a side effect of varying delivery times leading to different steep durations. Shorter trips can result in under-extracted tea. Yolanda, a loyal Starbucks customer from Beijing, told 36Kr that her order arrived in just ten minutes, with almost no tea flavor at first. But after letting it sit for 30 minutes, as suggested by some users online, the flavor improved, reminding her of Chagee’s offerings.
Others are confused by the inclusion of tea bags in milk tea, but some appreciate the more natural feel, noting that it lacks the artificial flair common in other brands.
In fact, Starbucks has been experimenting with tea bags in its drinks since last year, with options like an osmanthus-flavored Tieguanyin latte and a plum hawthorn black tea Americano. The addition of tea bags in its milk tea series is a natural extension of this trend. These drinks also feature pear and green grape jams. Yolanda joked: “Is this Starbucks’ way of capturing both the fruit tea and fresh milk tea markets?”
For Starbucks, 2024 could be pivotal.
Since opening in China in 1999, Starbucks has introduced coffee culture to the masses and has prioritized China for expansion. Howard Schultz, the company’s founder, even called it one of Starbucks’ greatest growth opportunities.
But this year has brought challenges. In the third quarter of fiscal 2024, Starbucks China reported revenue of USD 730 million, marking an 11% year-on-year decline. Same-store sales fell by 14%, with 7% fewer transactions, and a 7% drop in average spending per customer.
Faced with intense competition, Starbucks has had to play catch-up. Discounting is something it resisted for years, but now, buy-one-get-one-free offers and discounts of 25% on two drinks have become common.
Starbucks has been squeezed by the ongoing price wars between Luckin and Cotti Coffee, where drinks are regularly sold at RMB 9.9 (USD 1.4). And the booming milk tea sector—now boasting more stores than Starbucks—has cut further into its market share.
The company admits that dwindling traffic from occasional customers, especially in the afternoons and evenings, is a key issue—hours that milk tea chains dominate. Luckin’s light milk tea was strategically designed to lure in customers during these off-peak times.
Starbucks’ playbook is evolving.
Since at least 2018, the company has been rolling out new products to capture this occasional crowd, ramping up the pace in recent years. Between August and September alone, Starbucks introduced nearly ten new items, many with local flair: think chestnut red bean lattes, pomelo Tieguanyin tea, and persimmon frappuccinos.
In May, Starbucks began offering deals after 4 p.m. to draw in the afternoon crowd, pricing two drinks at RMB 45.9 (USD 6.4) or three at RMB 55.9 (USD 7.8).
Chinese consumers have a natural preference for tea over coffee’s bitterness—a key to Luckin’s success, driven largely by its milk coffee innovations. A tea-drinking society has naturally embraced the milk tea craze, and Starbucks is now trying to appeal to this broader base.
New CEO Brian Niccol officially took the reins on September 9. Industry watchers suggest he will need to tap into his marketing acumen to win over tea-loving Chinese consumers.
Starbucks’ milk tea venture is a clear bid to attract not only coffee drinkers but also the growing ranks of tea enthusiasts.
Luckin’s success in the space provides a blueprint, but price remains a sticking point. While Luckin promotes its milk teas at RMB 9.9 and typically charges between RMB 13–15 (USD 1.8–2.1), Starbucks’ milk teas are priced much higher—RMB 36, 39, and 42 (USD 5, 5.5, and 5.9) for medium, large, and extra large sizes, respectively. Even with discounts, the average price remains around RMB 20 (USD 2.8).
Historically, Starbucks justified its premium pricing through its “third place” strategy, positioning its stores as lifestyle hubs. But in a milk tea market dominated by local brands, Starbucks may need to offer more than ambiance to defend its prices.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Li Xiaoxia for 36Kr.