When you want to get a cup of coffee, where do you go? In the U.S., most of us generally head to a Starbucks. It turns out that if we were in China, this is also something that we can do – Starbucks has expanded until they are just about everywhere in China. However, as Starbucks has become more and more successful, other firms have seen this and have decided that they want to start to offer coffee in China. The Starbucks product managers are now starting to face more competition for business in China than they have ever experienced before. What should they do with their product development definition now?
Selling Coffee In China
The Starbucks product managers built their empire in China on the idea that consumers there would want to be seen inside its posh cafes. Now Starbucks is struggling to keep up as local upstart Luckin Coffee wins over a new kind of Chinese customer – one who wants their coffee delivered in minutes. This competitor’s sudden rise has put Starbucks, Luckin and McDonald’s Corp. in a race to build the delivery system best tuned to the frenetic Chinese market.
The battle to bring on-demand coffee to China shows just how important delivery has become for Western companies doing business in the country, as well as how quickly competitors can emerge in China. Customers in the densely packed cities of the world’s most populous nation have grown accustomed to ordering meals and consumer goods for rapid delivery. Success can breed problems. In some cities, so many orders arrive simultaneously that office and apartment buildings have had to install robots to receive deliveries and avoid crowding elevators. During its 20 years of operating in China, Starbucks product managers have focused on the country’s wealthiest consumers, building thousands of well-appointed stores where customers can linger over expensive drinks. All of which would look good on any product manager resume. Delivery was a recent addition for Starbucks. Unofficial outfits had been delivering Starbucks coffee previously, but in 2018 Starbucks teamed up with Ele.me, the food-delivery platform owned by Alibaba Group, to offer delivery from an initial 150 stores.
By then, the product managers had spent nearly two years developing special lids and packaging to protect drinks from spilling or cooling during the mad dash to customers in China. Luckin who is backed by venture capital and run by local managers, integrated delivery into the service at its bare-bones stores from the outset. Since its founding, Luckin has raised $1 billion and opened 2,000 stores mainly offering delivery or pickup – many just feet away from a Starbucks cafe.
Dealing With Coffee Competition In China
The Starbucks product managers believe that they have expanding opportunities in China. China is its largest market outside the U.S. However, they also realize that they have challenges in navigating an evolving landscape and shifting consumer behaviors. The product managers expect competition to remain highly promotional and disruptive. Both Starbucks and Luckin guarantee delivery within a half-hour in major Chinese cities. Currently McDonald’s, which launched coffee delivery in Shanghai last year, guarantees orders will arrive within 28 minutes from a more limited number of its restaurants.
The Starbucks product managers plan to open nearly 600 stores in China this year on top of the 3,700 they operate there now. Meanwhile Luckin plans to open about 2,500 stores in China this year, which would bring its total to 4,500. Both companies hope delivery is what it will take to entice consumers to crave coffee more often and make more profitable purchases at physical stores. This is a big bet, considering China is still developing a taste for coffee. Annual coffee consumption per person is roughly 5 to 6 cups in China, compared with the more than 300 cups per capita consumed by Americans annually. The bad news for the product managers is that like food delivery in the U.S., analysts say, sending coffee to customers in China is mostly a money-losing endeavor.
Starbucks and Luckin wouldn’t say how much it costs to deliver their coffee or how much they have invested in those services. But Starbucks charges a lot more for its coffee than Luckin, which has appealed to cost-conscious consumers as China’s economic growth has slowed. In Beijing, a 16-ounce Americano costs $5.52 to have delivered from Starbucks and $4.02 from Luckin. Starbucks orders include an added charge of $1.34 for Ele.me, whose drivers fill the orders. Luckin’s orders include a $0.89 fee for its courier partner, SF Express. Delivery companies charge Starbucks and Luckin an average of $1.04 per order.
What All Of This Means For You
The one thing that Starbucks has learned is that people really seem to like the coffee that they serve. In order to keep growing, Starbucks has gone to China and has opened many new stores. Starbucks counts on its Chinese customers wanting to sit in their well-designed store and be seen drinking coffee. This has worked out very successfully. However, the nature of ordering coffee in China is starting to change and new competition is showing up. The product managers are going to have to look at their product manager job description in order to determine how to deal with this change.
Starbucks is having to deal with a new competitor in China: Luckin. Luckin and McDonalds have both embraced the idea of offering their customers coffee that is delivered to them. In the past, Starbucks had focused on its cafes. However, recently they have realized that they need to enter into the coffee delivery business. The Starbucks product managers have created special cups to help with the delivery of coffee. Luckin has focused on delivery of coffee from the beginning. Both Starbucks and Luckin are planning on opening many new stores in the future. The problem with delivering coffee is that it can be a money losing operation.
There is no question that there is a market for coffee in China. The real challenge as we move forward is discovering just exactly how Chinese customers want to get their coffee: in a café or delivered to them. The answer seems to be both ways. The Starbucks product managers have to find out how to expand their delivery service in order to compete with the new competition. If they can figure out how to do this, then the next time that we’re in China and we want some coffee we’ll probably just call Starbucks…
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™
Question For You: Should Starbucks lower the price of their coffee that they are delivering?
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What We’ll Be Talking About Next Time
In order to be a successful product manager, often we will have to use our product development definition to find partners for our company to work with. Once we’ve entered into an agreement with them, in order for our product to be a success, both partners have to do their part. This is all fine and good until the day that you discover that your partner has gone bankrupt. If that happens, what does it mean for your partnership? What does it mean for your partner?