Amid growing competition and ongoing deflation in China, Starbucks is cutting prices on several iced coffee and tea specialties. The company announced on social media on Monday that frappuccinos and tea lattes will be an average of five renminbi cheaper. Some drinks will cost only Rmb23 (US$3.20) in the future.

The step is a direct response to the increasing price pressure in an increasingly challenging consumer environment. Consumer prices in China fell by 0.1 percent in May compared to the previous year – the fourth consecutive decline. Faced with stagnant incomes and high youth unemployment, companies from car manufacturers to food chains are forced to sacrifice their margins to secure demand.

With 7,685 branches by the end of 2023, China is by far the largest foreign market for Starbucks. The company has massively expanded in recent years – including opening its own roastery in Kunshan and a record number of new branches in the year up to September 2024. However, the strategy is now faltering.

Competition with Chinese rivals is getting tougher – and significantly cheaper.

Other beverage segments are also in motion.

In its current annual report, Starbucks conceded that a “highly competitive environment” in China is putting pressure on profitability. The entry of new competitors makes the situation additionally complex. The company declined further comment beyond its social media post.