Competition among China's delivery platforms is shifting from "bleeding subsidies" to acquiring high unit-price customers. Last year they poured in massive subsidies and focused on boosting order volume; this year they are pulling high-end brands such as Starbucks onto their platforms and switching to a strategy of raising gross merchandise value and per-customer spending. The local industry said last year's "malignant price war" is unlikely to recur and predicted that competition among delivery platforms will be reshaped around acquiring high unit-price customers.
A clear example is Starbucks. In China in recent years, around the start of autumn it has become popular to gift a "first milk tea of fall" to partners, family, or friends, spurring annual seasonal events and marketing battles among tea drink brands. This year's winner was deemed to be Starbucks. Over the weekend, "Starbucks autumn business war" trended on Chinese social media (SNS), and posts piled up from users saying they bought Starbucks drinks for around 10 yuan (about 2,100 won). Some even showed proof that their actual payment was only 4–6 yuan.
In China, a Starbucks drink costs 27 yuan (about 5,700 won) for a tall Americano, pricier than Korea's 4,700 won. That is more than double the price at China's leading coffee franchise Luckin (瑞幸), and in China Starbucks is sometimes called the "Hermès of beverages."
Starbucks drink prices fell below 10 yuan because, in addition to Starbucks' own seasonal discounts, delivery platforms such as Meituan (美团) and Taobao Flash Sales (淘宝闪购) under Alibaba waged large-scale discount battles. According to the Chinese business outlet 21st Century Business Herald, Meituan directly launched a 12.9-yuan (about 2,700 won) Starbucks product voucher, and Taobao Flash Sales added subsidies on top of Starbucks' own promotions.
Platforms appear to have chosen Starbucks as the target of their discount battles not merely to boost sales, but to draw in high unit-price customers. From a platform's perspective, Starbucks is a brand that can deliver both relatively high per-customer spending and loyal consumers. By luring such Starbucks users with low prices and keeping them on the platform, then linking them to other dining and delivery orders, platforms can expect benefits that go beyond a simple drink discount.
This contrasts with the delivery subsidy war that swept China last year. At the time, delivery platforms showered users with massive discount coupons and subsidies, leading to a flurry of cases where tea and other beverages could be purchased for under 1,000 won. Platforms rapidly grew orders and users by touting low prices, but the excessive price war produced side effects that hurt profitability for both platforms and franchisees.
In response, delivery platforms are pivoting to a "raise the unit price" strategy. Wang Xing, Meituan's chief executive officer (CEO), has said the area that deserves more attention is "higher per-customer spending," and Taobao Flash Sales also said in Aug. that it is "shifting its business focus from burning money to increase order volume to raising per-customer spending." In June, it even launched a "premium delivery" project targeting Michelin restaurants.
The local industry expects it will be difficult for a large-scale subsidy war like last year's to reappear. As platform subsidies have decreased, the frequency of additional consumer purchases has fallen, but as the share of delivery orders returns to an appropriate level, franchisees are seeing improved profitability.
In fact, tea drink franchise Aunt Shanghai (沪上阿姨) saw revenue and net profit in the first half jump 42.4% and 58.3%, respectively, from a year earlier, citing improved operating efficiency as the reason. As delivery platform subsidies decreased, order volume fell, but sub-10-yuan low-price orders dropped, lifting order unit prices, and with a lower delivery share reducing platform fee burdens, franchisees' profitability improved.
21st Century Business Herald said, "China's tea drink industry has already moved beyond the scale expansion phase and entered a competitive phase that prioritizes the quality of profitability," and added, "Delivery platforms likewise are expected to focus on bringing in high unit-price, highly loyal users with far lower subsidy expense than in the past."