The coffee purist: How Peet's avoided the Starbucks rat race

China’s coffee war has heated up over summer with Cotti Coffee’s rolling out “buy one, get one free” offers, Luckin Coffee pricing drinks below 10 yuan (HK$10.9) and Starbucks cutting prices on over a dozen drinks and rolling out study rooms to woo customers. 

But one brand has steadfastly kept away from the crippling retail price wars and self-defeating excessive competition known as involution in the mainland. In fact, Peet’s Coffee, owned by the Amsterdam-listed JDE Peet’s, has seen its operating profit in China grow by over 20 percent last year, according to East Week magazine, the sister publication of The Standard.

Known as the “father of Starbucks,” Peet’s has kept away from price wars and rapid expansion, choosing to compete on quality and targeting affluent consumers with premium prices.

Focus on premium coffee
Peet’s entered the Chinese market in Shanghai in 2017, charging between 30 yuan and 40 yuan for an Americano under a high-price strategy that showcased its premium hand-roasted coffee beans. It has since expanded and had 268 stores in mainland by the end of 2024, mostly in first-tier cities. 

Peet’s has a strong focus on quality, environment, service and beans, and most of its stores have professional baristas. 

While Starbucks has started offering free “study rooms” to boost traffic, Peet’s has a strict a “purchase-to-sit” policy to deter customers from occupying seats without buying a drink.

Peet’s fares well on online platforms. It ranks among the top five in customer reviews on Alibaba’s (9988) T-Mall and sees this market as a strong growth driver.

Its success in China helped JDE Peet’s rake in global revenue of €8.8 billion (HK$80.1 billion) and over 22 percent net profit growth last year. In contrast, Starbucks has been struggling and there have been reports of it seeking new investors and looking at selling its Chinese operations.

The inspiration behind Starbucks 
Founded in 1966 by Alfred Peet, Peet’s pioneered roasted coffee in the United States and inspired the founders of Starbucks. However, Peet’s focus on quality over expansion saw it outpaced by Starbucks.

In 2012, Germany’s JAB acquired Peet’s for US$977 million (HK$7.67 billion), later increasing its stake to become the controlling shareholder last year. 

JAB then merged Peet’s with European packaged coffee company JDE to form JDE Peet’s, which is listed in Amsterdam and had a market value exceeding HK$120 billion on its debut in 2020.

Since the acquisition, Peet’s strategy has changed and last year it launched an affordable brand called Ora Coffee in Beijing with prices ranging from 15 to 25 yuan, sparking concerns that it may be preparing to enter the price war.

Shake Shack faces headwinds 
Meanwhile, another American high-end food and beverage chain in China is also facing challenges amid intense competition. 

 Shake Shack is known as the “Hermes of Burgers” and when it entered Shanghai in 2019, there were seven-hour queues for its burgers, with some intrepid customers reselling them for as much as 200 yuan.

While Shake Shack has over 40 mainland stores, its expansion has slowed and some outlets have closed over the past 12 months. A recent survey found 72 percent of consumers consider its prices “too high,” with a signature beef burger costing 84 yuan.

Also, Shake Shack has to contend with competitors like Tastien Burger and McDonald’s, which are aggressively pushing low-priced meals amid China’s gruelling retail wars.

STAFF REPORTER