Starbucks CEO Brian Niccol faces a rapidly evolving Chinese coffee market.

• The company's same-store sales in China decreased by 14% in the fourth quarter, posing challenges for Starbucks in the Chinese market.
• Despite facing competition from low-cost models driven by local startups and budget-conscious consumers, it has certain advantages.

During Starbucks' fourth-quarter earnings call, CEO Brian Niccol informed investors that he believed he needed to devote more time in China to comprehend the difficulties.

The company's sales in the country decreased by 14% due to a decline in foot traffic and average customer spending. Niccol intends to visit the country in the first or second week of December to gain a better understanding of the business.

Here's what he might see when he visits.

A low-cost model led by Chinese upstarts

In the coffee industry, Starbucks has been facing competition from Chinese upstarts, which have been gaining popularity.

Although Luckin Coffee faced accounting problems and was de-listed from Nasdaq, it has experienced rapid growth in China, with over 20,000 stores by the end of the third quarter.

Other local competitors include Cotti Coffee, Manner, M Stand, Seesaw, and Nowwa.

Luckin, Cotti, and Manner are the most aggressive on pricing.

In Beijing, a small latte that costs $4.22 at Starbucks goes for $2.25 at Luckin, $1.75 at Cotti, and $2.11 at Manner. However, Luckin recently offered a promotion selling most drinks at 90 cents.

Numerous Chinese chains have cramped stores with only one or two baristas. Their food menus are limited, and seating is minimal, typically consisting of folding chairs. Despite this, their drinks are consistently cheaper than Starbucks by half.

In China, Starbucks has an express version of its coffee stores called Starbucks Now, where customers mainly order drinks through the app for pick-up. Although the interiors are more basic, there are no special discounts offered compared to traditional Starbucks.

Money-conscious consumers holding onto aspirations

While the slowing economy is a concern for Chinese consumers, many are still focused on maintaining their desired lifestyles. As a result, they are looking for ways to save money without sacrificing quality.

The Chinese coffee chains keep their brews exciting by frequently changing their menu and trying out unique combinations that go beyond the typical cappuccino for the coffee competition.

Manner, a Chinese coffee brand, claims to use locally sourced beans and trains its baristas to operate semi-automatic coffee machines. Its coffees are blended with fruit juice, scented with flowers, and thickened with rice and cheese.

M Stand and Seesaw offer high-end concoctions, including an all-time M Stand favorite: a latte in an edible oatmeal cookie cup.

With a wide range of options available, coffee drinkers can easily find a beverage that satisfies both their taste preferences and budget.

Competition from everywhere

In addition to facing competition from Chinese coffee rivals, Starbucks is also competing with local tea chains.

Tea specialty shops like ChaPanda, Auntea Jenny and Mixue Bingcheng offer fruit and milk teas at a lower cost than Starbucks, with Auntea Jenny selling lattes for $2.67 and Mixue offering a similar version for 56 cents.

As the demand for daily coffee increases among Chinese people, many tea chains and convenience marts are now offering grab-and-go coffee options.

Starbucks also faces international challengers such as , Costa Coffee, and .

A Starbucks edge

Despite the fierce Chinese competition, Starbucks still has its fans.

In China, Starbucks is popular as a hangout spot for friends and business contacts.

Unlike many other establishments in the country, Starbucks stores are popular meeting points due to their consistent experience: welcoming interiors, comfortable seating, cleanliness, and friendly staff. Starbucks continues to maintain its reputation as a high-profile aspirational brand.