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Big-Data and Digitalization is Transforming Decision Making in China’s Beverage Sector

Many domestic beverage brands are using big data to help them make operational decisions, inform smarter product development, predict market trends, and analyze consumer preferences. Big data is now an integral part of a "big data/consumer preference/product development" feedback loop, which is allowing brands to refine their product development, positioning and pricing, marketing, and retail strategies. It also affords brands a new ability to rapidly respond to emerging trends and tailor products to meet the shifting goalposts of consumer preference. Starbucks appointed a new CMO who is going to focus on digitalizing the brand and consumer experience and using insights from big data to guide its brick and mortar strategy.

In 2015, the State Council issued the Action Program for Promoting the Development of Big Data, underscoring the importance of promoting data aggregation, integration and correlation analysis in food safety and other fields, with the goal of improving the effectiveness of supervision and services.

China's food industry is rapidly developing its big data capabilities. According to data[1], the market value of food safety big data in China was only 588 million yuan in 2014 but increased to 812 million yuan in 2015. By 2016, the value of food safety big data exceeded 1 billion yuan, with a year-on-year growth rate of 44.83%. It is expected that the market size will grow to nearly 2.5billion RMB by 2020.

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How is Big-data being used by domestic beverage companies?

In recent years, China has spawned a large number of franchises and tea/beverage/coffee chains. Due to the huge investment cost to establish these brands, managers are required to make correct decisions. Big data helps key decision-makers to make smarter choices on product development, pricing, labeling, store site selection, user experience optimization, etc. Big data is now an indispensable tool for the major players in China's food sector and is being brought to bear in the following ways:

  • Visualize the effectiveness of the current strategy in real-time. Mixue Ice city (蜜雪冰城), a domestic milk tea brand, has a large screen set up in the headquarters of the company. On the screen, it displays dozens of data sets[2] such as the previous day's sales volume, customer flow, internet traffic, and keyword search frequency, Top10 product ranking, hot-selling stores, takeaway orders, etc.

  • Big data provides insight into consumer preference and improves the reliability of decision-making. Luckin coffee uses a new retail mode [3], which only allows customers to make purchases on its app. Access to this huge amount of purchasing data allows Luckin to codify consumer behaviors [4]. Analyzing and interpreting this data also allows Luckin to accurately spot trends early. These insights are then used to develop products and services and guide a complex product development consumer feedback loop that allows the development of products that better align with consumer preference.

  • Reduce the time consumers spend on browsing and improve the speed of purchasing decisions. In July 2018, CoCo upgraded its Wechat mini-program with a new "guess you like" function, which uses an algorithm to select products for consumers based on search history, past purchases, and other data. After it introduced the function, its order conversion rate increased by 22%[2], and the order time reduced by half (4min to less than 2min now). According to data, 52% of users placed orders directly after seeing the items recommended by "guess you like."

(** Order conversion rate = all orders/all visitors to the store *100%)

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Starbuck's Localization

Starbucks has been criticized due to its late adoption of digitalization. For example, Starbucks didn't launch WeChat payment until Dec. 2016. It wasn't until late 2017 that Alipay was available in Starbuck's stores, despite mobile payments being ubiquitous in China by that time.  

According to data revealed in the 2017 China Coffee and Beverage Chain Brand Market Share Ranking, the market share of Starbuck in China was 51%[5], making it the dominant player in the Chinese coffee market. But in Nov. 2017, a business rival Luckin emerged, threatening to usurp the longstanding queen of China's coffee sector with a new O2O business model. Luckin is already a serious challenger to the dominant Starbuck's, despite Starbuck taking nearly 17 years to establish its pole position.

In response to the precocious Luckin, in 2019, Starbucks began accelerating its digital development in China. On June 1, Starbucks reorganized all of its operations in the Chinese market into two units -- "Starbucks retail" and "digital innovation."Starbucks also recently appointed Brady Brewer to replace Matthew Ryan as its global CMO[6], with a focus on "digital experiences" and how to better integrate offline stores with digital business models. The new CMO Brady Brewer has worked at Starbucks for 18 years. He has taken responsibility for the development of Starbucks apps, mobile ordering, and other businesses.

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