The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Ka Sing Chan

HONG KONG, July 7 (Reuters Breakingviews) - Fast-food provider Mixue's 2097.HK success is adding a bitter taste to Starbucks' SBUX.O attempts to sell a stake in its business in the People's Republic. The Chinese company has grown into the world's biggest food and beverage chain by selling sub-$1 drinks and adapting quickly as domestic consumers spend less. That's hard for the $107 billion premium-brand U.S. coffee icon to compete with.

Both Mixue and Starbucks opened their first stores in China in 1999. For the latter the challenge was to introduce coffee culture to a nation obsessed with tea. This turned out to be a smooth blend. Chinese consumers have become more picky and cost-conscious of late, though, and the Seattle-based heavyweight's market share has dropped to 14% from 34% in 2019, per market data provider Euromonitor.

Starbucks is trying to fight back. It announced its first-ever price cut in China last month, although its offerings are still far more expensive than those from Mixue and other rivals like Luckin Coffee.

But Starbucks cannot compete on pricing alone. Its problems run deeper than that. Amid all the talks about China’s weak consumer demand, some of the best-performing stocks in the past year have been the so-called new consumption plays, which include trendy toy maker Pop Mart International 9992.HK and handcraft jewellery retailer Laopu Gold 6181.HK. These are brands that resonate deeply with the shifting spending preferences of young Chinese to focus on intangibles such as convenience, experience or personalization.

Mixue’s robust supply chain, for instance, allows it to reduce costs and introduce new beverages – or even new interior designs – to its more than 45,000 outlets within weeks. The same process may take much longer for Starbucks’ 7,800 stores in China. And a similar strategy caused problems at its U.S. stores in the past. Boss Brian Niccol even told shareholders in March that Starbucks can learn from "several lessons" in its China supply chain and improve its North American business.

Shareholders have rewarded Mixue's strategy: its market value has soared almost 80% to some $25 billion since its Hong Kong listing in March.

Starbucks China, meanwhile, may be worth several billion dollars, Bloomberg reported in May, citing sources. Its same-store sales have at least levelled off recently, halting the earlier slump. And Niccol has emphasised the need to find ways to grow. That would seem to require having a local partner - and buyer - with a Mixue-style understanding of how to take advantage of China’s new consumer logic.

CONTEXT NEWS

Starbucks has received “a lot of interest” in the sale of a stake in its China business as it explores a partnership with an outside investor to restore growth there, CEO Brian Niccol told the Financial Times in an interview published on June 11. As of the end of March the Seattle-based coffeehouse chain was operating 7,758 stores in China.

Mixue has surpassed Starbucks and McDonald's as the world's largest food and beverage company by store count, with 46,479 in 11 countries by December, according to the bubble tea retailer's listing prospectus. The company went public in Hong Kong on March 3.

(Editing by Antony Currie; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))