Why Starbucks’ New Business Strategy Will Conquer China

SHANGHAI, CHINA – Two weeks ago, construction began on a dormant property sitting along a busy intersection outside my home. From what has been an empty or vacant lot began to bustle and boom with the noise of construction workers each day welding, building, and destroying the property inside-out.

Two weeks ago it all became clear when the iconic Starbucks logo began glowing green. Every morning as I commute to work, and each night as I arrive home, I see the that glowing logo beating beside Subway and China’s leading cafe, Pacific Coffee. As bold as it’s beans, Starbucks had slapped yet another cafe in a famed and popular central location in Shanghai.

What is Starbucks Doing in Asia?

Why Starbuck’s New Strategy is Impressive

CEO Howard Schultz

In 1971, three students from the University of San Francisco set out to establish a coffee bean business called Piquod, named after the famous ship in Moby Dick. Within a few years, the students expanded their business in Seattle and had the company renamed to the Captain of the Piquod, Starbuck. The co-founders sold the rights to founding member Howard Schultz in 1983, and the company quickly began to expand. By 1992, Starbucks was brewing 2,000,000 beans a year, and went public.
The year is 2008, and Starbucks CEO Jim Donald is facing pressure from years of slow growth and rising materials prcies and enhanced competition in the coffee market. Founder, Howard Schultz returns to the post to resume is hole as President and CEO after an 8 year hiatus.
Schultz sought to restore the distinctive, “Starbucks Experience” despite booming expansion across US and International Chains. Facing rising competition from lower-priced fast food chains such as Dunkin’ Donuts and McDonalds, Schultz reformed brought the “Starbucks Experience” to the forefront of their expansion strategy that sought to not dilute the company, but to maintain it’s popularity amongst coffee drinkers.

Starbucks in China

Recently, Starbucks CEO Schultz announced plans to reposition Starbuck’s ambitions towards Asian markets. In a region that sees tea as the #1 most popular drink outside of water, Schultz seeks to turn 1.3 billion tea drinkers into coffee lovers. How will he do this? Is it fathomable to imagine a man who took an 8 year retirement from the company he founded, can exceed its original status as America’s most popular cafe?
Starbucks success isn’t unfamiliar to anyone living outside or inside the States. With 14,000 stores domestically brewing beans each day, it boasts 6,000+ stores worldwide. Nearly 1,000 in Japan. Over 150 in Thailand. Hundreds across Mexico, and soon 1,500 new stores across mainland China.

Balancing Act of Global Expansion

While the future seems set for Starbucks’ vision and Chinese surround me currently gulping down every roasted variety on the menu, there are more numbers to consider when understanding Starbucks’ aims.

With nearly 11,000 stores in the US and less than 7,000 worldwide in 2012, Starbucks faces a steep balancing act. While the prospects of growth in markets like China seem on-track, the company has struggled in some nations. In Russia, the largest nation in the world, there are only 56 stores following disagreements and a Moscow-based lawyers attempts to land rights to the company. In France, Starbucks has poured significant money into less than 75 stores and has barely even broken even on it’s efforts.

In 2012, the company stepped on the gas, intending to launch 1,200 stores the following fiscal year, about three shops per day in 2012. Less than half of them were in the USA.

“We’re in the early stages of growth in Asia – representing the fastest and largest retail growth opportunity in the company’s foreseeable future.”

– John Culver, President of Starbucks’ China and Asia Pacific Region

Securing Global Coffee Bean Producers in China

YUNNAN, CHINA – Starbucks is planning to launch a farmer-support network in China’s Yunnan region to assist in the production of cost-efficient coffee beans destined for Asian palettes. Starbucks’ is poised to establish an unprecedented stronghold on the coffee market in Asia. By buying out coffee bean producers in the Yunnan (lit. Low Clouds) province, the company has begun selling popular Asian themed drinks in its stores.

[youtube height=”HEIGHT” width=”WIDTH”]http://www.youtube.com/watch?v=BYSiGomkGdg[/youtube]

Even Starbucks’ largest competitor, TeaVana has been inhaled by the company, securing Starbucks’ foothold in a country that is poised to become the second largest coffee market by 2015. For Chinese I spoke with, they told me that they loved the taste, and that enjoying a drink a Starbucks was in itself, a social experience and an act of self expression.

Controversy

But what does this all mean for Chinese? Will they buy the bait? The truth is, simply being in, or purchasing Starbucks itself can be seen as a status symbol in China. Chinese enjoy being seen purchasing and consuming such a luxury coffee brand. Such a status symbol in itself, serves as an example of the growing classes of wealthier Chinese.

Starbucks Culture

 Recent controversy rise as state media reported the outrage of prices in Shanghai – overpriced they argued. Where a Starbucks thermos can go for $12, or a cup may exceed $0.45 the average cost of what you may find in Chicago, LA, or even New York City.

Starbucks’ turn to Asia, even with its homegrown elements of producing its unique blend from Chinese producers is an interesting move in its own right. For a company that has seen sluggish growth as various obstacles in establishing a world wide brand, it appears to be moving in their favor.
A gentleman wearing a suit and speaking perfect English just asked to borrow my seat as he accommodates the company of his colleagues for an afternoon meeting over coffee. I’m reminded once again that maybe I’m not even in China, but some other conglomeration of absolute-globalization in Eastern Asia.

Where Can You Learn More About Shanghai China and Living Abroad?

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2 Comments

  • Clayton Stewart 4 years ago

    Hey Trevor, don’t forget to take what Starbucks has done in China compared to the other leading American businesses that have entered China (KFC, McDonalds, even Harley Davidson). Starbucks did a smart thing by offering Green Tea flavored drinks, and catering towards the Chinese pallet. This allows the entrance barriers for the consumer to be low, they get into the store and get a green tea flavored drink and they are happy. Such as KFC and McDonalds with their rice dishes. Harley Davidson are actually releasing a smaller motorcycle to capitalize and compete in the Asian market. Whether this will work or not for Harley Davidson it’s still unseen. One company that has surprised me in China is IKEA, IKEA has practically the same business model with the exception of some food items and the display pictures. One thing I’ve noticed being in China and being a trend spotter is that no matter how much you believe Chinese people want to be western, they don’t. Chinese people are very proud people, they like some aspects of the western culture, but they do not want to be western. I believe this is why so many companies actually fail in China. Yet the companies that I’ve grown to hate in America are loved in China. Question: In Carrefour, who is the main competitor for the 400USD Columbia Sports Jackets? Playboy. Quote: Brands that die in America come to China to be revived (Amway, Herballife, GNC, Playboy). By the way, awesome website, I really like your articles. I think you have a future in China. I want you to analyze this, look at the spending behavior of the Chinese consumers, what is actually happening there? Remember that saying that Asian people save most of their money? Why did they save money? In an Itunes U episode, this korean business man explained it as “in Asia, our history is full of government flip flopping, and changing. He said that if they did not save their money, their family could starve. On another note, labor in China is longer very attractive, maybe it was two years ago or even one year ago, but people are pulling out of China to move to countries such as Bangladesh with much cheaper labor. So you have an increase in wages, a decrease in savings, and you just see this spending gap getting bigger and bigger everyday. Look at Louie Vuitton for example, foreigners buy the fake items but the Chinese people love to spend a month salary on buying the real one. People have money, they want to spend it, and now you’re seeing the beginning of a transition from an export economy to an import economy. Remember this, you have to get in front of the wave to catch the wave; and it’s a maverick.

  • Richard Walder 3 years ago

    Starbucks in Asia article
    The captain of the Piquod in MobyDick is called Ahab
    The first mate is Starbuck