How Starbucks Was Able To Win Over China

there are over 34 000 Starbucks in 80 countries but in 1999 Starbucks opened in the world's largest tea producing country China Starbucks operates more than 6 000 stores in over 230 cities in the Chinese Mainland it's the Chain's second largest market behind the U. S they are surprisingly unblooded for a company that's been operating in China it's almost bizarre Starbucks is expanding rapidly in China a store opens every nine hours and the company has plans to increase the amount of stores in the region to 9 000 stores by 2025. they've done something that that very few companies from outside of China have been able to do which is they were successful almost from day one so how did the seattle-based coffee giant find a massive success in the country known for its love of tea in January 1999 Starbucks entered the Chinese Mainland by opening its first store in the China World Trade Center in Beijing Howard Schultz had the idea of hey let's take Starbucks to China and everyone around him said you're you're crazy that's a terrible idea uh it's a tea drinking culture nobody in China drinks coffee the company didn't focus on coffee when it first opened its intent was to assimilate into a tea house culture that had existed in China for thousands of years initially they said look you know we know they're not going to fall in love with coffee immediately so they added a wide variety of tea drinks then they took it a step further and actually started offering Chinese tea the company entered the Chinese market through a licensing agreement with Beijing media coffee a wholesale distribution company that supplied coffee beans to hotels and restaurants over the next few years the coffee chain operated in China through a combination of licensed and joint venture business Partnerships and company owned operations part of the company's strategy was to build a rapport with Communist Party officials well the major challenges are you don't see any foreign signs so you really need to establish very strong relationships with government officials in 2014 the brand built its first Starbucks Reserve debuting the format in mainland China in the wake of a successful growth strategy Starbucks expanded rapidly opening a new store in China every 15 hours in 2017 the coffee giant bought out its joint venture partner for 1.

3 billion dollars the balance that we try and strike is are we building stores that at a pace that allows us to stay in control building a beautiful store in the right real estate location and do every store in the right way and I think now we're building more Net News stores company operated stores in China than we are in the U. S China is the only Market where 100 of stores are on and operated by Starbucks compared to 59 in North America in 2017 the company debuted what it calls the first fully immersive coffee experience in Asia a 30 000 square foot Shanghai Starbucks Reserve Roastery and in 2019 it announced a partnership with the Nestle to bring at home options to Chinese consumers to date Starbucks has over 6 000 stores in China the country accounts for more than 15 percent of Starbucks's net revenue and the bulk of its International segment sits there Starbucks was intentional about creating a growth strategy that assimilated the coffee chain seamlessly into Chinese culture to ensure a smooth transition into China the company collaborated with local partners and businesses the chain also developed its own domestic supply chain and plans to train more than 50 000 Farmers by the end of 2023 adopting local Technologies and building out its own has been an important part of the company's growth strategy their digital initiatives have been behind the curve compared to most other companies but their loyalty program is fantastic ninety percent of its seven million loyalty members are actively engaged via Starbucks's app for mobile ordering China leads Starbucks's Global portfolio in terms of digital payment with 80 cashless payments Starbucks has about 1700 rewards members per location in the US compared to 3 300 rewards members per location in China the American coffee giant also partnered with Alibaba to bring new technology to its stores from in-store face recognition it's a 15-minute delivery not only did Starbucks adjust to the new retail model in China they've successfully imported a lot of what they were doing in new retail from China back to their Global markets so when you think about things like delivery and the Loyalty program and more technology in the store localized products the integration of the online and offline offerings at Starbucks all of that had its Genesis in their China operations Starbucks worked with local Partners to modify its menu to fit local tastes they also localized the food items not just to a Chinese Taste but regionally so you would find Shanghai Specialties or Beijing Specialties and Chongqing favorites in the different Starbucks stores the company's Target consumer base is China's Rising upper middle class and its westernized young population the stores are strategically located in business districts Urban centers and tourist attractions Starbucks has faced ongoing criticism over the high prices of its menu items in China despite the country having a lower GDP per capita and it's only getting more expensive there were arguments being made that we should you know keep the price lower because look China at this time is a developing country and I don't think that people can go in and spend four dollars um or at that time the equivalent of 32 rmd um on a cup of coffee it sounded outrageous really actually Starbucks went in with the same pricing that they did globally in some cases it was probably a little bit more expensive and so even would people leave Starbucks and they'd be walking around the streets with their Starbucks cup and it was a status symbol you could be walking around with your Balenciaga bag and your Manolo bionic shoes and your Starbucks cup Starbucks adapted to China's Culture by focusing on the country's strong values when it comes to family community and Status since 2012 Starbucks has hosted an annual partner family form where its employees and their parents can learn together about the company and its future in China and in 2017 it announced the launch of the Starbucks China parent Care Program which currently provides critical illness insurance plan for the parents of its employees China's Starbucks stores are designed to fit traditional Chinese architecture and have open layouts to welcome crowds noise and lounging the spaces tend to be much bigger than in the U. S the way people were going to use Starbucks in China much in the way they would use the tea house go in large groups hang out with your friends you might go in a group of four six eight ten people everybody wants to order a drink maybe have a little snack and that's where they're going to socialize for the next hour two hours three so obviously if you have a small store with limited seating that's going to turn off Chinese consumers Starbucks prices are much higher in China compared to other parts of the world it chooses high-end locations for its Outlets including luxury malls and office towers and since foreign Brands particularly in food and beverage are viewed as premium Starbucks makes it a point to include from which country its products are imported from you've got faster and competitors like luck and coffee and like Tim Hortons many times they tend to slide down towards that value-driven segment of the market you know two dollar coffee on the way to work so they don't really compete in Starbucks sandbox more recently Starbucks sales took a Plunge in its Chinese market due to the country's strict covid-19 restrictions pandemic related lockdowns caused Starbucks same store sales in China to sink 44 and 16 in third and fourth quarter respectively in 2022 compared to the year prior so you've seen China has maintained some of the most Drconian Mobility restrictions and covid-19 policy of anywhere in the world into this effect if you look at Starbucks fiscal third quarter earnings this other same store sales Fall 44 in the quarter with the Shanghai stores lockdown for two-thirds of that period which is really astounding I mean about half of your business disappears driven by Rising U.

S China tensions lockdowns and inflation Starbucks's operating income has declined 42 percent in the fourth quarter of 2022 compared to the year prior since it entered the country Starbucks has had a huge share of China's over 11 billion dollar coffee Market in 2020 the company held 36. 4 percent of the tea and coffee shop Market but in 2021 the company faced new competition from a Chinese coffee startup called luck and coffee the company quickly became the second largest coffee chain in China behind Starbucks they went from startup to something like three or four thousand locations in a few years and there was a lot being written about this is the end of Starbucks in China but in 2021 luck and coffee filed for chapter 15 bankruptcy in its balance sheet the company fabricated more than 300 million dollars in sales lucken was fined 180 million dollars by the Securities and Exchange Commission and was forced to do lists from the NASDAQ it was a house of cards that fell apart and collapsed you know roughly a year or two after they hit their Peak uh lucken is still in business um but they're certainly not a major threat uh to Starbucks things change in China very quickly you can have a competitor you never heard of open 2000 outlets in a year and suddenly you have an issue right so we see these Dynamic sort of companies pop up all the time and so far they haven't hit Starbucks which is sort of cruising along at premium level down below it's a lot more brutal according to experts the biggest threat to Starbucks in China today is a beverage company called Haiti they basically copied Starbucks for tea they said we're going to make premium teas beautiful locations and they're super I mean they're lines out the door you don't see lines out the door to Starbucks you could go to Haiti you'll see you can you can see it in the mall by the line you just look for the long line despite covet restrictions and increased competition analysts are confident that Starbucks will come out on top any other company you look at in China it was a brutal fight you know L'Oreal Coca-Cola all of them Google you know it's it's a it's a brutal environment it's just a sort of dynamic environment but Starbucks has never taken a major hit it's surprising like it's really it's it's not the norm even McDonald's and KFC and these other long-term players have had food safety issues and media exposes and com you know Starbucks just kind of cruises above it's um it almost seems unfair Starbucks plans to increase the amount of stores in the region by 50 to 9 000 stores by 2025.