If you’ve been to China recently, you might have noticed that, Chinese people do not fancy many international coffee brands, except for Starbucks. Right now China is the most important “emerging” market for Starbucks with 2,300 stores in over 100 cities in China, and with plans to open at least one store every day for the next 5-years.
Why China? First and foremost, the American market is already mature so they can’t expect continued growth their, especially as local and regional chains emerge that are contesting Starbuck’s in every American city. As a result, Starbucks and other international food chains have to look for new and emerging markets, and China, being the second largest economy in the world is the most obvious choice. Additionally, the aspirational based and very brand conscious middle-income class in China continues to grow and has doubled in the size during the last ten years.
Young Chinese are very media savvy and many choose Western brands over domestic brands both to impress their peers and because they believe that Western brands have higher quality standards than domestic Chinese brands. Compared to other international coffee brands such as Gloria Jeans, or Coffee Tea & Bean, Starbucks has a dominant 60% share of the Chinese coffee market, according to data from Roland Berger. To reinforce the brand and the potential growth in China, Starbucks is planning to open 2,500 more stores in the next five years.
There are several factors that have helped Starbucks win over China market based on its understanding of the Chinese market, be creating a comprehensive operations, customer service and marketing strategy. Starbucks understands Chinese culture and that many Chinese are not familiar with coffee, so instead of pushing coffee, it has innovated and created new products for the market such as green tea flavored coffee which is a hit in China. They have also adapted to the Chinese market and promote dine-in services. They have also strengthened Starbucks’s brand and corporate reputation in China, by investing in their employees by providing flexible working conditions, student loans and even worker accommodations.
As the China economy continues to grow, so does Starbucks ambitions and the company plans to make China their largest market by 2019. In order to achieve that, Starbucks has begun to source its coffee beans within China to enhance the domestic coffee industry. Further, they have branched out into tea drinks, including Teavana in China. These changes bring tremendous growth potential to Starbucks’ since China’s retail tea market is the largest in the world.
Other countries in Southeast Asia, such as Vietnam are also expected to receive benefits from Starbuck’s China expansion since Vietnam produces coffee beans that can be exported to China.
