Starbucks’ China Growth Bucks Trend

At an investor conference on WednesdayStarbucks executives said they expect China to become the company’s largest market outside the United States by 2014as the coffee retail giant has maintained robust sales growth there while competitors have slipped. From the Wall Street Journal

Other major U.S. restaurant chains in China, such as Yum Brands Inc., the owner of KFC and Pizza Hut, and McDonald’s Corp. have seen sales growth slow in the region recently. Higher food and labor costs have forced eateries to raise menu prices, but Chinese consumers are more cost-conscious due to economic uncertainty, preventing them from spending at the rate they once did.

Starbucks says it still sees potential for thousands of cafes in China, and will reach 1,500 there in 2015.

“China has been a gold rush for U.S. companies and, the truth is, China will not be a lasting success for many of them,” Chief Executive Howard Schultz said at the conference. The key, he said, is making sure to stay locally relevant. That way, Starbucks won’t become a fleeting fad like other American trends.

Rob Minto at The Financial Times points out that “it’s now more expensive to buy a Starbucks latte in China than it is in the US,” and sheds more light on the company’s expansion plans:

China isn’t the only Asian emerging market that Starbucks is keen on: it has about 470 in South Korea and plans to raise that to 1,000 over the next four years. It is also looking to open its first store in Vietnam by the end of 2013, as well as its first one in Delhi to go with the recent openings in Mumbai.

But it’s China where the company is expanding fastest, looking to open in 26 new cities in the next five years, including so-called tier 3 and 4 cities.

With many coffees available for over $5, Chinese prices are frequently higher than those in the US, despite the average Chinese wage being about a fifth of that in the US. The price at the start of 2012 in China for a standard latte was around $4.20. With the recent 2 yuan increase, that’s now around $4.60 – less than a Starbucks in downtown New York.


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