Has Starbucks Created a New Coffee Culture in China?

on September 6 2011 | in Lifestyle Retail Trends | by | with No Comments

Starbucks, Beijing, China, coffee culture, coffee

Banking on a new coffee culture in a traditionally tea drinking country, Starbucks plans to triple its stores in China by 2015.

The company expects to have 1,500 Starbucks shops in China, up from its current 470 according to Jinlong Wang, Starbucks’ Asia Pacific president.

Starbucks opened its first shop in Beijing in 1999, and is now in 42 cities, including 10 new cities this year.

“The coffee industry in China has huge potential,” said Wang. “China has 5,000 years as a tea-drinking country, but we’ve created a new coffee culture.”

The Chinese coffee drinking market is still relatively small and Chinese consumers have to drink a lot of coffee before they can catch up to consumers in other markets.

Single-store sales in China’s Starbucks are on average 40% less than in the US, according to John Glass, a Morgan Stanley analyst.  Starbucks is working hard to change that.

Tea accounts for 70 percent of the hot drink market, but coffee consumption is growing by 25 percent a year. Still, coffee consumption is less than five cups per person per year, compared to 400 cups per capita per year in North America, according to Global Coffee Review.

But these days going for a coffee is fashionable for China’s new rich.

To most Chinese, coffee is still associated with a Western lifestyle and the cachet of visiting a foreign coffee shop is very enticing.

Coffee culture is beginning to be accepted and appeals to the adventurous, open-minded, young, affluent, urban consumers in cities like Shanghai, Beijing, and Guangzhou. Coffee drinkers generally consist of overseas returnees, expats, highly-educated professionals and college students. The growth of these consumers bodes well for the high-end coffee market.

“Coffee is still a trend rather than a habit here. People drink it to feel good, but not out of need,” explained Xi Ci, Executive Director of Shanghai Timo Coffee Co.  However, that may be slowly changing as more younger consumers begin to talk about their need for coffee — “I need it, especially in the morning.”

The most public sign of China’s changing coffee consumption habits is, predictably enough, the Starbucks coffee shops that now dot the country’s thoroughfares,” writes the Global Coffee Review.

Industry watchers estimate about 200-250 million potential coffee consumers in China out of a population of 1.3 billion people. This means the Chinese coffee market could be at least as big as the US.

As the number of shops grows, drinking coffee may become a habit in China in the near future. “I think in five years time we will see coffee consumption really blossom in China,” said Xi.

Starbucks has taken steps to bolster its business in the growing Chinese market. In June the company took back full ownership of stores in six Chinese regions. This is seen as a move to take more control of its China operations.

“Full ownership of our stores in Central, South and Western China is part of our broader strategy to build China as our second home market outside of the U.S.,” John Culver, president of Starbucks International, said at the time.

Late last year, the company set up a coffee farm and processing facilities in the southwestern province of Yunnan.

Asia, overall, has remain quite robust for Starbucks. “We’ve seen very strong same store sales across Asia, double digit growth in some markets,” Wang said.

Revenue from its international business rose 20 percent in the April-June quarter from a year ago and accounted for 23 percent of overall sales of $2.93 billion, according to the company. Starbucks has 17,000 stores in 55 countries.

Starbucks is looking to the emerging markets to boost sales. The company is expanding in other countries in Asia. Starbucks will open its first outlets in India next year and in Vietnam in 2013. It will expand to 700 stores in South Korea by 2016, up from 370 stores, according to Wang.

photo credit: mark jackson

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