Starbucks' Rapid Expansion in China
Shelly Govila 10565436
STARBUCKS’ RAPID EXPANSION IN CHINA
Introduction Starbucks, one of the largest coffee houses in the world, was started in 1971 in Seattle, USA. It started its international expansion in 1995 by entering Japan, followed by several other countries in the following years. It entered China in the mid-1990s with just a distribution business and opened its first retail store in mainland China in Beijing in January 1998. This report covers the topics of Starbucks’ expansion into the Chinese market – the challenges faced, how it has changed its strategy to suit the Chinese market and the progress made so far. Challenges and Opportunities When Starbucks entered China, one of its main challenges was to make the Chinese accustomed to appreciating and drinking coffee. China was known for its tea-drinking culture and coffee was simply seen as a lifestyle drink. Coffee consumption in China is highly concentrated in large cities such as Beijing, Shanghai, and Guangzhou as these cities have the highest population of relatively Westernized modern youngsters. Moreover, based on survey data (Harvard Business Review, 2010), the price of a tall latte amounts to the equivalent of US$$4.50 (RMB 30) compared to US$3.50 in the United States. In terms of per capita income, China is still a developing nation. A substantial and increasing middle-class has now appeared, which is only 20% of China’s vast population currently. But this 20% alone approximates to a total of 250 million people. This is the market targeted by Starbucks – upwardly mobile, predominant6ly young, and interested in foreign consumer products that are not otherwise available to them. This rising mass of customers is the great lure of China. Adaptation of Starbucks in China In the United States, Starbucks’ success is directed by the speed of its transactions as people pick up coffee-on-the-go and rush about their daily schedules. However in the five years that it has operated in Hong Kong,
STARBUCKS’ RAPID EXPANSION IN CHINA
Introduction Starbucks, one of the largest coffee houses in the world, was started in 1971 in Seattle, USA. It started its international expansion in 1995 by entering Japan, followed by several other countries in the following years. It entered China in the mid-1990s with just a distribution business and opened its first retail store in mainland China in Beijing in January 1998. This report covers the topics of Starbucks’ expansion into the Chinese market – the challenges faced, how it has changed its strategy to suit the Chinese market and the progress made so far. Challenges and Opportunities When Starbucks entered China, one of its main challenges was to make the Chinese accustomed to appreciating and drinking coffee. China was known for its tea-drinking culture and coffee was simply seen as a lifestyle drink. Coffee consumption in China is highly concentrated in large cities such as Beijing, Shanghai, and Guangzhou as these cities have the highest population of relatively Westernized modern youngsters. Moreover, based on survey data (Harvard Business Review, 2010), the price of a tall latte amounts to the equivalent of US$$4.50 (RMB 30) compared to US$3.50 in the United States. In terms of per capita income, China is still a developing nation. A substantial and increasing middle-class has now appeared, which is only 20% of China’s vast population currently. But this 20% alone approximates to a total of 250 million people. This is the market targeted by Starbucks – upwardly mobile, predominant6ly young, and interested in foreign consumer products that are not otherwise available to them. This rising mass of customers is the great lure of China. Adaptation of Starbucks in China In the United States, Starbucks’ success is directed by the speed of its transactions as people pick up coffee-on-the-go and rush about their daily schedules. However in the five years that it has operated in Hong Kong,
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