Starbucks laser-focused on China market

Updated 2018-03-02 09:11:03 China Daily

Baristas prepare customers' orders at Shanghai Roastery, Starbucks' first international roastery, on Dec 6, 2017. (Photo by Wang Gang/For China Daily)

Coffee chain store operator continues with biz upgrading and expansion into lower-tier cities

Strong growth in China has continued to boost Starbucks Corp's financial results, reflecting the significance of the Chinese market where the world's largest coffee chain store operator has invested in upgrading stores, local plantation and expansion into lower-tier cities.

China's comparable same-store sales increased 6 percent, according to the company's first quarter report of fiscal 2018, which ended on Dec 31, 2017. In comparison, global store sales only grew 2 percent.

"China grew revenues 30 percent in the first quarter, with the strategic acquisition of East China positioning us to accelerate our growth in the key China market," said Kevin Johnson, president and CEO of Starbucks. "Today, Starbucks has two powerful, independent but complementary engines driving our global growth, the United States and China."

On Dec 31, Starbucks completed the acquisition of the remaining 50 percent share of its East China business from joint venture partners Uni-President and President Chain Store Corp for about .3 billion in cash, allowing Starbucks to assume 100 percent ownership of more than 1,400 Starbucks stores in Shanghai and Jiangsu and Zhejiang provinces, bringing the total number of wholly owned stores in China to over 3,200.

Jason Yu, general manager of consumption investigation firm Kantar Worldpanel China, said a unified ownership structure would help Starbucks accelerate its market development and franchise expansion, as a result of a faster decision-making process and a single strategy.

On Dec 6, Starbucks opened its first international roastery in Shanghai. On the opening day, the Shanghai Roastery became the highest grossing Starbucks store in the world, averaging more than double the number of transactions of their Seattle Roastery.

The decision to locate Starbucks' first international roastery in Shanghai was to grow its high-end market in China. The Shanghai Roastery is the company's largest cafe of its kind and comes three years after the company launched a roastery in Seattle. It is planning to open similar outlets in Milan, New York and Tokyo soon. The Shanghai outlet is also part of the coffee chain's long-term expansion plans in China.

According to Kantar Worldpanel China, Starbucks has a penetration rate of 37 percent in Shanghai among people aged between 15 and 49, while coffee outlets in general had a penetration rate of 48 percent among the same age group by the end of October 2017.

In other first and second-tier cities, the penetration rate is 16.8 percent for general coffee shops and 9.9 percent for Starbucks.

There is a market demand for more hand-brewed coffee outlets, while the Shanghai Roastery is a good opportunity for Starbucks to upgrade its products and branding, Yu said.

"The Shanghai Roastery represents our continued investment in our premium Starbucks Reserve brand," said Belinda Wong, CEO of Starbucks China.

Starbucks is looking to cash in on the rising consumption capacity of the mid and high-income group in China.

Scott Maw, chief financial officer of Starbucks, said of this year: "We are laser-focused on accelerating growth in China and driving improvement across the US business as we move into and through the back half of the year."

Wong said the company is deeply aware of the fact that their Chinese customers are also becoming more sophisticated and are constantly looking for new ways to realize their lifestyle pursuits.

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