The Aspects of Starbucks Corporation in China

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The Aspects of Starbucks Corporation in China

Starbucks

Starbucks Corporation is an American multinational chain of coffee houses and roastery reserves headquartered in Seattle, Washington. As the world’s largest coffeehouse chain, Starbucks is seen to be the main representation of the United States’ second wave of coffee culture. Since the 2000s, third wave coffee makers have targeted quality-minded coffee drinkers with hand-made coffee based on lighter roasts, while Starbucks nowadays uses automatic espresso machines for efficiency. As of early 2020, the company operates over 30,000 locations worldwide in more than 70 countries. Starbucks locations serve hot and cold drinks, whole-bean coffee, microground instant coffee known as VIA, espresso, caffe latte, full- and loose-leaf teas including Teavana tea products, Evolution Fresh juices, Frappuccino beverages, La Boulange pastries, and snacks including items such as chips and crackers; some offerings (including their annual fall launch of the Pumpkin Spice Latte) are seasonal or specific to the locality of the store.

Since, the foundation of the starbucks company it has gained a lot fame around the world and opened its branches almost in every edge of the world. Officially, company was found in 1971. Company also opened its branch in China also.

Since their entry into China in 1999, they have been focused on developing a company that is committed to sharing the Starbucks experience with Chinese consumers, one cup, one person and one neighborhood at a time while passing on classic coffee culture. They care about their partners, so that they can provide customers with a Starbucks experience that exceeds their expectations; and about the community, so that they can all work together to contribute to others.

Currently Starbucks has opened more than 4,300 stores in 180 cities in mainland China, employing over 58,000 partners. Their unique scale allows them to practice their promises every day through every single one of Starbucks stores.

The company currently opened six flagship stores in China which pay tribute to love of coffee. These stores are located in Beijing Kerry Center, Beijing Tai Koo Li, Chengdu Tai Koo Li, Shanghai Disney Town, Shenzhen MIXC World and Suzhou Center.

Statistics

Starbucks unique digital platforms, including the Starbucks Mobile App and My Starbucks Rewards helps the staff connect with their customers outside of the stores. Starbucks has always been committed to creating emotional connections between the staff and customers through continuous innovation. In December 2015, Starbucks launched their official Tmall flagship store to combine its unique store experience with an online fourth space, which was the first Internet+Coffee platform for Starbucks. In December 2016, Starbucks announced a strategic partnership with Tencent, on Chinas top mobile social application – WeChat – to introduce a social gifting experience to encourage an emotional connection with others in todays digital age.

Today, Starbucks announced it will invest approximately $130 million (USD) in China to open a state-of-the-art roasting facility in 2022 as part of its new Coffee Innovation Park (CIP). As Starbucks largest manufacturing investment outside of the U.S. and its first in Asia, the CIP will incorporate a roasting plant, warehouse and distribution center, creating highly-skilled jobs and new career opportunities that will further drive smart and sustainable coffee manufacturing in China. The plant will serve as a key component of the Companys global roasting network. The bold infrastructure investment further deepens Starbucks multi-decade commitment to strengthen the specialty coffee industry in China, where it aims to have 6,000 stores by 2022.

Building on Starbucks sustainability announcement in January, the CIP will incorporate advancements in sustainable manufacturing, smart supply chain innovation, and technology to support the aspiration to deliver the most energy- and water-efficient roasting operations for Starbucks in the world, while minimizing waste. The new roasting plant facility will be designed with the intent to apply for U.S. Green Building Council LEED Platinum certification, as well as Chinas Three Star Green Building standards.

From farm to cup, Starbucks has helped shape the specialty coffee industry in China through continued investment in training and infrastructure, including the opening of the Starbucks Yunnan Farmer Support Center in 2012 to provide open-source agronomy resources to coffee farmers throughout the region. The new CIP, wholly-owned and operated by Starbucks, will source coffees from China and around the world directly from origin for processing, roasting, packaging and distribution, for the first time in China. Construction of the CIP will begin later this year in the city of Kunshan, an hour from Shanghai.

With the CIP set to handle Starbucks largest roasting capacity outside the U.S., the investment highlights the Companys ambition to further globalize its roasting network and reinforces Starbucks strategic focus on the U.S. and China as its two lead growth markets. Currently, Starbucks operates six other roasting facilities one in Amsterdam to support European markets, and five in the U.S. The warehouse, roasting and distribution capabilities of the CIP will lay a strong foundation for continued business growth and development in China.

Starbucks vision extends far beyond roasting. Once in operation, the CIP will integrate green coffee bean warehouse management and processing, with plans to co-locate a highly-automated and intelligent distribution center that will become the heart of Starbucks distribution network in China. The facility also will serve as a training ground for coffee roasters and key roles across Starbucks coffee supply chain in China.

As of May 2020, Starbucks has around 31,256 locations spanning 79 countries and territories on six continents:

Luckin Coffee reached 2000 by January 2019, and expected to reach 4500 by the end of the year, beating Starbucks which is expected to have 4,121 stores. This company is current opponent of Starbucks
Luckin Coffees rapid expansion is turning into a nightmare scenario for Starbucks for a number of reasons. One of them is that Luckin has begun to steal the buzz from Starbucks by opening up stores in high profile places like the Forbidden City where Starbucks was famously evicted a decade ago.

Then theres the prospect of Luckin Coffee challenging Starbucks for monopolistic behavior, according to Statista. And that could end up costing Starbucks a great deal of money and time, as has been the case with other American companies.

Meanwhile, theres Luckins business model, which focuses on smaller stores, technology, and speedy delivery, which appeal to the younger generations.And theres more: price competitionthe worst nightmare of every business. Luckin Coffee products sell 20% below those of those starbucks.

Thats expected to put pressure on Starbucks market shares, sales growth and profit margins, especially as the Chinese economy slows down.

But equity analyst, John Zolidis isnt concerned about Starbucks competition in China. We spoke to the company about this within the last two weeks and also touched on the expansion of Luckin coffee which is trying to go from zero locations to 4,000+ in just a few years, says Zolidis. Based on our exchange with the company, we believe that China guidance is very reasonable and even offers the potential for upside due to company initiatives including delivery. Further, we would argue that coffee (even premium priced coffee) is not economically sensitive in the sense that a $1000 Iphone might be.

Still, winning the minds and the wallets of Chinese consumers wont be easy. China is a diverse rather than a homogeneous consumer market, which consists of three segments:

The highly globalized segment, in which Chinese consumers display similar preferences and tastes with consumers in highly developed countries. This segment extends over three eastern regions: The Pearl River Delta, which includes Hong Kong, Guangzhou and Shenzhen; the Yangtze River Delta, which includes Shanghai and nearby cities; and the Beijing-Tianjin region.
The highly localized segment, in which consumers maintain their local preferences and tastes. This segment may be found in the most remote rural areas of central and western China.
The semi-global market segment, in which consumers display a mix of global and local preferences. This segment is a collection of mega-cities like Fuzhou, Zibo, Qingdao, Shantou, Dalian and Huizhou.

So far, Starbucks has expanded into the easy target, the highly globalized segment, which requires little localization of the products sold in its home market.But it will be extremely difficult to reach the other two segments, without substantial changes to its business model.And that will further undermine the companys scalability, revenue growth and profitability.

Reference list

https://www.forbes.com/sites/panosmourdoukoutas/2019/01/21/starbucks-worst-nightmare-in-china-is-coming-true/#7738b8a517ec
https://en.wikipedia.org/wiki/Starbucks
https://stories.starbucks.com/press/2020/starbucks-coffee-innovation-park-in-china-extends-global-roasting-network/

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