Starbucks Corporation (SBUX) Is Counting on China

Is it possible to turn world’s largest tea drinking nation into a coffee country? Sounds a little far-fetched, doesn’t it? But that is exactly what Starbucks Corporation (NASDAQ:SBUX) has resolved to do. The young Chinese population is increasingly adopting Western ways and want to grab a bite at the neighborhood McDonald’s Corporation (NYSE:MCD), or have a steaming cup of coffee at the Starbucks Corporation (NASDAQ:SBUX) around the block. Thus, China has become the hottest destination for a lot of big names in the quick service restaurants, or QSR, space. Starbucks Corporation (NASDAQ:SBUX) is investing heavily in China.

Starbucks Corporation (NASDAQ:SBUX)

Evolution of the Chinese coffee market
Chinese coffee market is growing rapidly with most of the young people preferring coffee over the traditional tea. The statistics compiled by UK-based research company, Mintel Group Limited, reveal that during the period 2007 to 2012 the number of cafes in China almost doubled from 15,898 to 31,783. This compares to a mere 4% growth clocked by tea houses.

Thus, many of the world’s leading coffee chains are targeting the Chinese markets. This includes UK-based Costa Coffee and Italy-based Luigi Lavazza. The former is planning to have 500 cafes by 2016 while the latter will open around 200 by 2014. But Starbucks is already way ahead with over 800 outlets spanning across 58 cities on the Chinese mainland. The company has done its homework well.

Starbucks in China
Starbucks has spent years studying consumer behavior in China and was quick to understand that strategies would have to be tailor made for specific regions and localities. To understand individual preferences in different parts of China it struck alliances with local partners like the joint venture with Beijing Mei Da coffee company in Northern China, Taiwan-based Uni-President in Eastern China, and Hong Kong-based Maxim’s Caterers in Southern China.

What has emerged is a right blend of traditional Starbucks Corporation (NASDAQ:SBUX) culture with an assembly of impeccably English speaking staff in signature green coats and coffee that tastes just the way the Chinese like it. It is no surprise that since it opened its first Cafe in 1999, Starbucks has within a short time span emerged as the largest coffeehouse chain in China. According to Euromonitor International, the company has 61-62% market share in the coffee shop segment.

Current goals
Starbucks has now declared that it sees China as its second largest market after the US and it plans to open as many as 1,500 Starbucks stores in 70 cities by 2015. This is a tremendous growth opportunity for the company especially in the lesser developed cities that are mostly untapped.