How Starbucks Is Betting Big on Strong Coffee in China

In major Chinese cities, coffee culture is no longer just for expats. As Starbucks ramps up its store count from 500 to at least 1,500 across China in just a few years, one key question emerges: can the company turn casual tea drinkers into loyal espresso customers?

The short answer: Yes—but only if it gets the balance right. Starbucks sees a growing segment of affluent Chinese consumers willing to pay for ‘premium coffee.’ Yet success depends on careful expansion, especially outside Tier 1 cities where taste and price sensitivity vary wildly.

Starbucks’ Aggressive China Expansion Plan

In April 2012, Starbucks’ Asia-Pacific president John Culver announced an ambitious goal: grow the company’s China store footprint from 500 to at least 1,500 within three years. At the time, Starbucks had a presence in 48 Chinese cities. Culver stressed that the expansion would focus not just on more stores, but also on improving espresso quality, tailoring products to local tastes, innovating store designs, and strengthening community ties.

The announcement came amid broader global growth targets. While Starbucks faced stagnant sales in the U.S. and resistance in Europe—where it wasn’t yet profitable in France—its business in Asia, particularly China, showed strong momentum. The company projected that China would soon become its second-largest market outside the United States.

Why China? Coffee Growth and Premium Demand

According to Wharton School marketing professor Shen Qiaowei, there is a measurable segment of Chinese consumers—especially urban professionals—who actively seek out premium coffee. He noted that high-end independent and chain coffee shops have proliferated in recent years, serving affluent young Chinese who grew up with Western fast food and soft drinks. This demographic, he argued, demonstrates rising demand for quality espresso-based drinks.

Market research firm Euromonitor International reported that China’s coffee sales reached ¥6.25 billion (US$992 million) in 2011, a 20% year-on-year increase and 92% growth since 2006. Despite this, per capita consumption was just three cups per year—far below the global average of 240 cups. Still, the trend line pointed upward, with annual growth rates hitting 38% in some urban areas and profit margins as high as 35%, compared to 22% in the U.S.

Challenges of Scaling in a Diverse Market

Not all experts agreed that rapid expansion was risk-free. Wharton management professor Lawrence Hrebiniak acknowledged China’s potential—citing 38% annual revenue growth—but cautioned that city-by-city differences matter. Lower-tier cities with smaller economies might not respond as strongly to premium pricing or Western-style café culture. He suggested a more measured expansion to avoid cannibalization in saturated markets and to adapt to weaker demand in less-developed areas.

Meanwhile, Wharton marketing professor John Zhang argued the opposite: that Starbucks might still be moving too slowly. He pointed to the explosive growth of competitors like KFC, which operated over 3,000 outlets across 650 Chinese cities. With China’s economy growing at 7–8% annually, Zhang questioned why Starbucks wasn’t expanding faster to capture the booming middle class and rapid urbanisation.

The Competition: Local Brands and Global Chains

Besides international rivals like McDonald’s and KFC—which sell cheaper, different coffee products—Starbucks faces pressure from established regional players. Taiwanese and Japanese coffee chains have built strong followings, while independent cafés in major cities offer unique atmospheres aimed at the same affluent, style-conscious consumers. These local shops often feature distinctive interiors and curated coffee programs that rival Starbucks in appeal.

Culver addressed the competitive landscape by promising to “enhance the overall brand image,” improve espresso quality, and innovate both products and store experiences. He also emphasised the importance of building deeper relationships with customers and local communities—a move seen as essential to standing out in a crowded market.

What This Means for Coffee in China

The success of Starbucks’ premium push hinges on aligning its global brand with local tastes without diluting quality. While the company continues to raise prices in China—even above U.S. levels—demand remains robust. Whether that continues as it expands into smaller cities will depend on maintaining the same level of product excellence and customer experience that first attracted urbanites to its stores.

Starbucks’ bet on ‘premium coffee’ in China reflects a broader shift: as incomes rise and tastes evolve, more Chinese consumers are sampling darker roasts, richer crema, and the complexity of espresso. The challenge isn’t just selling more coffee, but selling the right kind of coffee to the right people at the right price.

Frequently Asked Questions

How many Starbucks stores were in China in 2012?

In 2012, Starbucks had around 500 stores in China, with plans to expand to at least 1,500 within three years.

What was Starbucks’ growth target for China by 2014?

Starbucks aimed to grow its China store count from 500 to at least 1,500 by 2014, targeting China as its second-largest market outside the United States.

Why did some experts warn against rapid expansion in China?

Experts warned that fast growth could lead to store cannibalization in big cities and weak demand in smaller, less wealthy cities where consumers may be less receptive to premium pricing and Western coffee culture.

Who were Starbucks’ main competitors in China at the time?

Besides local competitors like KFC and McDonald’s, Starbucks faced strong pressure from Taiwanese and Japanese coffee chains, as well as independent cafés offering unique atmospheres in major cities.

How much coffee did the average Chinese person drink in 2011?

In 2011, the average Chinese person consumed just three cups of coffee per year, compared to the global average of 240 cups.

Did raising prices in China hurt Starbucks’ sales?

No. Despite raising prices in China—already higher than in the U.S.—consumer demand for Starbucks coffee continued to grow strongly.

Recommended FrontStreet Beans for Strong Coffee in China

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