Starbucks faces challenges: multi-coffee brands compete for the Chinese market, coffee is very popular

Starbucks faces challenges in China market

Starbucks has always been a brand with no shortage of topics.

A Chicago woman is suing Starbucks for $5 million over too much ice in a cold drink, US media reported recently. The news has drawn industry attention to Starbucks, which has been widely questioned about its high pricing in China.

It's incredible for Chinese consumers to be sued for more ice in a drink.

In January, Starbucks 'global president came to China and said he would increase his business in China, opening 500 new stores in China every year.

Wang Zhendong, secretary-general of the Shanghai Coffee Association, believes Starbucks has cultivated the habit of Chinese consumers entering the store to consume coffee, and has also cultivated China's coffee culture. However, Starbucks started with standardized fast food mode. With the development of China's economy, consumers gradually give up the pursuit of fast food mode. Starbucks 'old mode may also be abandoned by consumers in the future.

Accelerating Chinese Investment

highly competitive

According to Starbucks '2015 earnings report, its revenue for the whole year of 2015 was nearly US $19.2 billion and its net profit was US $2.759 billion. Revenue from Asia Pacific, which includes China, rose from $1.13 billion to $2.396 billion, and its share of Starbucks 'total revenue rose from 6.9% to 12.5%. In addition to the United States, Asia Pacific has become Starbucks 'second largest market, while in 2013, China and Asia Pacific revenue was only 917 million US dollars.

By the end of January 2016, Starbucks had opened more than 2000 stores in China. Starbucks said it would speed up store openings in China in the face of the fast-growing Chinese market.

Gao Xiaonan, Starbucks 'head of public relations in China, said that from entering China in 1999 to the beginning of 2015, the number of stores was only 1500, and the previous development was relatively cautious. But it will accelerate in the future. Starbucks plans to invest more in China over the next five years, adding 500 stores a year, with a total of 3400 stores expected by 2020.

According to Starbucks China, there was a net increase of 444 new stores in fiscal 2015, the highest in nearly three years. In the global market, Starbucks adds only about 1500 stores a year. By the end of January 2016, there were 2000 stores in China. Starbucks has 23,000 stores around the world, with China accounting for about 10% of the total. Starbucks 'first quarter financial report for fiscal year 2016 showed that the number of new stores in China reached 150.

However, some media questioned Starbucks 'speed. Before 2007, Starbucks 'keynote was also expansion, but in 2008, Starbucks announced the closure of 600 stores worldwide under the economic downturn, and entered a diversified contraction, stripping records and other non-main businesses. In January 2009, Starbucks braked again, announcing the closure of another 900 stores.

Starbucks attributes its rapid growth in China to its unique culture. Gao Xiaonan told reporters: "Starbucks is the third place besides home and work. Chinese consumers also use Starbucks as a social place to gain loyal customers with its high-end positioning."

As for the reasons for Starbucks 'rapid development in China, industry experts say that Starbucks' higher pricing ensures its higher profits, thus enabling it to open more stores in China.

Hu Lu, deputy secretary-general of the Yunnan Province Coffee Association, told reporters: "Starbucks 'high price makes coffee a luxury." And the third space it creates gives Starbucks the confidence to set higher prices.

Wang Zhendong, secretary-general of the Shanghai Coffee Association, believes that Starbucks gained a monopoly position by entering the Chinese market earlier, but Starbucks 'advantage lies in quality management, representing a standardized fast food culture, which can be called McDonald's in the coffee industry. Just as McDonald's has risen rapidly in developing countries, Starbucks has had similar factors in its success. Developing countries lack coffee culture, Starbucks enters as a popularizer, takes the lead and can rise rapidly.

Starbucks has its own understanding of increasing investment in China, Gao Xiaonan told reporters: "Starbucks is very confident in China's economy, but Starbucks as a retail enterprise has its own understanding of China, optimistic about China's economy, the middle class population will double in the next five years, so it has made such a large investment in the Chinese market." Although there are voices in the international community that sound bad about China's economy, Starbucks insists on investing in the Chinese market for a long time."

Starbucks CEO Howard Schultz mentioned that China has become Starbucks 'largest international market and expressed great confidence in China's economy at Starbucks' global shareholder meeting this year, according to data provided by Starbucks 'China Public Relations Department. China's middle class will grow to 600 million people in the next decade.

However, competition in the Chinese market is also becoming increasingly fierce. Other coffee enterprises also added to the Chinese market. The reporter learned from Pacific (6.070, -0.08, -1.30%) coffee that by April 2016, the number of stores in the world had reached 477, among which the number of stores in the mainland of China had reached 329. We will expand our business scope in mainland China through franchised stores. According to public information, the total number of British COSTA coffee stores in China reached 344 in 2014 and plans to double the number of stores to 900 by 2020.

Shen Meng, executive director of Xiangsong Capital, believes that Starbucks developed rapidly in the early stage of China, opened a large number of stores, and the marginal cost further decreased. So the more stores open, the bigger the coverage, the higher the revenue. However, in order to accelerate the development of other brands in China, they also acquire more stores by joining. Franchise mode only needs to export brand and management, can quickly occupy market share, obtain profits, this light asset mode is conducive to rapid expansion, in the future there will be more and more brands through joining and other ways to expand market share in China. Competition will also intensify.

Gao Xiaonan said Starbucks opened one and a half stores a day and had confidence in the market, which stemmed from Starbucks 'confidence in its products and experiences. The Starbucks experience is unique, a way of life that no other business can replicate. Starbucks has confidence in maintaining its advantage in the competition. The domestic coffee market is large enough and keeps growing at a high speed. Consumers gradually accept the coffee culture and welcome other friends to develop together.

Wang Zhendong believes that the rise of independent coffee shops in China, large number, rapid growth rate, other foreign chain stores six consecutive increase in investment in China, will have a huge impact on Starbucks. However, these are not enough to shake Starbucks 'position. For Starbucks, the biggest enemy is itself. The reason for success is the reason for failure. Starbucks has successfully cultivated coffee culture in emerging markets, and once the local coffee culture in emerging markets is formed, Starbucks 'standardized fast food model will be neglected or even forced to withdraw from the corresponding market. Starbucks 'exit from Australia and Italy is a case in point. These two countries have developed very strong coffee culture. Starbucks 'fast food model is forced to withdraw because it does not conform to the consumption habits of the country. Therefore, Starbucks will increasingly withdraw from mature markets and have to continue to develop markets in developing countries. Coffee culture with Chinese characteristics has gradually formed, Starbucks model will also be challenged and neglected.

"The McDonald's and KFC experiences reflect the impact that the fast food model has taken in China. With the development of China's economy, consumers 'blind enthusiasm for foreign fast food has declined. McDonald's has closed some Chinese stores, and KFC's Chinese business has been packaged and sold by its parent company. Starbucks will inevitably suffer once China develops its own coffee culture." Wang Zhendong said.