How Does Starbucks Succeed in China?

 
 

In January 1999, Starbucks opened its first store in mainland China at the China World Trade Building located in Beijing. As of May 2016, the world’s largest coffee company has more than 2,100 stores in 102 Chinese cities and is adding more. It plans to operate an estimated 3,400 stores in China by 2019.

How has this mega-company succeeded in a country which traditionally favors drinking tea?

With more than 500 new locations built in 2015 alone, China has become the coffee giant’s top market outside of the United States. This has driven the mega-chain to implement a marketing strategy specific to its Chinese guests.

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With the rise of Chinese middle class estimated at nearly 350 million, more than the entire population of the United States, an ideal opening formed for Starbucks to capitalize on this increasingly more Western audience by providing customers the “Starbucks experience.” Given that part of this growing middle class is “Generation 2” (G2), which one report says are “the most Westernized,” the coffee chain might have hit the jackpot.

Social Media Buzz

With a growing number of Chinese middle class purchasing high-end goods and Western technologies like laptops, portable music players, and smartphones, Starbucks has smartly decided to interact with its customers using marketing with “Chinese characteristics.”

In 2012, the coffee company joined WeChat, a free calling service with now more than 500 million users. From its inception, Starbucks has encouraged Chinese customers to socially interact with it and their friends using the hashtag “#starbucks#.”

Starbucks has launched another technology-driven campaign via Weibo, a social media platform with more than 500 million users.

The coffee company also partnered with Alibaba, a Chinese company similar to Amazon, to launch an e-commerce site in 2015.

Maximize Big and Small Relationships

As Disney Resort celebrated the grand-opening of Shanghai Disney Resort, its first theme park attraction in mainland China and third overall in Asia, Starbucks quietly applauded in the background. Why? It was the 12th occasion in which the two mega-companies partnered together at one of the Disney theme parks. This particular two-level location – Disneytown at Shanghai Disney Resort — will certainly receive thousands of customers per day.

In a statement, Starbucks emphasized the Chinese identity of the newly opened facility in Disneytown:

“Hanging from the ceiling is a delicately constructed piece of artwork designed from gold and white metal wiring inspired by latte art crafted by baristas, while a mural of the Starbucks siren is made out of Starbucks cups. A centerpiece, this mural includes intricately designed silhouette scenes inside a handful of cups designed by local artists representing China’s cultural heritage.” 

In other words, the coffee company is perfectly happy catering to its audience who likely are majority Chinese and chooses to not overtly push Western values.

While the coffee conglomerate is working the above union to perfection, it is simultaneously massaging relationships with local Chinese government officials. One location coming online in 2017 is the 30,000 square-foot Starbucks Shanghai Roastery and Tasting Room inside a commercial mall. What makes this instance so interesting is that it is “fully supported” by local government officials, which include Shanghai’s Jing’an District Mayor Lu Xiaodong.

The coffee giant recognizes how important Beijing is to the brand. “China represents the most important and exciting opportunity ahead of us,” said Howard Schultz, chairman and chief executive officer of Starbucks, in a statement. “As our first international Roastery, we will take even bolder steps to make this Shanghai location our most stunning store, while making it completely unique and relevant to the Chinese customer,” he added.

Starbucks also understands how to mutually benefit from its smaller, local relationships. As of December 2014, 6,000 Starbucks employees in China held the distinction of “Coffee Master,” earned only from passing a strict coffee skills and informational training test. These employees are the most knowledgeable about all coffee aspects.

“Our partners are at the heart of everything we do in our stores in China,” said Belinda Wong, president, Starbucks China in 2012, adding that “the certified Coffee Masters leading this store [in Beijing] will introduce customers to even more unique elements of the espresso experience, demonstrating and defining our coffee leadership position in China.”

Starbucks also partners with smaller, local companies as it recognizes what they bring to the table.

Respect and Invest in Employees

Starbucks incentivizes its more than 30,000 employees well in China.

In June 2014, Starbucks introduced the China Youth Development Program, which molds future leaders. More than 1,500 college students from diverse backgrounds will benefit from this program over three years.

This January, Starbucks revealed it would subsidize housing accommodations for some of its more than 30,000 employees in China. Those who are eligible, an estimated 7,000 employees, are baristas and shift supervisors.

“Over time, it’s conceivable that China could become our largest market and I am grateful to our 30,000 dedicated China [employees] and their supportive families for the significant contributions they are making to Starbucks success,” Starbucks CEO Howard Schultz said in January.

This is not the first time the coffee chain has heavily invested in its employees. Besides China, Starbucks is paying for employee housing in the U.K., and in 2014, it partnered with Arizona State University to provide “full tuition coverage” to full and part-time Starbucks employees so they could enroll in one of nearly 50 online degrees.  This last initiative is projected to help more than 25,000 earn a degree by 2025 at a cost to the coffee company of at least $250 million.

Growing Pains

Starbucks’ relationship with China has not always been without slight bumps.

In 2007, a store located in the Forbidden City, a nearly 500 year-old palace and designated United Nations World Heritage Site, was closed. The reason for this closure was an Internet campaign started by Rui Chenggang, a TV anchorman, who stated on his blog that the store “tramples over Chinese culture.” The American coffee shop was then replaced by a Chinese coffee shop called The Forbidden City Café.

Another dispute involved Starbucks setting higher prices for their Chinese products.  For example, in 2013, Chinese products reportedly cost a third more than their American version.  Starbucks’ brass said that the price discrepancy was due to higher food prices and locally grown ingredients.

Future Outlook

What Starbucks understands is how the world is more interconnected than ever. Tailored Internet marketing campaigns and the traditional look of Chinese stores show how the company thinks of Chinese consumers as an individual, rather than mass, market. These strategies, together with the positive way its employees are treated, create a solid foundation necessary for Starbucks to expand in China.

Taylor Butch is a foreign affairs expert specializing on China in the Middle East and Africa, Fellow at China Cooperative, contributing analyst at Wikistrat, contributor at The Huffington Post, and freelance writer.  His work has previously been published at Asia Times, The Jerusalem Post, International Policy Digest, Real Clear Defense, and other publications. Follow him on Twitter @Taylor_Butch.

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