00:00:02
there are over 34 000 Starbucks in 80
00:00:06
countries but in 1999 Starbucks opened
00:00:09
in the world's largest tea producing
00:00:11
country
00:00:12
China Starbucks operates more than 6 000
00:00:16
stores in over 230 cities in the Chinese
00:00:19
Mainland it's the Chain's second largest
00:00:22
market behind the U.S they are
00:00:25
surprisingly unblooded for a company
00:00:28
that's been operating in China it's
00:00:30
almost bizarre Starbucks is expanding
00:00:32
rapidly in China a store opens every
00:00:35
nine hours and the company has plans to
00:00:38
increase the amount of stores in the
00:00:39
region to 9 000 stores by 2025. they've
00:00:43
done something that that very few
00:00:45
companies from outside of China have
00:00:48
been able to do which is they were
00:00:50
successful almost from day one so how
00:00:53
did the seattle-based coffee giant find
00:00:55
a massive success in the country known
00:00:58
for its love of tea
00:01:04
in January 1999 Starbucks entered the
00:01:08
Chinese Mainland by opening its first
00:01:10
store in the China World Trade Center in
00:01:12
Beijing Howard Schultz had the idea of
00:01:15
hey let's take Starbucks to China and
00:01:17
everyone around him said you're you're
00:01:19
crazy that's a terrible idea uh it's a
00:01:22
tea drinking culture nobody in China
00:01:24
drinks coffee the company didn't focus
00:01:26
on coffee when it first opened its
00:01:28
intent was to assimilate into a tea
00:01:30
house culture that had existed in China
00:01:32
for thousands of years initially they
00:01:35
said look you know we know they're not
00:01:36
going to fall in love with coffee
00:01:37
immediately so they added a wide variety
00:01:40
of tea drinks then they took it a step
00:01:43
further and actually started offering
00:01:45
Chinese tea the company entered the
00:01:47
Chinese market through a licensing
00:01:49
agreement with Beijing media coffee a
00:01:52
wholesale distribution company that
00:01:53
supplied coffee beans to hotels and
00:01:55
restaurants over the next few years the
00:01:58
coffee chain operated in China through a
00:02:00
combination of licensed and joint
00:02:02
venture business Partnerships and
00:02:04
company owned operations part of the
00:02:06
company's strategy was to build a
00:02:08
rapport with Communist Party officials
00:02:10
well the major challenges are you don't
00:02:12
see any foreign signs so you really need
00:02:16
to establish very strong relationships
00:02:18
with government officials in 2014 the
00:02:21
brand built its first Starbucks Reserve
00:02:23
debuting the format in mainland China in
00:02:26
the wake of a successful growth strategy
00:02:28
Starbucks expanded rapidly opening a new
00:02:31
store in China every 15 hours in 2017
00:02:35
the coffee giant bought out its joint
00:02:38
venture partner for 1.3 billion dollars
00:02:41
the balance that we try and strike is
00:02:43
are we building stores that at a pace
00:02:46
that allows us to stay in control
00:02:48
building a beautiful store in the right
00:02:50
real estate location and do every store
00:02:53
in the right way and I think now we're
00:02:55
building more Net News stores company
00:02:57
operated stores in China than we are in
00:03:00
the U.S China is the only Market where
00:03:02
100 of stores are on and operated by
00:03:05
Starbucks compared to 59 in North
00:03:08
America in 2017 the company debuted what
00:03:11
it calls the first fully immersive
00:03:13
coffee experience in Asia a 30 000
00:03:16
square foot Shanghai Starbucks Reserve
00:03:18
Roastery and in 2019 it announced a
00:03:22
partnership with the Nestle to bring at
00:03:24
home options to Chinese consumers to
00:03:27
date Starbucks has over 6 000 stores in
00:03:30
China the country accounts for more than
00:03:32
15 percent of Starbucks's net revenue
00:03:35
and the bulk of its International
00:03:36
segment sits there
00:03:39
Starbucks was intentional about creating
00:03:41
a growth strategy that assimilated the
00:03:43
coffee chain seamlessly into Chinese
00:03:45
culture to ensure a smooth transition
00:03:47
into China the company collaborated with
00:03:50
local partners and businesses the chain
00:03:52
also developed its own domestic supply
00:03:54
chain and plans to train more than 50
00:03:58
000 Farmers by the end of 2023 adopting
00:04:01
local Technologies and building out its
00:04:04
own has been an important part of the
00:04:06
company's growth strategy their digital
00:04:08
initiatives have been behind the curve
00:04:10
compared to most other companies but
00:04:13
their loyalty program is fantastic
00:04:16
ninety percent of its seven million
00:04:19
loyalty members are actively engaged via
00:04:22
Starbucks's app for mobile ordering
00:04:24
China leads Starbucks's Global portfolio
00:04:27
in terms of digital payment with 80
00:04:29
cashless payments Starbucks has about
00:04:32
1700 rewards members per location in the
00:04:35
US compared to 3 300 rewards members per
00:04:38
location in China the American coffee
00:04:41
giant also partnered with Alibaba to
00:04:43
bring new technology to its stores from
00:04:46
in-store face recognition it's a
00:04:48
15-minute delivery not only did
00:04:50
Starbucks adjust to the new retail model
00:04:52
in China they've successfully imported a
00:04:56
lot of what they were doing in new
00:04:58
retail from China back to their Global
00:05:01
markets so when you think about things
00:05:03
like delivery and the Loyalty program
00:05:06
and more technology in the store
00:05:09
localized products the integration of
00:05:12
the online and offline offerings at
00:05:14
Starbucks all of that had its Genesis in
00:05:17
their China operations Starbucks worked
00:05:19
with local Partners to modify its menu
00:05:21
to fit local tastes they also localized
00:05:24
the food items not just to a Chinese
00:05:26
Taste but regionally so you would find
00:05:29
Shanghai Specialties or Beijing
00:05:31
Specialties and Chongqing favorites in
00:05:34
the different Starbucks stores the
00:05:36
company's Target consumer base is
00:05:38
China's Rising upper middle class and
00:05:40
its westernized young population the
00:05:43
stores are strategically located in
00:05:45
business districts Urban centers and
00:05:48
tourist attractions Starbucks has faced
00:05:50
ongoing criticism over the high prices
00:05:52
of its menu items in China despite the
00:05:55
country having a lower GDP per capita
00:05:57
and it's only getting more expensive
00:06:00
there were arguments being made that we
00:06:02
should you know keep the price lower
00:06:03
because look China at this time is a
00:06:06
developing country and I don't think
00:06:08
that people can go in and spend four
00:06:10
dollars
00:06:12
um or at that time the equivalent of 32
00:06:14
rmd
00:06:15
um on a cup of coffee it sounded
00:06:17
outrageous really actually Starbucks
00:06:19
went in with the same pricing that they
00:06:21
did globally in some cases it was
00:06:23
probably a little bit more expensive and
00:06:24
so even would people leave Starbucks and
00:06:27
they'd be walking around the streets
00:06:29
with their Starbucks cup and it was a
00:06:31
status symbol you could be walking
00:06:32
around with your Balenciaga bag and your
00:06:35
Manolo bionic shoes and your Starbucks
00:06:38
cup
00:06:39
Starbucks adapted to China's Culture by
00:06:42
focusing on the country's strong values
00:06:45
when it comes to family community and
00:06:47
Status since 2012 Starbucks has hosted
00:06:51
an annual partner family form where its
00:06:54
employees and their parents can learn
00:06:55
together about the company and its
00:06:58
future in China and in 2017 it announced
00:07:00
the launch of the Starbucks China parent
00:07:02
Care Program which currently provides
00:07:05
critical illness insurance plan for the
00:07:07
parents of its employees China's
00:07:09
Starbucks stores are designed to fit
00:07:11
traditional Chinese architecture and
00:07:13
have open layouts to welcome crowds
00:07:15
noise and lounging the spaces tend to be
00:07:18
much bigger than in the U.S the way
00:07:21
people were going to use Starbucks in
00:07:23
China much in the way they would use the
00:07:25
tea house go in large groups hang out
00:07:28
with your friends you might go in a
00:07:30
group of four six eight ten people
00:07:32
everybody wants to order a drink maybe
00:07:35
have a little snack and that's where
00:07:37
they're going to socialize for the next
00:07:38
hour two hours three
00:07:40
so obviously if you have a small store
00:07:42
with limited seating that's going to
00:07:45
turn off Chinese consumers Starbucks
00:07:47
prices are much higher in China compared
00:07:49
to other parts of the world it chooses
00:07:51
high-end locations for its Outlets
00:07:53
including luxury malls and office towers
00:07:55
and since foreign Brands particularly in
00:07:59
food and beverage are viewed as premium
00:08:01
Starbucks makes it a point to include
00:08:03
from which country its products are
00:08:05
imported from you've got faster and
00:08:07
competitors like luck and coffee and
00:08:08
like Tim Hortons many times they tend to
00:08:11
slide down towards that value-driven
00:08:13
segment of the market you know two
00:08:14
dollar coffee on the way to work so they
00:08:16
don't really compete in Starbucks
00:08:18
sandbox
00:08:20
more recently Starbucks sales took a
00:08:23
Plunge in its Chinese market due to the
00:08:25
country's strict covid-19 restrictions
00:08:27
pandemic related lockdowns caused
00:08:29
Starbucks same store sales in China to
00:08:32
sink 44 and 16 in third and fourth
00:08:35
quarter respectively in 2022 compared to
00:08:38
the year prior so you've seen China has
00:08:41
maintained some of the most Draconian
00:08:42
Mobility restrictions and covid-19
00:08:45
policy of anywhere in the world
00:08:47
into this effect if you look at
00:08:49
Starbucks fiscal third quarter earnings
00:08:51
this other same store sales Fall 44 in
00:08:54
the quarter with the Shanghai stores
00:08:55
lockdown for two-thirds of that period
00:08:58
which is really astounding I mean about
00:09:00
half of your business disappears driven
00:09:02
by Rising U.S China tensions lockdowns
00:09:05
and inflation Starbucks's operating
00:09:08
income has declined 42 percent in the
00:09:11
fourth quarter of 2022 compared to the
00:09:13
year prior since it entered the country
00:09:16
Starbucks has had a huge share of
00:09:18
China's over 11 billion dollar coffee
00:09:21
Market in 2020 the company held 36.4
00:09:25
percent of the tea and coffee shop
00:09:27
Market but in 2021 the company faced new
00:09:31
competition from a Chinese coffee
00:09:32
startup called luck and coffee the
00:09:35
company quickly became the second
00:09:37
largest coffee chain in China behind
00:09:39
Starbucks they went from startup to
00:09:42
something like three or four thousand
00:09:44
locations in a few years and there was a
00:09:47
lot being written about this is the end
00:09:49
of Starbucks in China but in 2021 luck
00:09:52
and coffee filed for chapter 15
00:09:54
bankruptcy in its balance sheet the
00:09:56
company fabricated more than 300 million
00:09:59
dollars in sales lucken was fined 180
00:10:02
million dollars by the Securities and
00:10:04
Exchange Commission and was forced to do
00:10:07
lists from the NASDAQ it was a house of
00:10:09
cards that fell apart and collapsed you
00:10:12
know roughly a year or two after they
00:10:14
hit their Peak uh lucken is still in
00:10:17
business
00:10:18
um but they're certainly not a major
00:10:20
threat uh to Starbucks things change in
00:10:23
China very quickly
00:10:24
you can have a competitor you never
00:10:27
heard of
00:10:28
open 2000 outlets in a year
00:10:31
and suddenly you have an issue right so
00:10:34
we see these Dynamic sort of companies
00:10:37
pop up all the time and so far they
00:10:39
haven't hit Starbucks which is sort of
00:10:42
cruising along at premium level
00:10:45
down below it's a lot more brutal
00:10:47
according to experts the biggest threat
00:10:50
to Starbucks in China today is a
00:10:52
beverage company called Haiti they
00:10:54
basically copied Starbucks for tea they
00:10:57
said we're going to make premium teas
00:10:59
beautiful locations and they're super I
00:11:02
mean they're lines out the door
00:11:04
you don't see lines out the door to
00:11:06
Starbucks you could go to Haiti you'll
00:11:07
see you can you can see it in the mall
00:11:09
by the line you just look for the long
00:11:10
line despite covet restrictions and
00:11:13
increased competition analysts are
00:11:15
confident that Starbucks will come out
00:11:17
on top any other company you look at in
00:11:20
China
00:11:21
it was a brutal fight
00:11:23
you know L'Oreal Coca-Cola all of them
00:11:26
Google you know it's it's a it's a
00:11:29
brutal environment it's just a sort of
00:11:32
dynamic environment but Starbucks has
00:11:34
never taken a major hit
00:11:37
it's surprising like it's really it's
00:11:39
it's not the norm
00:11:41
even McDonald's and KFC and these other
00:11:44
long-term players have had
00:11:47
food safety issues and media exposes and
00:11:51
com you know Starbucks just kind of
00:11:53
cruises above it's um it almost seems
00:11:56
unfair
00:11:58
Starbucks plans to increase the amount
00:12:00
of stores in the region by 50 to 9 000
00:12:04
stores by 2025. in other words the
00:12:07
coffee giant is expected to open a new
00:12:09
store every nine hours for the next
00:12:12
three years it also plans to double its
00:12:15
sales and quadruple its operating income
00:12:17
the restore expansion growth and Omni
00:12:20
Channel and at home and on-the-go coffee
00:12:22
Services Starbucks China is betting big
00:12:25
on digital it's investing 220 million in
00:12:28
launching its digital and Technology
00:12:30
Innovation Center in the country to
00:12:32
further its digitization of store
00:12:34
operations to replace the interim CEO
00:12:37
Howard Schultz in 2023 Starbucks tapped
00:12:40
laxman narasimhan a multinational
00:12:43
corporation veteran with experience in
00:12:45
China I think it's it's really important
00:12:47
to point out that despite the pressures
00:12:48
that we've seen in China Starbucks
00:12:50
comparable store sales have conceded to
00:12:52
recover very quickly as Lockdown
00:12:54
restrictions have been eased so the
00:12:55
underlying demand appears to be strong
00:12:57
and the firm continues to invest very
00:12:59
heavily in that market which suggests
00:13:00
that it's still a strategic priority so
00:13:03
in the fourth fiscal quarter last year
00:13:05
they still opened more than 12 percent
00:13:06
net units more than 260 stores in that
00:13:10
Chinese market and it figures to
00:13:11
continue to be a pillar of their growth
00:13:13
strategy moving forward
