The Continuing Evolution of “Starbucks with Chinese Characteristics

The Continuing Evolution of “Starbucks with Chinese Characteristics”

By Robert O’Brien on March 27, 2013 at 10:00 AM 0 Comments

Last year was a big year for Starbucks in China. The company continued to open cafes at a rapid rate, began offering breakfast to Chinese consumers for the first time, was accused of “cultural invasion” for the second time in five years, and took a huge step toward establishing Yunnan Province as a major producer of coffee beans. All of these developments, and the rapid evolution of the company’s China strategy in general, led us to launch a special series –“Starbucks in China” – last December. In contrast, 2013 started off quietly on the Starbucks China front. That is, until last week, when the publication of a China Daily article and the company’s annual shareholder’s meeting shed fresh light on what new plans the popular coffee purveyor is brewing in China.According to the China Daily, Starbucks is planning to sell a varietal of coffee from Yunnan in Chinese grocery stores. John Culver, president of Starbucks China and Asia-Pacific, was far from definitive about the plan, stating that the company is “looking at the possibilities” of selling packages of ground coffee and bottled drinks in Chinese grocery stores. He was much clearer on the company’s ambitious plans for Yunnan coffee beans in general, stating: “We see an opportunity to create a single variety of coffee that comes from Yunnan and build on that Yunnan coffee story and tell the story to the world.” Starbucks is also reportedly considering opening a “Community Store” somewhere in China. Starbucks Community Stores donate a portion of their sales to a local organization. They can currently be found in Los Angeles, New York, and Houston, where they benefit a variety of non-profit organizations.

The fact that Starbucks is considering selling a Yunnan varietal of coffee in Chinese grocery stores is proof positive of two continuing trends in the company’s development – 1) its ever increasing reach into the Chinese market, and 2) its new focus on the development of Yunnan as a major source of its coffee beans. The opening of a Community Store, for its part, would comprise a new chapter in the company’s efforts to balance its global image with local needs, creating a brand of “Starbucks with Chinese Characteristics.”

Since Starbucks announced plans to triple its number of stores in China last spring, its offering of products and services has continued to expand and diversify. More Chinese-style foods and beverages are being introduced, and breakfast has been unveiled for the company’s growing legion of Chinese customers. Selling their products in grocery stores would be a new step for the company’s China operations but something it has long offered elsewhere. Ground coffee and bottled drinks from Starbucks can already be purchased at many grocery stores around the world, including in the U.S. and U.K. The devil here will be in the details, including the choice of grocery stores where the company plans to sell its coffee. Instant coffee continues to dominate the retail market in China, and home coffee machines are far from ubiquitous. Thus, while the news that Starbucks is considering selling ground coffee in Chinese grocery stores is enough to excite widespread interest, it seems likely that such a move would target upscale urban grocery stores and not ordinary markets.

Culver’s comments on Yunnan coffee, meanwhile, are an important reminder of Starbucks’ plans for helping transform the province into a major coffee bean producer. The relationship between Starbucks and Yunnan stretches back to 2009, when a collaborative program between the company’s executives and local officials introduced four coffee bean varietals to the region. In 2012, the relationship took a major step forward when the coffee giant opened its first Asia-based Farmers Support Center in Pu’er. The Center offers direct aid to local farmers who are working to grow high quality coffee beans. Given this history, Starbucks’ commitment to developing a major Yunnan variety of coffee seems to be a natural extension of a process that was already in motion.

The opening of a Community Store, like the prospect of Starbucks ground coffee for sale in Chinese grocery stores, remains more an idea than a detailed plan. If actualized, however, it would align with the company’s history of balancing its global image with local needs in China. In recent years, Starbucks has worked hard to incorporate itself into Chinese society not just through the inclusion of Chinese flavors on its menu and Chinese décor in its stores, but also through personnel policies and marketing campaigns that feature distinctly local characteristics, including family forums and a concerted push into the unique realm of Chinese social media. The opening of a local Community Store would be the latest step in the company’s continued evolution from Starbucks to “Starbucks with Chinese Characteristics.”

All of this news serves to further highlight the fact that Starbucks is “all in” when it comes to China. Indeed, as the company pushes deeper into the Chinese market, its expectations continue to grow, a fact nowhere more apparent than in CEO Howard Schultz’s comments at a shareholders’ meeting last week: “It’s no doubt that one day China will become our second-largest market after the U.S. and it’s possible that, over many years, potentially the largest one.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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