China to become No. 2 market for Starbucks; Illy in China: no catering to local taste

Illy in China: no catering to local taste

Sep 16, 2013 3:37am by Peter Vanham

Is not tailoring your food and drinks to Chinese taste a form of “food neo-colonialism”, as Roland Decorvet of Nestle China put it last year? Illycaffe, the Italian premium coffee roaster, thinks not. Even as it looks to grind away Nestlé’s and Starbucks’ lead in China – a market that’s posting double-digit growth and which is worth about $1.5bn last year – the company says it has no plans to “localise” it product for the Chinese market. “You don’t like our espresso? Then drink our cappuccino. But that’s about as far as I’ll go in adapting to local taste,” Andrea Illy, the company’s third-generation family CEO, told beyondbrics on the sidelines of the WEF in Dalian, China. “Our strategy is executed in exactly the same way in any country.” With this approach, Illy is hoping to replicate the successes of a select club of other global brands whose products are the same across the world. “It’s like a perfume, it has to be the same around the world,” Illy said. “Otherwise you’d be disappointed.” But Illy faces an uphill battle to win over the local coffee drinker in China. Asians are known for not liking the bitter taste of black coffee and Nestlé and Starbucks have both adapted their products accordingly. As the FT’s Patti Waldmeir noted:Many mainland Starbucks customers prefer milkshake-type drinks, teas, juices and localised flavours like the green tea latte.

And when the Chinese drink Nescafé, “they are not drinking coffee but a sweet concoction of water, milk powder and sugar”, says Torsten Stocker, partner at Monitor Group consultants.

“In general, it’s a good strategy is to make your product relevant to local population,” say Rich Lesser and Jeffrey Walters, respectively global CEO and director the Chinese consumer practice of consulting firm BCG, without commenting on Illy’s strategy specifically. “That often means being part of their community and its preferences.”

In the case of food, Walters added, consumers will often prefer brands that are either Chinese or seem and taste Chinese. Only in categories where Chinese have a lack of trust in their domestic manufacturers supply chains, the Western-branded alternative might win.

Illy however thinks coffee is different. Chinese consumers mostly see coffee as an aspirational product. They often don’t drink it so much for its taste or effect, but rather as a sign of one’s ability to socialise in the more exclusive coffee houses.

“Coffee consumption rises with the levels of income of a country, not so much as a function of its population’s taste,” he said. “We want to educate our clients about the wonder of coffee, and the poetry of consuming it.”

“We want drinking coffee to be a social-sensorial experience,” the Italian added.

But Illy can also hope that as coffee becomes a more integrated part of Chinese life, consumers will get more educated and sophisticated and seek out a more authentic product.

 

China to become No. 2 market for Starbucks

Bruce Horovitz, USA TODAY7:28 p.m. EDT September 16, 2013

A Starbucks on every corner, even in Beijing and Saigon?

STORY HIGHLIGHTS

Starbucks opened two flagship stores in Beijing at the same time

One store is open 24 hours and the other has a club with live music on weekends

It’s not easy coaxing a tea-centric culture to embrace coffee

 

Americans who like to joke about having a Starbucks on every street corner soon may have an unlikely partner in on the joke: the Chinese.

Early next year, China will replace Canada as the global coffee giant’s second-largest market, where Starbucks plans to open its 1,000^th store sometime before the end of 2013. As it expands in China – where Starbucks announced the opening of two iconic, flagship stores on Monday – Starbucks is experimenting both with the interior and exterior designs of its new stores in a bid to appeal to Chinese customers.

And yes, there’s even a new, 24-hour location in Beijing.

“China is our ‘second home’ market outside of the U.S.,” says John Culver, Starbucks Group President of China and Asia Pacific, in a phone interview.

Never mind that China is a tea-centric culture.

For Starbucks, it’s all about tapping into growth markets with room to run. The chain, which has more than 12,000 U.S. locations, now views China as its biggest growth market, which can help it taper the pace of domestic growth. By the end of this year, Starbucks will have 4,000 locations across China and Asia Pacific, says Culver.

The two new flagship stores in Beijing are not just aimed at luring-in the curious, but at keeping them coming back.

One, located at one of Beijing’s busiest intersections, is a 4,000 square-foot, two-story affair, with a giant, Starbucks siren icon on the exterior of the building that illuminates at night and can be seen from blocks away. The store takes great pains to celebrate the coffee culture through its design and to offer hand-crafted tastings to customers.

The other store, located in a younger, hipper area of Beijing, features ceiling-to-floor glass windows. It is open 24 hours and targets Millennials with a special club on the second floor that features live music on weekends.

Unlike U.S. locations, which do about 70% of their business before 10 a.m., the stores in China do just the opposite — with more than 70% of their business in the afternoon and evening, says Culver.

“It’s a lifestyle to the Chinese,” says Culver. “It’s much more of a gathering place for social occasions.”

The two flagship stores represent Starbucks putting a stake in the ground, says Jack Russo, an analyst at Edward Jones. With these two stores, he says, “they are trying to prove to the consumer that they take the market seriously.”

Starbucks has reason to. With more than 1.2 billion people, the pure size size of China’s market is more than three times larger than the U.S. market, he says. “The challenge is to get a tea-drinking culture to drink more coffee.”