CCTV: Chinese pay higher price for Starbucks coffee

October 21, 2013 Leave a comment

CCTV: Chinese pay higher price for Starbucks coffee

By Ding Yining | October 21, 2013, Monday |  PRINT EDITION

Labelling them a “luxury in coffee,” a China Central Television report yesterday said Starbucks coffee and mugs were more expensive in China than in London, Chicago and Mumbai. A cup of 354 milliliters of Latte coffee costs 27 yuan (US$4.4) in China as compared to only 19.98 yuan in Chicago, 14.6 yuan in Mumbai and 24.25 yuan in London, the CCTV report said.A Starbucks mug, which is sold for US$10.9 in the US, costs about 100 to 110 yuan in China, it pointed out.

Starbucks stainless steel cups, which are made in China, is also being sold at a higher price here. In the US, a stainless steel cup costs about US$16 to US$20, while in China it costs between 220 yuan (US$36) to 350 yuan.

The Seattle-based company told CCTV that its prices are based on several factors including raw materials, equipment, infrastructure investment, logistics and transport fees, staff salaries, rent, exchange rates, import tariffs and other operating costs.

The coffee chain said that the Chinese market was still in the early stage of development and required a lot of investment in infrastructure.

The relatively small number of store outlets lead to a higher cost in logistics, warehousing and others, it added, but declined to provide any specific cost data.

Starbucks China refused to comment further when contacted by Shanghai Daily yesterday.

Wang Zhendong, director of the Coffee Industry Commission of Shanghai Food Association, said that price of coffee beans has been going down since 2011 while Starbucks was raising its prices after that.

“The high price of Starbucks is mainly because of domestic consumers’ blind faith in foreign brands,” Wang told CCTV.

Starbucks, the world’s largest coffee-shop chain, plans to more than double its stores in China to 1,500 by 2015, John Culver,  head of Starbucks in China and Asia-Pacific, told Bloomberg at the end of last year. Starbucks raised its prices in China by two yuan last month, the second price increase in a year.

“Starbucks coffee is expensive, and I drink it about once every week,” said Shu Wen, a bank employee in Shanghai.

He said a cup of Latte in Starbucks is almost equal to the cost of a lunch and he does not visit them every day.

But not all of them worry about the high costs they have to pay.

“Starbucks offers a nice place to hang out with my friends on weekends and I don’t mind it charging a little bit more than other coffee shops,” said Crystal Xu, a Shanghai office worker in her late 20s.

In the three months ending June 30 this year, Starbucks reported a 29 percent annual revenue increase in its China and Asia-Pacific segment, higher than its overall revenue growth of 13 percent.

It added 523 new stores in the 12 months before June 30 while comparable store sales added 9 percent from a year ago. Its China and Asia-Pacific segment has an operating margin of 36.2 percent, higher than that of 22.3 percent in America and 3.2 percent in Europe, Middle East and Africa.

Filed under Macro Trends

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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 (www.heroinnovator.com), 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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