Some brands are scared of China – not Starbucks
Starbucks is all in on China. While brands like Coca Cola and McDonalds are selling their businesses in the country, the coffee house kingpin is increasing its own. Starbucks is currently opening more than a store a day in China. This confidence in the Chinese market may seem strange to other businesses, but Starbucks has a two-decade habit of success there that others have failed to replicate. According to the company’s chairman, Howard Schultz, the secret to this success is “mutual trust.”
At the end of July, Starbucks made huge news that was not widely reported at the time: it is buying out its Chinese partner, making it the sole owner of its operations in the country, and planning a huge expansion. How huge? It’s planning to add 500 stores, and 10,000 jobs, in China per year.
Already, in Shanghai alone, there are 600 Starbucks stores. That’s about twice as many as the company has in New York! No surprise, then, that this city has also been picked to house Starbucks’ new 30,000 square foot “coffee emporium”, which is scheduled to open in December.
Schultz said: “when people ask me how much can you really grow in China, I don’t really know what the answer is, but I do believe it’s going to be larger than the U.S.” Speaking about the opening of the company’s aforementioned coffee emporium, Schultz adds that it “will have a larger consumer impact that the opening of Shanghai Disney.”
Starbucks has achieved its 20 years of growth in China by embracing the country – not just treating it as another foreign market. The results have been impressive: before Starbucks got there, China was an exclusively tea-drinking country. Now, the Chinese coffee market is big enough that Starbucks sees it as the brand’s future.
Part of that embrace meant investing heavily in China. Not just by building stores, but by hiring local people at higher than average wages, and employing a senior Chinese team to work alongside the company’s U.S. one, and “trusting them to know what’s best for our partners, our customers, and how to build an enduring relationship with all constituencies on the basis of trust,” according to Schultz.
And, although Schultz thinks Starbucks may have benefited from a Chinese affinity for western brands, that’s not the defining factor in the company’s success. He said: “the story and the success we have enjoyed is clearly based on the experience that takes place in our stores. It’s not the halo of America.”
Dominion holds Starbucks in its Global Trends Luxury Fund.
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