Starbucks gaining ground in tea-drinking China http://today.reuters.com/news/articlebusiness.aspx?type=ousiv&storyID=2006-11-19T155344Z_01_N19477735_RTRIDST_0_BUSINESSPRO-LEISURE-STARBUCKS-CHINA-DC.XML&from=business
Sun Nov 19, 2006
By Nichola Groom
TIANJIN, China (Reuters) - Once a week, Wu Shafei, 22, and Li Jing, 24, meet at Starbucks (SBUX.O: Quote, Profile, Research) in a busy shopping district here for Frappuccinos and fruit salad -- it's a fashionable place to while away a Saturday afternoon.
"And the price is reasonable," Wu Shafei, a student, said. At the next table, trade company employees Yu Xiaoli, 24, and Liu Peng, 22, said they, too, come here because they like the environment even though they think the frothy lattes are rather expensive.
These are typical Starbucks customers in China, a tea-drinking nation where a cup of coffee the first thing in the morning is a foreign concept.
The Seattle-based chain, which is ubiquitous in the United States, aims to grow to 40,000 stores around the world, half of which will be abroad. China, including Hong Kong and Taiwan, has more than 430 Starbucks and will be the company's biggest foreign market. Starbucks will open in its 20th mainland China city, Xian, on November 22.
For the most part, Starbucks coffee shops are places where young Chinese gather to socialize and drink frothy, sweet drinks. On a recent weekday morning, for instance, just a small handful of customers dropped by a Starbucks store outside a shopping mall in Shanghai.
On a Sunday evening, however, another Starbucks in the city's trendy Xintiandi bar and dining area was packed with customers.
Starbucks is pushing that trend, working to educate more Chinese consumers about coffee drinking by getting its name in fashion magazines and on talk shows.
"We definitely want to raise the level of interest in coffee," said Eden Woon, Starbucks' vice president for Greater China. "Breakfast, admittedly, is not a big deal here."
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Because their Chinese customers tend to spend more time in the stores than their U.S. counterparts, many Starbucks coffee shops in China are bigger and offer more comfortable seating than similar stores in the United States, Woon said.
Starbucks does not detail its financial performance in China, but says the average amount each customer spends is higher than in the United States because people come in groups and food is such a big seller.
The overall number of transactions per store, however, is smaller, Starbucks China President Jinlong Wang said at a meeting with investors in Seattle last month.
At the moment, Starbucks is more focused on enhancing the afternoon and evening business it has in its nearly 200 stores on mainland China than trying to reproduce its U.S. unit, Woon said.
To do that, the company is improving the consistency of its business across China, where many stores have been opened by different joint venture partners, Woon said. Starbucks also owns stores itself there, making its business even more fragmented.
Food offerings and in-store promotions are being standardized throughout the country, and the business is now run from a new office in Shanghai. Wang became head of Starbucks' China operations just a year ago.
"We're trying to make sure that everyone is on the same sheet of music," Woon said. "It's time to be more hands on."
To solidify its hold on China, Starbucks recently acquired a controlling stake in the operator of its stores in Beijing and Tianjin, and last year did the same with the operator of its stores in Guangdong province, in southern China. The company now expects to accelerate store openings in those markets, Woon said, as part of a plan to focus mainly on putting more stores in cities where it already does business.
The company is interested in raising its stake in its two remaining joint venture partners in China "when opportunities arise," Woon said. Those partners are responsible for Starbucks stores in Taiwan, Hong Kong and eastern China, including Shanghai.
The company does not disclose its China sales or profits, but Chief Financial Officer Michael Casey said a year ago that the company was "willing to sustain losses" to pursue what he said is a vast growth opportunity in China.
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