Challenges remain as Starbucks continues China dominance

By William Hao Wei Yang

- Last updated on GMT

Related tags: Starbucks

Challenges remain as Starbucks continues China dominance
Starbucks has continued its success in the Chinese market, with revenues growing at a rate 30% over the last year. 

According to the company, the opening of 500 new stores across China over the last year has driven the rise, which has been backed by strong support from the younger generation. The coffee giant also plans to open its thousandth store by the end of 2013. 

Starbucks is successful among young people between 18 to 40 years old in China​,” said Matthieu David, president of business researcher Daxue Consulting. “Young people go there for the place, and not just for their drinks​.” 

Market challenges

However, there are still challenges that can hurt Starbucks as it continues its strong showing. For instance, its first Beijing store was forced to move from its original spot in late June. The sign of Goyard, a french luxury brand, immediately replaced it, suggesting that the coffee retail major is beginning to lose in its competition with luxury brands in China’s major cities. 

Starbucks is no longer able to handle competition with global luxury brands in China​,” added David. “Its competitiveness is dropping due to overpriced rentals in tier-one cities and other factors​.” 

In addition, Starbucks also has internal issues, not least the fact that its prices are often too high for regular consumers. Although the rate of its price increases have been slowing, it is still considered a “luxury​” by many middle-class Chinese. According to David, Starbucks has been focusing too much on opening more stores, and ignores the potential backlash, as has been the case with other foreign brands.

Starbucks’s value may decrease over the next couple years due to the overwhelming number of stores and competition from other global coffee brands like Nestlé​,” said Wen-Jie Huang, president of Guandong Circulation Chamber of Commerce. “It will gradually lose its uniqueness and other global coffee businesses will come to share the same group of audiences with Starbucks​.” 

Real estate partners

Despite numerous challenges, experts still expect Starbucks to continue its success in the short-term. Both David and Huang agree that Starbucks will remain popular among younger the generation because of its brand reputation and trustworthy quality. In addition, it still has the power secure popular spots for new shop opening. 

Starbucks partners with real estate companies to open shops at popular locations with a lower price​,” said David.  In other words, this gives the company an advantage over other competitors because it can command better locations. 

Chinese company officials say that they don’t plan to slow down anytime soon. Their next goal is to surpass Canada and become the second biggest Starbucks market worldwide. 

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