China Consumer

Instant gratification

Starbucks grand plan to conquer China hinges on a product called Via

Instant gratification

Schultz: caffeinated China vision

“Cracking the code in China for any company is not an easy task – there will be a number of winners and lots of losers. People who go there and rush to judgement don’t succeed,” says Howard Schultz, chief executive of Starbucks.

Schultz is no stranger in China, a market Starbucks entered in 1999. But in keeping with Schultz’s patient approach, the company has taken its time in growing its China business. The company has only 376 stores in the country, compared with 878 in Japan.

Schultz expects that to change. “Asia clearly represents the most significant growth opportunity on a go-forward basis,” he told the Wall Street Journal recently. “Over time there will be thousands of stores in China.”

Certainly, it has been easier to win over consumers in Japan, where coffee has long been popular. Despite Starbucks’ ubiquity in cities like Shanghai and Beijing, China’scoffee consumption is still less than one tenth of tea. In fact, the Chinese drink less coffee per capita than any of the 80 largest economies tracked by research firm Euromonitor.

Nevertheless, coffee is catching on, especially among younger urban Chinese. Analysts expect coffee sales in China to reach $3.6 billion by 2011, from $2.4 billion in 2006.

Starbucks is eager to tap into that market. Recently, it announced that it is planning to launch its instant coffee product – Via – on the mainland, the China Daily reported. That might seem out of kilter with the original recipe for Starbucks success ­– convincing customers that drinking coffee could be a luxury, lifestyle experience. But instant coffee is big business. Turkey, Belarus and Ukraine – all traditionally tea-drinking nations – have been the fastest-growing coffee markets over the last five years, driven chiefly by the instant variety, says Euromonitor.

Instant coffee also makes up the biggest chunk of China’s coffee industry today. And soluble coffees packed with sugar and powdered milk – known as Three-in-One – are also hugely popular. Nestle’s Nescafe and Kraft’s Maxwell House are the major players in the market.

“You will find a bottle of instant coffee almost in every family nowadays. People even like to send coffee as gifts,” Zou Lei, vice chairman for the China Coffee Association, told Reuters.

Analysts reckon the Via launch could bring more traffic to Starbucks stores. “People will have a relationship with Starbucks through their instant coffee that they didn’t have before, and then some of those might start going to the coffee shops,” says Harry Balzer, a food and beverage analyst at the research firm NPD Group.

Over the years, Starbucks has worked to customise its menu to local tastes (as well as bring costs down) by procuring more ingredients locally.

In WiC2, we reported that Starbucks had started sourcing local coffee beans from Yunnan province, the country’s biggest coffee-producing area, to avoid import tariffs that range from 20% to 60%.

The company has also started selling local tea too. Chinese consumers can now order brews like White Mu Dan, Bi Luo Chun and Oolong – all sold at around Rmb20 per cup. Again, the offering is tailored to local tastes. How else to explain Black Sesame Green Tea Frappuccino?

Trying to cultivate a love for coffee in a land of tea drinkers hasn’t been easy. Lin Xinzhi, a businessman in Shenzhen, told the China Daily: “I always invite my business partners to the coffee shop for some informal meetings but in China not every one likes coffee.”

But after finding out that Starbucks also sells tea, Lin added one remark that should please Schultz: “I think I will come more in the future.”

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