China Consumer

Trouble brewing

Latest CCTV attack fails to harm Starbucks

STARBUCKS-CHINA/EMPLOYEE

“It’s worth every penny”

Tell people that their doctors are being bribed to prescribe expensive medicines and they might respond with concern.

Tell them that the car or phone they have saved up to buy is substandard, and there may be a consumer backlash.

But tell them that a chain of coffee shops is pricing its drinks a bit higher in China than elsewhere and you’ll probably just get mocked.

That is the lesson state broadcaster CCTV is learning this week, after it dedicated a full 17 minutes of its Sunday night newscast to a report accusing Starbucks of overcharging its Chinese customers.

But instead of the American chain’s outlets being boycotted on Monday morning, criticism was directed at CCTV.

“CCTV should care about REAL problems,” wrote one user on the popular microblogging website Sina Weibo. “When we don’t have to worry about air quality or healthcare, then we can sit down and talk about the prices in Starbucks,” she added.

Another wrote: “You ask me why Starbucks is so expensive. I say: why don’t you tell me why the cost of hospitals is so high?”

Over the past year CCTV has mounted a series of attacks on multinationals, each of which has stirred up public sentiment against the companies concerned.

Apple chief executive Tim Cook  had to apologise for giving Chinese customers a shorter, less comprehensive warranty than their American counterparts. German carmaker Volkswagen carried out its first- ever product recall in China after a CCTV story on faulty brake transmissions. The state broadcaster also ran several stories about foreign infant formula companies, with six such firms fined Rmb670 million ($110 million) for price-fixing in August. Then in September it told viewers that foreign milk powder producers were bribing doctors to recommend their formula over breast milk to new mothers. This led to more apologies and a pledge to change such practices.

The public – or at least sections of it – were vexed in these instances. But the fact that a tall latte in Beijing costs some 40% more than one in Boston seems, thus far, to have left them wholly unmoved.

Not that CCTV didn’t try to make its revelations as dramatic as possible. The segment used shaky hidden cameras to film baristas on four continents telling customers the price of their drinks. It even interviewed people in Beijing saying “they couldn’t afford to live if they bought a cup of Starbucks every day”.

The broadcaster then quoted Starbucks second quarter earnings report, suggesting that it enjoys a 32%  profit margin in the Asia Pacific region, versus 21.1% in the US and 1.9% in Europe, the Middle East and Africa.

How so? Wang Zhengdong, director of the Coffee Association of Shanghai, told CCTV that Starbucks has been able to charge higher prices in China mainly because of “the blind faith of local consumers in Starbucks and other Western brands”.

Starbucks responded to the report by saying its prices vary from market to market depending on the cost of commodities and labour, as well as real estate expenses.

It added that the figure drawn from its financial report didn’t accurately represent the company’s Chinese operations because they included results from 14 other countries in the region.

The latest attack, however, will do little to lessen a growing feeling among foreign business bosses that CCTV is being encouraged to bad-mouth their firms, in part because local rivals are envious of their success.

But if reaction to CCTV’s latest investigation is anything to go by, Starbucks can breathe easy. Indeed, the report has even boosted sales at some outlets. “After watching the news, I went to Starbucks to show my support, but ended up waiting in line 20 minutes. CCTV’s free ad rocks!” commented one netizen.

Another wrote: “I never dared to go into Starbucks before. Now I know it’s only Rmb27 for a tall latte I think I will go.” If that sort of new demand keeps up, China may even overtake Canada as Starbuck’s largest overseas market this year, rather than next as many analysts have predicted.


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