Starbucks coffee chain under cloud over high prices in China
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E-mail CNTV, October 21, 2013
The Starbucks coffee chain in China has gained huge popularity amongst Chinese consumers since it opened its first cafe in China in 1999. However, the Seattle based company has recently been called into question over its unreasonable price setting in China. The company denies this. But is the coffee that Starbucks is selling too expensive for Chinese consumers?
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The Starbucks coffee chain in China has gained huge popularity amongst Chinese consumers since it opened its first cafe in China in 1999. However, the Seattle based company has recently been called into question over its unreasonable price setting in China. |
Need some caffeine to get through a tough work day? Or just want to sit down with friends? Starbucks has become a favorite choice for many Chinese consumers. However, coffee doesn't come cheap in Starbucks in China.
For a Tall or 12 ounce Latte, a Chinese consumer has to pay 27 yuan, which is equal to 4.42 US dollars. But the price for it in the US is about 3 US dollars. A cup of Starbucks coffee has become some kind of luxury for many Chinese consumers.
"The price of Starbucks is too high. I cannot afford it if I get one very often."
"We can get a meal for thirty yuan."
"I think they think that China is a huge market. No matter how much they charge for a cup of coffee, there are always some people who can afford it."
Questioned about its unreasonable price setting, Starbucks says that the price gap between its drinks in China and other markets is a result of different costs. Starbucks' business in the US is about 10 times bigger than in China. The company says its expenses, reduce progressively with increasing scale.
The Seattle-based company has opened more than 1,000 stores in China since 1999 and has maintained double-digit sales growth over the past couple of months. In its fiscal report in the third quarter of 2013, the company's operating margin in the China and Asia-Pacific market reached over 36 percent; much higher than its 16.4 percent global operating margin.
"The operating costs of Starbucks in Europe are actually higher than those in China, but the price is not. In the current market, Starbucks's operating costs are not significantly higher than other companies. So in this case, we can only assume its high sales profit that dictates the high price in China. And this is more apparent when you compare it to the prices in the United States and Europe." Zhang Yuewen with Institute of Finance & Banking, CASS, said.
Starbucks expects China to become its largest market outside the U.S. in 2014. It is expected the chain will have 1,500 cafes in more than 70 Chinese cities by 2015.
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