Diversified Roles of  Starbucks in China

As a world known café chain, Starbucks also plays different roles in China.

In China, Starbucks is further and further away from a traditional café.

Can you imagine that the café chain known for its high quality and highly uniformed products across the world, now puts up red lanterns in its branches in China. It also has the mango chicken wrap and vegetable tofu wrap, which are the Chinese local flavors, printed on its menu.

In March 2010, Starbucks launched nine kinds of tea drinks, including three kinds of Chinese tea: white peony tea, Pilochum green tea and Oriental Beauty oolong. It even changes its signboard at one of its branches in Beijing from traditional green and white to Chinese-style golden and black.

“To realize better localization has become a vital part of Starbucks’ strategy in China,” said Wang Jinlong, senior vice president of Starbucks Coffee Company and president of Starbucks Greater China during the 2010 Boao Forum for Asia. The company’s newly opened cafés at the Shanghai World Expo Park are full of Chinese elements by using many wooden Chinese screens as the decorations.

But this is not only a story about localization. In 2009, Starbucks closed 369 underperformed cafés in the world and saved the cost of 600 million US dollars through reducing the number of suppliers and wastes. In these ways it succeeded in getting rid of the huge loss. Its financial report of Q1, 2010 shows that its net income increased by 4% year on year to 2.7 billion US dollars. The sales and number of customers respectively went up by 4% and 1%. Therefore, Starbucks plan to open 200 new stores in the world this year. Agitated by the new development plans, Starbucks began to further exploit the Chinese market. Howard Schultz, CEO of Starbucks, forecasts that China will soon replace Japan to be the second largest market following the USA, where Starbucks is headquartered.

Presently, Starbucks has 376 cafés in Mainland China and over 700 cafés in Greater China Area (including Mainland China, Taiwan, Hong Kong and Macau). “We plan to open more than one thousand cafés in Greater China Area in the next three to five years,” said Wang Jinlong. However, the localization in products, services and decorations can not help Starbucks have stronger competitive power in China where it has been developing for 11 years. In this complicated market full of strong competitors, the company needs extra care for the consumers in order to obtain more profits. So Starbucks starves for its core competitive power – Regular Customer Culture, which was spread all over the world from the 1980s.   

You can consider the Chinese-flavor menu and Chinese-style tea as the embodiment of this culture – caring for customers’ experiences, say, the unique operation pattern with the attempt to associate with customers’ feelings. Localization is important, but what Starbucks really needs is to show its value concept and achieve effective interaction with local people. With the theme of “rediscovering the city”, Starbucks builds a sample of how a company realizes sustainable development through spiritual interaction.

Therefore, at the beginning of 2010, Starbucks began to introduce its “Common Love for Earth” platform in China, aiming at paying attention to coffee beans planters and environment. Starbucks calls for its cafés to return to the society by volunteerism of its staff and customers. In the public opinions, the financial crisis still remains its negative effect in the world. In the fourth quarter of 2009, Starbucks saw a 3.7% decrease in its operating income. So the volunteerism can raise the expenditure as well as the cost. It can not function as a catalyst to the increase of sales.

Starbucks, as a company, also hopes that it can increase the sales and downsize the cost. But the managers of Starbucks cafés have their own ways of attracting customers instead of sending flyers to the office buildings. In many Chinese cities, the Starbucks cafés have close relationship with the communities they are located in. The staff of Starbucks can seek various community service items and publish them in the bulletins. Then the employees are encouraged to attend these volunteer activities. So are the customers. The activities launched by Starbucks vary from protecting wandering animal to explaining knowledge about coffee to pupils. Through the “Common Love for Earth” platform, Starbucks intelligently connects itself with the prevailing environment-friendly consciousness and volunteerism, in which it can build close relationship with the customers.

“With more and more people attaching importance to the public welfare, we can spread our brand awareness in that way. Those who get engaged in public welfare activities can know better of our company,” said Wang Jinlong. “This can not only assist in attracting more customers, but also make the employees generate the feeling of belongings.”

Actually, during Starbucks’ 30 years, it has never stopped seeking the balance point among customer experience, corporate responsibility and cost control. In the period from 1997 to 2007, which is featured with high-speed expansion, Starbucks’ measures and changes all serve for rapid expansion and lowering cost, such as installing automatic condensed coffee machine, grinding and packaging the coffee beans in advance, limited number of soft couches and carpets in the stores. These activities inevitably damage the customer experience. Therefore, when Howard Schultz returned to the position of CEO, the customer experience took the dominant place in Starbucks’ plans. Schultz intensively cuts the cost for a), reducing the cost, b), saving the resources to conduct the reform of “Recovering Coffee” to revitalize its brand.

Today’s Starbucks is still trying to realize the balance between short-term profits and sustainable development. For example, Starbucks purchases the coffee beans from Yunnan province, China. This is thought to aim at saving the cost. But the truth is that Starbucks spent three years helping the local coffee beans farmers and wholesalers improve their planting technology and processing standard. In addition, there coffee beans are exported to the USA for baking and then sent back to China for sale. The cost of using these coffee beans includes transportation fees and customs duties. And the small purchasing amount results in the failure to see economy of scales. Willard Hay, senior vice president of Starbucks’ coffee and tea department, said: “This is not a way of reducing short-term cost for us.” The purchasing department didn’t intentionally reduce the price of coffee beans even during the financial crisis.

This is a typical “Starbucks-style” operating pattern focusing on long-term benefits. Hay and his team always follow the rules during purchasing – finding high-quality coffee beans all over the world, building a purchasing chain with sustainable development possibility and suitable cost performance, guaranteeing local coffee beans farmers’ benefits and protecting local environment and ecology.