Will they say no to that hot cuppa Joe?

Peking University professor Jeffrey Towson has a few things to say about Starbucks in China:

The amazing thing about Starbucks China is not just the consumer trend. It is that plus the absence of a major China competitor.

Starbucks is a very successful Western business that, for some reason, has no clone or serious domestic competitor in China. This is really stunning.

Try to think of another China situation like this. Nike fights against Lining. Samsung fights against Huawei and Xiaomi. KFC fights against virtually everyone. And so on.

There is no “Starbucks of China”.

Can confirm.

CEO Schulz has said they will open 500 stores a year in China, for the next five years. That would take them from about 2,600 today to 5,000 China outlets by 2021. That sounds big. It’s not for China. […]

Starbucks should be thinking in terms of +10,000 China stores.

Jeez. That’s more than the number of outlets currently in the US.

Changing consumer behavior is what Wall Street should worry about.
Chinese consumers are the most fickle group I have ever encountered. The behavioral differences between age brackets is vast. And the rate of change within each bracket is fast. Brands and products rise and fall all the time in the PRC. Take a look at the wildly swinging market shares of Samsung and Xiaomi over the past couple of years.

Starbucks is somewhat more exposed to these swings than most. [Reasons why]

Fascinating. Here’s another Towson article, from last year, about the singularity of the US coffee giant in China:

So why doesn’t Starbucks have a serious competitor in China? I’ve been asking people this for months and I still can’t get a good answer. It’s weird. […]

Explanation 3: Senior Chinese business have a blindspot for coffee. […]

What is really stopping a major company like China Resources from opening 500 stores? Why can’t Wanda take over all the coffee outlets in their +100 Wanda Plazas? They are doing exactly that in hotels and cinemas at the moment. Why aren’t the big boys of China entering this market?

Is it possible that the senior business people of China all grew up drinking tea and never really started drinking coffee? Maybe people like Wang Jianlin just don’t like coffee?

Maybe he just doesn’t like coffee

Final Explanation: It could still be a fad.

This is the explanation that worries me. There is a possibility that retail coffee in China is, to some degree, a fad. Drinking expensive coffee with friends in a nice setting is still relatively new for most of China. This has only been going on for 5 years or so for most people. It is also sort of a status thing and Chinese consumers are notoriously fickle about what is currently cool. Is this somewhat a fad? Could the retail coffee market shrink by 20%? What if millennials lose interest? Could it ultimately be limited to just a small niche of the population? I think it is definitely possible. Maybe big companies are staying out because they don’t really believe in it long-term.

The prevalence of Starbucks in major cities is one of the most visible and obvious signs of international influence in China, and the Frappuccino-sipping, iPhone-wielding yuppie in Shanghai or Beijing is a staple of dumb commentary by foreign observers like our Instant China Expert.

If coffee-drinking in China does indeed prove to be a short-lived fad, and Starbucks ultimately shrivels without being replaced by a major foreign or homegrown competitor, then that could deal a significant blow to the narrative that China is westernizing. China will seem a little more foreign and confusing to many outsiders commenting on it.

Fun fact: The average Chinese drinks about five to six cups of coffee per year, compared to about 300 in the US. (Towson says that in 2013, it was 4 cups in China vs. 441 cups in the US and, amazingly, over 1,000 cups in Norway.)

Bonus: Here’s an article I wrote about Starbucks buying out its East China joint venture.

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