STARBUCKS IN CHINA
THE FINANCIAL TIMES
“Starbucks had almost 7,600 outlets in China as of late September and the country accounts for about a fifth of the group’s global total. It is still expanding in China, increasing the number of its stores by more than a tenth in the latest financial year. Starbucks had a 14 per cent market share of China’s café market in 2022, according to the most recent available data.
That makes it an attractive target for Chinese groups, including domestic coffee chains. Starbucks, which is reported to be exploring options for its Chinese operations — including the possibility of selling a stake in the business — would also benefit from a helping hand from a local partner. The buyer, if not already in the coffee chain business, would have to be prepared to deal with extreme competition, which is now hotter than ever thanks to two local rivals: Luckin Coffee and Cotti.
These Chinese rivals are a step ahead in terms of local trends, including automation — and offer much cheaper coffee too. The pace of growth of domestic coffee chains has been impressive in the past year. Luckin’s performance has been especially strong. It has proved sceptics, who once saw its ultra-cheap coffee prices and high costs as a flawed business model, wrong this year. Luckin Coffee’s operating margin hit 15.3 per cent in the latest quarter as net revenues rose more than 40 per cent to $1.5bn, adding to annual sales that nearly doubled last year. It opened 1,400 new stores in the latest quarter, bringing its total to 21,300.
Meanwhile, signs of the pressure are showing, with same-store sales at Starbucks down 14 per cent in China last quarter. Automation, a rapidly growing trend in the local coffee chain industry, is helping margins during a time when costs are rising, especially delivery, sales and marketing expenses. Cotti, which has grown rapidly since it was founded in 2022, is pushing out coffee-making robots. Luckin has fully automated pour-over coffee machines. Luckin’s coffee robots and unmanned coffee shops were key to maintaining growth during the pandemic.
Valued at an industry multiple, the Chinese operations of Starbucks could be worth about $12bn. Like the different drinks on the menu, each market increasingly requires distinct strategies to stay ahead of the competition.”
GRAHAM PERRY COMMENTS;-
China is not only about Trump, the South China Sea, the Belt + Road Initiative, the Uighurs, the Indian Ocean and the fall out from the overstretch in the property sector.
It is also about ways in which Chinese enjoy their recreation time – the current craze for night bicycle rides in search of dumpling being one example (that featured in #540) and the greater number of Chinese frequenting cafes being another. Into this mix comes Starbucks and readers may find that things don’t quite add up. After all China, according to much of the Western media reporting on China, is almost exclusively about the grind of the “996” work schedule which derives its name from its reported requirement that employees work from 9:00 am to 9:00 pm, 6 days per week; i.e. 72 hours per week, 12 hours per day.
And yet Starbucks with its relaxed Café Culture and customers’ smiling faces enjoys a considerable business in China. It has almost 7,600 outlets in China which accounts for about a fifth of the group’s global total. Far from contracting or reducing the number of outlets Starbucks continues to expand in China, increasing the number of its stores by more than a tenth in the latest financial year. The company had a 14 per cent market share of China’s café market in 2022, according to the most recent available data says the FT.
And Chinese Café companies – Luckin Coffee and Cotti – have stolen a march on Starbucks with automation and cheaper coffee as well. As the above FT report states;- “Luckin Coffee’s operating margin hit 15.3 per cent in the latest quarter as net revenues rose more than 40 per cent to $1.5bn, adding to annual sales that nearly doubled last year. It opened 1,400 new stores in the latest quarter, bringing its total to 21,300.”
But more interesting is what this report in the FT says about UK mis-perceptions about life in China. So often the reports focus on the claimed unattractive weekly lives of Chinese young people with long hours, the absence of any relaxation or social life. This conveys the message that life in China is harsh, unyielding, without relief from demanding work schedules – no social life, no time for family visits, no meeting friends in Starbucks.
This narrative fits the image of the old USSR where everything was about production targets and awards for “Supreme Red Heroes” with no life outside of the factory. Life under Communism is conveyed as being monotonous, repetitive, without humour, without a private life or entertainment or quality of life.
This is part of the Western narrative about China – “it is expansionist. It is genocidal. It wants to rule the world. It threatens all of its fourteen neighbours.. It is a threat to world peace. Its population are prisoners who are denied freedom, condemned to do what they are instructed to do by a tyrannical Marxist clique who control the Party and thereby China as well” In summary – China is a dictatorship determined to dominate the world. It must be stopped.
This Column – ‘Good Morning From London’ exists to provide balance to the understanding of China and the Starbuck article – like the Kaifeng Dumplings article – give a different view on China and in the 541 previous Good Morning from London Columns – www.grahampettyonchina.com – you can find comment on each of the allegations against China.
There are two sides – one is pro US and essentially anti-China. The other – this Column – acknowledges the negatives in China but also confronts each of the many lies propagated by the West in search of an iron anti-China alliance as war with China is increasingly being talked up.
There are always two sides. This Column gives the other side and this particular Starbuck’s Column is part of the punch back providing readers with a glimpse of the spirit, excitement and determination of China to maintain its general policy in internal and foreign affairs.
GRAHAM PERRY
