DRINK UP

Starbucks is opening more than a store a day in China and only plans to get faster there

Obsession
China's Transition
Obsession
China's Transition

KFC and McDonald’s have spent the better part of the past year getting out of China. The world’s best-known American coffee chain, however, is only getting bigger there.

Last week during its annual shareholders meeting Starbucks announced that it had reached a minor milestone when it revealed it had opened 2,600 stores in China. That figure is up from a store count of around 2,500 by the end of 2016, and over 2,300 from the start of October, when the company’s most recent financial year ended.

That means that almost 10% percent of the company’s stores—both company-operated ones and licensed outlets—now reside in the China. In 2009 the country was home to just 2.9% of Starbucks stores around the world.

Company data show that during the company’s fiscal 2016, China surpassed Japan (pdf, pg 4) as the company’s number-two market for company-owned stores—the outlets that generate a majority of Starbucks’ revenue. By January 2017, it had 1,212 wholly-owned stores there.

The company’s growth comes as China’s rising middle class, which has a taste for the cosmopolitan, sent sales for fresh-brewed coffee served at retail restaurants surging. Research firm Euromonitor International estimates that the market size for coffee served in cafes hit 20 billion yuan (about $2.9 billion USD) in 2016, up from a mere 1.1 billion yuan 10 years earlier.

Starbucks captures a majority of this market in China. Three-fourths of coffee shop sales went to the Seattle-based giant in 2014, with the remainder shared by Costa Coffee, McDonald’s, and Hong Kong chain Pacific Coffee, according to Euromonitor.

Last year Starbucks announced plans to increase its store count to China to 5,000 by 2021, which will require opening an average of a dozen stores each week to achieve. The company’s bet on expansion bucks a trend as other foreign restaurant chains struggle to maintain a foothold in China. In January McDonald’s announced it successfully sold 80% of its business in mainland China and Hong Kong to franchisees, as it struggled in the face of competition from local fast food chains. Yum! Brands, meanwhile, spun off its China division last autumn as slowing sales at KFC and Pizza Hut in China burdened the company’s share price in New York.

What has insulated Starbucks from meeting a similar fate? The company’s marker as a status symbol ensures that its brand remains aspirational. As a result, it can charge its famously high prices—which at times dwarfs those in the US. In 2013, various media outlets ran pieces noting how some Starbucks beverages in China were more expensive than they were in the US. State broadcaster CCTV even ran a 20-minute smear piece (link in Chinese) on the price difference, which remains one of the more memorable examples of government-backed media targeting foreign companies (sometimes, but not always, with good reason).

home our picks popular latest obsessions search