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Starbucks to double its China stores in 5 years as Chinese middle class adopts coffee culture

Celine Ge
People sit in a Starbucks outlet in China on February 22, 2016.
Zhang Peng | LightRocket | Getty Images

Starbucks plans to add over 10,000 new jobs a year in China over the next five years as part of the U.S. coffee giant's big bet on the nation of tea drinkers, where coffee culture is flourishing amid a booming middle class despite an economic slowdown.

Besides aiming to more than double its store count in China to 5,000 by 2021, the world's largest coffee chain is brewing up a 30,000 sq ft premium coffee house in Shanghai, described by its new China head Belinda Wong as "the second Disneyland" in the making.

In an interview with the Post at a "Bing Sutt"-style Starbucks café in Central, which pays homage to the traditional 1950s Hong Kong coffee shop decor, Wong spoke of her vision since stepping into her role as the Seattle-based company's first China operations chief executive late October.

"In China in the coming five years we are definitely adding 10,000 plus new jobs every year. We open 500 stores a year and our goal is by have 5,000 stores," said the 44-year-old, who has been named in the top 25 on Fortune China's annual list of the country's most influential businesswomen since 2012.

Schultz: No brand has accomplished what we have in China
Schultz: No brand has accomplished what we have in China

"This is the early chapter of our China growth right now. We have barely even scratched the surface."

That expansion is poised to make China, where the middle class have awakened to the taste of coffee ever since Starbucks opened its first store in 1999, the largest market outside the U.S. within the next few years.

The mainland China outlets were already the most profitable, said Starbucks chief executive Howard Schultz during a post-earnings call with analysts last week, when he projected that China had the potential to overtake its home market which it has nurtured for 45 years.

While Starbucks coffee can be an everyday indulgence for urbanites in the West, with a price tag of 30 yuan (US$4.43) for a medium latte in Shanghai, it is still a brand with plenty of snob appeal – a status symbol for the emerging Chinese middle class and a "liquid luxury" for an average worker.

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The U.S. coffee chain came under attack in 2013 by the state broadcaster for what critics called "inflated prices", but the bad public relations at that time failed to deter its expansion or overhaul its pricing strategy.

Starbucks more than quadrupled its number of mainland stores to more than 2,300 within five years, even as other U.S. fast-food and restaurant chains including Yum! Brands' KFC and PizzaHut outlets reported lackluster business.

The company has proven adept at adding local touches in its Chinese stores, such as moon cakes, dragon dumplings, as well as tea-flavored beverages such as spicy mocha and oolong.

Starbucks courts millennials with $10 coffee at new Reserve bars
Starbucks courts millennials with $10 coffee at new Reserve bars

Wong, who was born in Hong Kong, educated in Canada and is now based in Shanghai, said Starbucks might break into 10-15 new urban markets in China every year, while continuing its penetration in megacities where it has taken hold.

"There is plenty of space to infill in first and second tier cities where we have already opened – Beijing, Guangzhou, Shenzhen, Shanghai," said Wong.

Coffee consumption in the world's second biggest economy is still well below that of Europe and the US, and market researcher Euromonitor predicts that retail sales volume of fresh coffee will post a compound annual growth rate of 17 per cent in China.

However, competition in China is also intensifying. While other international coffee chains like Costa Coffee scramble to seize market share, independent coffee shops have also sprung up and are proving to be a magnet for young affluent Chinese seeking to "be different".

Starbucks last month unveiled plans to ramp up its upscale Reserve brand, where baristas prepare coffee using exceptional methods, such as siphon brewing.

"We want to make sure we open stores that are not cookie cutters," Wong said. In her new role Wong is responsible for the planned 2017 opening of the first international Starbucks Roastery and Reserve Tasting Room in Shanghai, which, at 30,000 sq ft, would be twice as large as the original Seattle outlet launched in 2014.

The roastery is a theater-style Starbucks catering to coffee connoisseurs more discerning about the coffee beans and roasting. It will be situated on West Nanjing Road, one of Shanghai's most expensive shopping districts.

"Shanghai Roastery is going to be much better than the Seattle one," said Wong, declining to give further details on what the showpiece would look like – other than to hint at it being like a "second Disneyland in Shanghai". "It's going to attract not only people in Shanghai but attract a lot of tourists in China," she added.

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