ECONOMY

After Apple, is Starbucks Chinese state media’s next target?

PUBLISHED : Friday, 18 October, 2013, 5:03pm
UPDATED : Saturday, 19 October, 2013, 8:32am

A Chinese state-run newspaper blasted Starbucks for “profiteering” in the mainland raising concerns that the world’s largest café-chain could become the next prominent foreign company to be targeted by state media, after Apple was castigated for poor customer service earlier this year.

The Economic Information Daily, a newspaper run by the official Xinhua news agency, chastised Starbucks for selling its coffee at a higher price in Beijing than in Hong Kong, London, Tokyo or New York, even though average income in the city was considerably lower.

The company was profiting from Chinese consumers’ “blind pursuit” of foreign brands, it quoted Ren Jing, an official of the Chinese Consumers’ Association, saying.

State media outlets, like the national broadcaster CCTV and the People’s Daily, had similar things to say about Apple’s Chinese clients earlier this year, when they pointed to the iPhone-maker’s faulty customer service in China.

The Economic Information Daily report comes two days after a similar story appeared in China Daily under the title “Starbucks can’t justify high prices in China”. It quoted Wang Zhengdong, the head of the Coffee Industry Association in Shanghai, as saying Starbucks profited from larger economies of scale than local competitors and cheaper labour costs than at its US branches.

Starbucks sold its coffee mugs at up to 80 per cent higher prices in China compared to the US, he added. Stainless steel cups sold for up to 257 per cent higher price than in the US.

Last month, Starbucks raised its prices in China by two yuan, the second time they have increased this year, earning it thousands of derogatory comments on microblogs.

China matters to the coffee shop-chain as the country is set to become its largest market outside the US next year. The company planned to double its head count in China within two years to 30,000, John Culver, head of Starbucks in China and Asia Pacific, told Bloomberg last year.

Liu Yuanju, a columnist with the Shanghai-based Oriental Morning Post, shot back at the series of attacks on Friday, arguing that Starbucks prices were simply a reflection of Chinese demands.

James Button, a Shanghai-based senior manager with SmithStreet, a business consultancy that has studied Starbucks in China, said he was aware of efforts to discredit the international brand. “It’s not uncommon for high-profile foreign companies to attract more attention from the Chinese authorities than their local rivals,” he said. “We’ve seen it with Apple, Walmart and Carrefour. It’s a cost of doing business in China.

Button said Starbucks coffees are actually sold at a lower premium than other foreign luxury products sold in the country. “If we look at cosmetics, computers, cars, it’s very common to see 30 to 100 per cent premiums over international pricing, whereas Starbucks’ premium is probably at 20 per cent. It’s definitely within the reins of acceptability to Chinese consumers, who view Starbucks as an experience rather than a commodity.”

Prices in China reflected local conditions, Starbucks China said in a statement. “It is important to remember that the China business for Starbucks is still in its early stages compared to the US,” it said.

 

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