Starbucks is a global coffee company founded in 1971 in Seattle, Washington, as a roaster and retailer of whole bean and ground coffee, tea and spices. Today it is the largest coffeehouse company in the world, with 20,366 stores in 61 countries. Starbucks went public on June 26, 1992 at a price of $17 per share (or $0.53 per share, adjusted for subsequent stock splits) and closed trading that first day at $21.50 per share. Starbucks Corporation's common stock is listed on NASDAQ, under the trading symbol SBUX.
CCTV's criticism of Starbucks 'pricey coffee' prompts online backlash
Chinese state television’s criticism of Starbucks’ “hefty product prices” in China and its demands for the coffee chain to be fair and to avoid price discrimination have backfired, resulting in widespread online criticism.
State-run China Central Television on Sunday said in a news programme that the price of a 354ml cafe latte in Beijing, at 27 yuan, was higher than in London, Chicago, and Mumbai, where the same drink costs 24.25 yuan, 19.98 yuan and 14.6 yuan respectively.
Quoting the chairman of the Coffee Association of Shanghai, CCTV estimated a tall cafe latte costs barely less than five yuan to make. It also said Starbucks’ 32 per cent profit margin in the China/Asian-Pacific region in the second quarter of its 2013 fiscal year was the highest in the world compared to the company’s profits in other regions.
The report came hard on the heels of similar pieces by Xinhua-affiliated Economic Information Daily and major financial newspaper CBN Daily’ in the past week that exposed Starbucks’ “profiteering”.
The report, which was quickly disseminated across China’s social networking sites, sparked overwhelming criticism from online users.
Real estate magnate Ren Zhiqiang who boasts over 15 million followers on microblog Weibo commented on the news: “[There] is always growing unease with the market economy.”
A number of online users urged CCTV instead to go after large state-run enterprises that profit from de facto monopolies but provide expensive products and unsatisfactory services.
This sentiment was echoed by the People’ Daily newspaper, which also expressed veiled criticism of the report. “Other than coffee, what else is more expensive in China than overseas?” it asked on its official Weibo account and then gave a long list of items such as houses, cars, medical expenses and education fees, and asked online users to add their own choices.
One user quipped, “Anything CCTV opposes, the general public will support”.
“The coffee industry is not as profitable as people think,” said Qi Ming, founder of Bloom Coffee College, one of China’s coffee training schools. He told Innovative Finance Observation that there was no “profiteering” in the industry.
“The take-away rate is 86 per cent in the US. But in China, most consumers like to sit in stores for hours. Besides coffee, they are enjoying the service, sofas, background music.”
Financial professor Chak Wong of the Chinese University of Hong Kong called CCTV’s report an “odd criticism” stemming from a socialist ideology in his microblog. “The real value of Starbucks is not its coffee, but its associated petty bourgeois sentiment and atmosphere. Starbucks’ image will be ruined if it charges less.”
Li Daokui, a professor at Tsinghua University School of Economics and Management, said the problems did not come from Starbucks but from the entire Chinese economy. “Why do Starbucks’ competitors so lag behind in entering the Chinese market? Do high prices result from hefty enterprise taxation? Are office rents too high? These are the questions that need to be answered,” he wrote on his Weibo.
In a response to the South China Morning Post’s inquiry, Starbucks China on Monday said in a statement that its pricing was based on many variable factors, resulting in price variations across the 62 markets where it operated.
The Wall Street Journal last month cited Shanghai-based consulting firm SmithStreet as reporting that profit accounted for about 18 per cent of the price of a Starbucks coffee in China, while rent, operating costs and raw materials were the three highest costs, accounting for 26 per cent, 15 per cent, and 13 per cent of the price of a coffee respectively.
James Button, a senior manager in SmithStreet, told the South China Morning Post in a telephone interview on Monday that coffee was still classed as a luxury in China.
“Coffee is a product that is popular among white collar workers or middle-class people, whereas it is considered more like a commodity in Western countries,” he said. “In America, almost everyone drinks coffee.”
Even so, Button said the price of a Starbucks’ coffee compared to average household income in China had actually dropped over the past five or six years.
Noting that other international coffee chains operating in China, such as British Costa Coffee and Hong Kong's Pacific Coffee, set prices at the same level as Starbucks, Button said the mounting criticism of Starbucks was because of its global presence.