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CCTV's criticism of Starbucks 'pricey coffee' prompts online backlash

PUBLISHED : Monday, 21 October, 2013, 6:58pm
UPDATED : Tuesday, 22 October, 2013, 7:08am
 

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.

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This article is now closed to comments

OldPeak Toad
Ohh you poor mainlander babies! Now there is that bad, bad "waiguoren" from whom you have not yet been able to steal his product, not even managed to copy properly, and now that waiguoren even makes money in China - how unheard of, haven't you suffered for so long from those foreigners that it is simply not bearable to an average, nationalist, conceited Chinese that a foreigner makes a profit in that great nation. My poor babies! Time that big nanny CCP is intervening!
jenniepc
I don’t drink coffee and I have never been in Starbucks. However, I do not agree with financial professor Chak Wong. I'm just curious how he could be a professor. If he does not read the article carefully before he made his argument. CCTV ’s argument is established by a course of reasoning. It is the truth of which is indisputable. CCTV made an comparison of the Starbucks’ price of a 354ml cafe latte in Beijing to the Starbucks’ price of the same latte is higher than in London, Chicago, and Mumbai. It is legitimate complaint. Why Chinese consumers must pay higher Starbucks’ coffee than Equivalent Cities. Now, professor Wong tell me what is that got to do with a socialist ideology.
I heard this morning from NPR (US National Public Radio) stated that Chinese paid 35% higher than Chicago. NPR also claimed that Chinese people were "blindly brand names" and Starbuck claimed that the cost in Beijing, it didn’t indicate if it was the operation cost or the material cost was higher, was higher than Chicago.
I wrote an article "President Obama's China containment strategy is “suicidal playing with fire”". China will not replace US as a dominated leader in Asia nor does China is interesting to become a regional hegemony due to Chinese characters. But China is like cement it derives its strength from the pressure. US will regret in near future if pushes its luck too far over the line. Jennie PC Chiang Facebook and Blog.
Jennie PC Chiang/江佩珍
maecheung
It seems to me that someone with zero understanding of economics is critizing an economics professor. This is Economics 101 pure and simple - supply and demand. "Why Chinese consumers must pay higher Starbucks' coffee than Equivalent Cities." - because people are willing to pay! Besides, last I checked rents, labour and other costs in Mumbai are still substantially lower than the other cities quoted....
jenniepc
You should read my argument carefully before you made your argument. Otherwise you made a fool of yourself. So, read my argument once more to see if your argument has anything to do with my argument.
Jennie PC Chiang/江佩珍 10/22/13 美國
chaz_hen
Just go into any Starbucks...or any cafe in the mainland or HK that offers comfortable chairs and internet...and I guarantee you won't find an open seat, will see people holding their business meetings in their de facto "office" and people sipping on a water for 2 hours. No wonder these places have to charge so much for a coffee!
And since when are Chinese offended by profiteering???
qiaohan
CCTV just doesn't get it. Chinese visit Starbucks precisely because it IS expensive. They obviously don't understand price demand elasticity. I think they're just jealous because Starbucks is profitable even against strong competition from chains like Costa but the government doesn't own it and can't milk the profits.
HiggsSinglet
CCTV news is as bad if not worst than CNN USA and Fox News. Sounded like some mid level idiot trying to gain some **** points from the boss and back fired.!!!
 
 
 
 
 

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