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.
Analysis: Despite Starbucks-bashing, global coffee industry has China firmly in its sights
Overpaying for foreign goods is nothing new for mainland Chinese. Since China joined the WTO in 2002, a “luxury tax” has been applied to everything from jewellery, to cars and to dishwashers. Now Starbucks lattés can be added to this list of luxury scams -- at least according to official Chinese media including CCTV, the state broadcaster, who accused the American coffee chain of "profiteering" in China last month.
Two weeks ago, beverage mogul Howard Schultz defended the price-fixing in a CNBC interview, arguing that investment in China equated higher prices on the menu.
The non-specific "investment" Shultz explained probably referred to the politics of joint ventures. Foreign companies require Chinese partners to do business in the mainland, and therefore must split profits. This is essentially the reason why a latté in Shanghai costs more than in New York or Paris. Shultz phrased this in his interview by saying, “Chinese understand why we charge more,” a comment that triggered an immediate backlash online from Chinese consumers.
The partner of Starbucks in China is Yunnan’s Ai Ni Company, which this year helped open the first Starbucks Farmer Support Centre in Yunnan’s Puer city. Yunnan province has no free-trade zones, but there is plenty of fertile soil and experienced farm workers. Western China is the new frontier for coffee growth. Puer’s soil was virgin to coffee five years ago, but in 2011 the Yunnan provincial government invested 3 billion yuan in coffee production for the province, according to a China Daily report.
By 2020, China is expected to surpass the US and Brazil as the world’s largest coffee consumer according to ICO, an agriculture and commodity research group. Starbucks and Nestle are head-to-head in the race for China’s instant coffee distribution. Though coffee is still a luxury-based commodity, fewer mainland Chinese adults abide by tea drinking. China has seen an annual 15-20 per cent growth in coffee consumption since the turn of the century, driving demand for imports.
Starbucks clones continue to sprout in China’s second and third tier cities, where one fancy espresso drink will retail for between 30 to 40 yuan. Though Starbucks may seem to be gaining more than their fair market share, China’s counterfeit culture gets the last laugh.
Fake Starbucks cafes are common across the nation as fake IKEA and Apple stores and goods with a fake Starbucks’ logo are just as profitable.
Chinese consumers’ backlash against the Seattle brand can only be good for Starbucks competitors – the entire coffee producing world. From Indonesia to Columbia and Uganda, all coffee growers want there is their product to retail in Chinese cafes.
While coffee doesn’t evoke the same traditional culture as “The Tea House” – the title of the historical play made famous by Lao She in 1957 – the 90s generation has not produced many tea toddlers, either.
Chinese urbanites tend to camp out where ever they find wi-fi and slowly nurse expensive coffee drinks while cramming for university tests.
Brazil’s Ministry of Agriculture has invested in Chinese real estate to create a chain of coffee shops simply named Brazil Coffee. The function is not to turn an instant profit but create a Starbucks-like experience selling Brazil the country, as a brand synonymous with its largest cash crop. Brazil Coffee, as a brand has also made it’s way into convenience stores in Taiwan.
Uganda and Ethiopia, the cradle of the East African coffee trade, both have consulates in Guangzhou. Solomon Rutega, Guangzhou’s Ugandan consul general, recently explained that about 25 per cent of Ugandans were employed in either the production or shipment of coffee. Most of Uganda’s farming machinery is imported from China and the rise in Chinese exports balances the trade partnership.
In 2002, Beijing-Chenao was established as a joint venture company to promote Ugandan coffee in China, and the company provides coffee roasting training at Lingnan University for students entering the hospitality industry. China’s hospitality elite have been attending the country’s annual Barista competition in Hainan Island since 2010.
Yunnan’s rookie coffee growers produced 36,500 tonnes of coffee beans in 2012, and supplied beans for Nestle, Starbucks, Kraft Foods and Maxwell House, according to a report by the China Daily.
Local growers have a long way to catch up with imports, but at the moment Vietnam holds the leads as China’s number one coffee supplier due to its geographical location and good transportation links.
Vietnamese coffee is exported by road to neighbouring Guangxi province and can reach buyers in a matter of days, while other coffee producers must contend with lengthy shipping times for their beans to dock in China’s eastern ports.
However, the food and beverage game is to create a demand which never existed. In five millennia, coffee has never been a part of the Chinese diet, while quickly it’s become a commodity that young Chinese can’t live without.