China and Starbucks market expansion

China and Starbucks

Evaluation of the Chinese Market

Starbucks is the world leader of specialty coffee retailers. We are currently operating in over 30 countries with more than 10,000 coffee shops. Our products and name are synonymous with quality, and as such the Starbucks brand has been elevated to a clear, recognizable status symbol. The Starbucks' symbol on the coffee cup is nearly as important an accessory as the necktie when it comes to the working middle-class. Patronizing Starbucks has become an indicator of class, status, quality, and "hip-ness" for many young businesspeople around the world.

Starbucks' methods of determining where to place a new store in the United States is lengthy and complicated, and it like no other system found in this business. We aim to place our cafes in locations that cater to our main market: young, middle-class businesspeople. Where young, successful people are looking to climb the social and professional ladder, Starbucks wants to be there. We have a reputation of quality that hints at success. Starbucks' is more than just a coffee shop, it's an idea and an attitude.

We have taken a scrutinizing look at the potential for China to provide a lucrative market for expansion by Starbucks. What was found was a challenging, but certainly worthwhile market with the potential to provide Starbucks a stronger presence in the world arena.

China has been undergoing some major political and economic reform over the last decade. Though still technically a communist nation, the Chinese government has been transitioning into an open market, making it an economic hotspot for foreign investors. Free elections have been taking place in rural villages across China, but the government still has strong communist leanings, and this creates a strong governmental interest in the economy.

However, recent changes have brought on a growth in the Chinese middle-class that can clearly benefit a company like Starbucks. Although the higher prices that are an inevitable result of Starbucks' premium quality coffees may, at first, seem like a stumbling block, it seems as if this can be a "secret weapon" of sorts. Even though the current Chinese middle-class isn't nearly as wealthy, or have access to the disposable income that the average American middle-class person has, the idea that a higher price dictates higher quality is very strong sentiment in the Chinese culture. Starbucks is known to be one of the most successful high-end cafes, so the average middle class Chinese will be willing to pay our higher prices.

The market for coffee is slightly counterintuitive for the Chinese market since coffee is not actually the beverage of choice in China -- the Chinese much prefer tea. What has become evident is that the typical Chinese middle-class individual will opt for a product that is less preferred, but of clear high quality if it is in the appropriate location for them to be seen while consuming the product. Being perceived as successful and as having good taste is of a very high priority to the Chinese middle-class, and as such the young businessman will generally opt to patronize a quality establishment that serves a product less desirable in his personal tastes than a less reputable establishment that provides what he would truly prefer. In a nutshell, the young, middle-class Chinese businessman will drink tea at home, but drink coffee at Starbucks in public.

Also considered in this evaluation are the legal system and its efficacy in China. One thing that needs to be very clear to the company wishing to launch its presence in China is that China is not America. It is still a country strongly and sometimes unfairly ruled by its government and legal systems. However, as stated before, the climate is in flux. Certain things previously forbidden have seen a slackening in monitoring and punishment because of the move toward democracy. The current government, though clearly interested in opening their market to the money of the West, does not seem interested in a complete democratic makeover, and so changes in this department will be slow at best, nonexistent at worst.