Starbucks is making a super-sized bet on China, where it is opening the world’s biggest outlet as part of efforts to maintain its upscale reputation in an increasingly important market.
The Seattle-based company has spread to more than 130 cities in China, where it now operates about 3,000 stores. It is opening new outlets at a rate faster than one a day as it seeks growth in the country following several quarters of underwhelming results in the US, its biggest market.
The new 30,000 sq ft roastery in Shanghai — which is approximately half the size of a football pitch — is Starbucks’ first outside the US. The outlet, which will open on Wednesday, allows customers to watch beans being roasted and brewed in Bunsen-burner style tubes and is positioned as “super premium,” the company said.
As white-collar Chinese consumers with rising incomes switch to pricier premium goods, Starbucks is betting that thirst will extend to coffee.
China could become Starbucks’ biggest market within a decade, executive chairman Howard Schultz told the Financial Times in Shanghai on Tuesday.
Starbucks outlets in China have been seen as an upmarket destination for business meetings or dates, and so are able to charge more for a coffee than in the US. But other US brands such as McDonald’s and KFC that expanded rapidly in China have struggled in recent years as consumers in large cities began to desert in favour of higher-end options.
Starbucks has 600 stores in Shanghai — more than in New York or London — but faces competition from an increasing number of artisanal outlets. Li Chaoxiang, 23, who works in an investment bank, said: “Starbucks is not a premium brand any more, as when it first came. Now in Shanghai you can see Starbucks anywhere.”
“The ubiquity of those companies worked against them,” Mr Schultz said of US fast-food chains. “The roastery represents the ability to take the customer up.”
Revenue from the Asia-Pacific region, which includes China, accounted for almost 15 per cent of Starbucks’ revenue for the fiscal year ended in October, up from 5.5 per cent five years earlier. Same-store sales grew 8 per cent in China in the most recent quarter, compared with 2 per cent globally.
“This is an inflection point for the company where China will become a much more important component of the financial results of Starbucks,” Mr Schultz said, adding there would be “less dependence on the US business” in the future.
Starbucks opens a store about every 15 hours in China, including in a growing number of smaller cities that many Americans have “never heard of,” Mr Schultz said. “We’re seeing fantastic returns in those cities which are consistent with the early days of Shanghai and Beijing,” he added.
“One thing we didn’t count on is how busy the stores would be in the afternoon and evening, which is different from the US where we are busiest in the morning,” he noted. He added that same-store sales had been boosted by increasing morning patronage “in the last year or two” in China.
While Starbucks has been under fire for its tax arrangements in Europe, Mr Schultz, who stepped down as chief executive this year, has been an outspoken critic of Donald Trump and the recent tax reform bill passed by the US Senate.
“I have a policy of not speaking about American politics on foreign soil,” he said. “I’ll just say this: I would like to see a tax policy that is more compassionate and serves all people not just corporate America”.