Starbucks China 2012: Overview, Analysis & Recommendations

IBackground of Starbucks

5C Analysis

TOWS Analysis

STP Strategy

Starbucks V.M.S.

5P Strategy

Background of Starbucks

14,822

227

1,462

226 3,317

58

249

20,361sotres in 61 countries (2012/11)

Starbucks’ unique selling point is the “rich experience"

that goes beyond a cup of good coffee.

І HeadquartersSeattle, Washington, USA

І Key personHoward Schultz

І Market share1% in the world

І Industry/ GenreRestaurants/ Coffee house

І U.S.A• Founded in 1988

• Market share: 29%(2011)

• 13,123 stores in U.S.A

Background of Starbucks

• Entered in 1996• Market share: 33.4%(2010)• 839 stores in Japan

І Japan

• Entered in 1999• Market share: 40%(2010)• 585 stores in Korea

І Korea

• Entered in 1999• Market share: 66%(2010)• 738 stores in mainland China

І China

5C Analysis – China market

І Analysis of Chinese coffee market

• Currently coffee consumption is about $10 bil-

lion in China ($1.7 trillion globally)

• China coffee market is increasing about

15~20% every year (2% globally)

• Coffee franchise growth rate per year: 25%

• Imported coffee: 90%

І Coffee consumption/ year differs from regions

І Coffee consumption

• Reach 120,000 tons in 2012 (130,000 tons in

KOR)

• An estimated market of 200-250 million coffee

drinkers (Starbucks survey)

• 400 tons in Shanghai

• 300 tons in Beijing

• 200 tons in Guangzhou

5C Analysis – China market

• Type of product: 3-in-1 mixes (coffee, milk powder and sugar)

80% of China coffee market share

І Instant coffee as dominant product

5C Analysis – Change

І Structural feature of China market

PO

LIC

Y

І Joined WTO

Help Starbucks reduce cost

Such an inflow of foreign culture affected Chinese culture

І From 1992, opened little by little, in 2005, abrogate law which is foreign investment restrictions to retail

stores Starbucks acquired their own license

EC

ON

OM

IC

І In 2007 and 2008, expanded more than 11% (economic development), 25% (growth rate), and 16% (con-

sumption growth)

І Increase in CPI (the consumer price index)

Increase in raw material price (eg. Coffee bean, transportation fee, and so on)

І Increase in Chinese GDP

SO

CIE

TY

І Urbanization plan: expand up to 52% till 2015 (urban:non-urban= 49: 51, 2010)

І Produce coffee bean in Yunnan

І Emergence of a middle class (increased purchasing power)

І Sustainable Green Growth advantage; Starbucks image

5C Analysis – Change

І Structural feature of China market

І Chinese mostly drank; tea, beer, Baijiu, tepid boiled water

І After China opened up; wine, juice, creamed marzipan beverage, health elixirs,

and carbonated drinks emerged

І Recently drinking coffee has become popular

І Around 15,000 tons of Arabica beans are harvested in Yunnan every year

І At coffee stands in Shanghai foreigners tend to get their coffee to take away ↔ Chi-

nese like to sit down and socialize or carry out business with the coffee they order

І Coffee culture is more popular than coffee itself with sales

5C Analysis – Company

І Headquarters: Shanghai, China

І Key person: Wang Jing Ying (current CEO in China)

І Net revenues for the China/Asia Pacific segment were

$198 million in Q4 FY12, an increase of 23% over 4Q

FY11

1999

Opened 1st store in

Beijing

Current2012

738 stores in main-

land

2005

Established the greater China Regional sup-port center in

SH

2000

Opened 1st store in Shanghai

2003

Acquired a 50% ownership interest in SH

Opened 1st store in South-

China

2008

Expanded to 26 cities,

mainland

2010

Launched Starbucks tea in mainlandMore than 400 stores

2008

More than 600 stores

5C Analysis – Company

Starbucks store entry

Market Time Region Mode

Beijing 1999 Beijing, Tianjin, etc.License

(Changed to wholly owned in 2006)

Shanghai 2000Hong Kong, Shanghai, Nan-

jing, Hangzhou, Suzhou, Wuxi, etc.

Joint Venture(Increased shares to

50% in 2003)

Southern China2002 Guangzhou, Shenzhen,

Dongguan, etcLicense

(Increased shares to 51%)

2005 Chengdu

Other Secondary Cities

2005 QingdaoWhollyOwned

2005 Dalian

2006 Xi’an, Chongqing

5C Analysis – Company

І 66% market share in Chinese coffee

shop market (Costa: 8.9%, Mac Cafe:

8%)*

І 162 stores in Shanghai

125 in Beijing

44 in Guangzhou

І Operating margin: 34.6% (21.8% in the

US)

І $358 million sales in 2010 (= 3.3% of to-

tal revenue)

І History of imitators

eg. Shanghai Shabake Coffee Company

Location of Starbucks China

*Source: Euromonitor International 2010

5C Analysis – Consumer

І Reason for coffee consumption

• Coffee is a fashion beverage that comes from western countries

• Drinking coffee is a social event rather than a daily necessity

• Chinese like sweet coffees (mocha or café latte rather than espresso)

І Chinese people visit cafes for

• Music and ambiance

• Branded wares (coffee mugs)

• Variety of fresh pastries

• Coffee experience

5C Analysis – Consumer

І Chinese coffee brand preference• Nestle (74.4%), Starbucks (6.7%), U.B.C coffee (5.1%)

І Chinese coffee flavor preference• Add milk (44.3%), Add sugar (41.5%), Add cream (28.8%) Add milk+ sugar+ cream (6%), Fresh coffee (18%)

І Chinese factor of purchase decision• Flavor (35%), Price (19%), Brand (18%)

І Why do Chinese not drink coffee?• Harmful to health (20.2%), Sleeping problem (17.4%), Strange flavor (17.4%), Expensive price (10.9%)

5C Analysis – Competitor

Global Cof-fee Brand

Instant Coffee

Domestic Coffee Brand

• Starbucks, Costa Coffee, Coffee Bean• NesCafé, Mac Café

• Nestlé, Maxwell, UCC Coffee,

• U.B.C Coffee, Liang’an Coffee, DIO Coffee• MANABE Coffee, Mingdian Coffee• 85 , Pacific Coffee, Lanshan Coffee ℃

5C Analysis – Competitor

Pa-cific

85℃

Costa

Mac Cafe

• Headquarters in HK• 250 stores in mainland• Main cities: Beijing, Shanghai,

Guangzhou

• Headquarters in U.S.A• 118 stores in mainland• Main cities: Beijing, Tianjin,

Shenzhen

• Headquarters in UK• 150 stores in mainland• Main cities: Shanghai,

Guangzhou, Shenzhen

• Headquarters in Taiwan• 657 stores in mainland• Main cities: Shanghai, Beijing,

Jiangsu

U.B.C

• Headquarters in Taiwan• 1,271 stores in mainland• Main cities: Shanghai, Beijing,

Zhejiang

5C Analysis – Competitor_U.B.C Coffee (Domestic Coffee Brand)

• Headquarters in Taiwan

• Founded in 1968 in Taibei

• 1,271 stores in mainland

• Main cities:

Shanghai, Beijing, Zhejiang

5C Analysis – Competitor_Nestle (Instant Coffee)

І Nestlé sells 2 out of 3 cups of soluble coffee on the mainland

І 1st multinational to establish a coffee plant in China

І Favorite instant coffee brand: Nescafé has 75 % mar-ket share on the Chinese instant coffee market

І Nestlé operates 21 factories in China

І 3 Nespresso shops (Shanghai, HK, Beijing)

Starbucks V.M.S.

І VisionEstablish Starbucks as the premier provider of the finest coffee in the world while maintain-ing our uncompromising principles while we grow

І Mission StatementTo inspire and nurture the human spirit – one person, one cup and one neighborhood at a

time. Here are the principles of how we live that every day:• Our coffee• Our partners • Our stores• Our neighborhood• Our shareholders

І StrategyTo achieve the goal, the Company plans to continue to rapidly expand its retail operations, grow its specialty sales and other operations, and selectively pursue opportunities to leverage the Starbucks brand through the introduction of new products and the development of new distribution channels.

TOWS Analysis - Starbucks

TOWS Analysis – U.B.C Coffee/ Nestle Coffee

STP Analysis – Segmentation

І By geographic

• By population, choose level of cities in China

• 1-tier and 2-tier cities on the coast

І By psychographics

• By demographics, analyze their orientation and life styles

І By demographic

• By geographic, separate to groups

• By household income, separate to groups

• By groups, analyze their educations, occupa-

tions and ages

STP Analysis – Segmentation

STP Analysis – Targeting

STP Analysis – TPC

Renying Hwang, a 30-year-old who works in foreign trade. Her annual income is ￥ 45,000 ($7,363). She lives in Shanghai. When she has a meeting with buyers or friends, she always chooses her place of ap-pointment as a coffee shop. Sometimes, she likes to drink coffee while reading books and listening to music. She always visits well-known branded coffee chains.

Shengjuan Ye, a 25-year-old who works in a Korean teach-ing Academy. Her annual income is ￥ 25,000 ($4,090). She lives in Hangzhou. Jiayan Wang, a 24-year-old who works in an electronic factory as a technician. Her annual income is ￥ 22,000 ($3,600). She also lives in Hangzhou. They lived in Korea before. During that time they often went to a coffee chain to drink coffee while they did homework and chatted. They like the flavor of coffee.

STP Analysis – Positioning Map

Brand imageP

rice

HighLow

Low

Hig

h

USP of Starbucks China

Ideal 3rd place• 我们卖的不是咖啡，我们卖的是体验 We are not selling coffee, we are delivering an experience• Between home and work: Relaxing, Comfortable and Convenient• Relaxing: diverse music, coffee variety and aroma• Comfortable: sofas, well designed interiors• Convenient: free wifi, ideal locations, quick service

5P Strategy – Products/Services

І Narrow range of products

І Limited localized choices

3 Chinese teas

І No local Chinese food

І Limited personal interaction with the staff

І Season Coffee: Toffee nut latte

І Product line extension and set menus • Localized teas and food: moon cakes

І Free wifi without ID/Password

І Increased number of electrical outlets

І Coffee knowledge/education kiosk

І Customized music offerings (Playlist)

5P Strategy – Price

І Premium pricing strategy

І Few discounts

І Lower prices in 2nd-tier cities based on

CPI

І Discount on new products to increase ac-

ceptance rate

І Same premium pricing strategy in the pri-

mary cities

І Lower prices when using Yunnan Arabica

coffee bean

5P Strategy – Place

І Starbucks employs 1-level consumer mar-

keting channel in China

• Exclusive distribution at company owned re-

tail outlets

І Arabica coffee beans sourced globally

• 86% of coffee purchased in 2011 ethically

sourced

• Joint Venture with Ai Ni Group in Feb 2012

− Yunnan province Arabica beans to be

used domestically and exported

І Expand into wholesale markets• Coffee beans, Via instant

І Highlight use of Yunnan Arabica beans

І Transition from renting to owning property

І Heated seating and more comfortable

chairs

5P Strategy – Promotion

І Seasonal promotions

І Personalized marketing

І Product promotions

І Maintain image of coffee culture• Interactive marketing events (tasting, sam-

pling)

І Starbucks community programs

І Seasonal promotions

• Chinese New Year

• Mid-autumn festival

• National day

І Drawings

І Loyalty promotion: pins

5P Strategy – People

І A low turnover rate compared to competi-

tors

І Progressive compensation package

І Additional life insurance

І Medical insurance

І Stock options

І Management bonus plan

І Discounted Starbucks merchandise

І More extensive training

І A more personalized approach to the cus-

tomer

І Training program in the US for the best em-

ployees

T

Reference

І Starbucks China: www.starbucks.com.cnІ Starbucks Entry into China, Cornell universityІ Starbucks Corporation Fiscal 2011 Annual ReportІ Starbucks Reports Record Fourth Quarter and Fiscal 2012 ResultsІ Starbucks in China, ESADEІ Baidu Map: search as coffee shop, Starbucks China, U.B.C Coffee, Pacific Coffee, 85 , Costa Coffee, ℃

MacCafeІ Starbucks coffee 75% costlier in China, China Beverage NewsІ China's Rising Imports of American Goods, US Global Investors, By Frank Holmes, November 11, 2011І China's new brew, By Daniel Allen : http://www.atimes.com/atimes/China_Business/MC11Cb02.htmlІ http://en.wikipedia.org/wiki/StarbucksІ http://www.loxcel.com/sbuxІ http://www.quora.com/Business/What-is-starbucks-market-share-globally-and-in-the-USІ http://www.askform.cnІ http://factsanddetails.com/china.php?itemid=1875&catid=11&subcatid=73#13І Starbucks to take on Nestle in instant coffee market (Liu Ying-feng and Staff Reporter)І Starbucks Heads for Smaller China Cities as Coffee Shops Triple By Bloomberg News - Apr 1, 2012І http://news.starbucks.com/about+starbucks/starbucks+coffee+international/greater+china/І http://www.forbes.com/sites/helenwang/2012/08/10/five-things-starbucks-did-to-get-china-right/І http://legacy.intracen.org/publications/Free-publications/China-Coffee-Overview-Tech-Paper-Aug-2010.pdfІ http://www.bosidata.com/yinliaoshichang1203/G716510RG6.html

Reference

І 2009 中国咖啡连锁企业 20 强， CPR ResearchІ 星巴克中国的营销战略研究，上海交通大学І 星巴克的中国市场营销策略І 2009 年中国咖啡市场价格走势及影响因素深度调研报考І 拓展中国市场 星巴克 3 年将增 800 家店І 论中小企业的经营特点与战略选择—浅谈连锁经营在我国的发展及对І 星巴克、麦咖啡齐齐涨价 Costa 、太平洋咖啡按兵不动І 중국마케팅 , 김용준 , 박영사І 중국 , ' 뜨겁고 진하게 ' 커피전문점 진출 경쟁 , KOTRAІ 日経市場占有率　２０１１年版І Responsibly Grown Coffee <http://www.starbucks.com/responsibility/sourcing/coffee>І Starbucks to Partner with Ai Ni Group to Brings China’s Yunnan Coffee to the World <http://news.starbucks.-

com/article_display.cfm?article_id=617>І McKinsey Consumer & Shopper Insights: Meet the 2020 Chinese Consumer. <http://www.mckinseychina.-

com/wp-content/uploads/2012/03/mckinsey-meet-the-2020-consumer.pdf>І Regional market segments of China: opportunities and barriers in a big emerging market. < http://www.ln.e-

du.hk/mkt/staff/gcui/Cui%26LiuJCM.pdf>

• Team Name: Starbucks China• Team Leader: Hyomin Seo

No. Name Role in the Project

1Hyomin Seo Starbucks overview, China market, Change, Com-

pany, Target Matrix, TCP, Positioning map, USP, Product, Price, Promotion

2Jin Ming Consumer, Competitor, TOWS analysis of Starbucks,

TOWS analysis of UBC coffee, Segmentation, Tar-get Matrix, USP, Product, Price, Promotion

3Chris Lopez Company, TOWS analysis of Starbucks, Segmenta-

tion, USP, Place, Promotion, People

4Serge Gawrieh Competitor, TOWS analysis of Starbucks, TOWS

analysis of Nestle, Segmentation, USP, Place

5Clotilde Cavaroc China market, Company, Consumer, TOWS analysis

of Starbucks, Segmentation, USP, Place, Promotion, People

Starbucks Appendix

Starbucks Appendix

Green activity in China

Gift card in China

Starbucks Appendix

Coffee Stores in KOR

Starbucks

Starbucks

Starbucks

Starbucks

Source: McKinsey Consumer Re-port

Starbucks

Source: McKinsey Consumer Re-port

RANK

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