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Starbucks Unveils Latest Component of China Strategy: Breakfast

Starbucks released a brand new breakfast menu across its more than 700 stores in China this month, offering the morning meal to Chinese customers for the first time. In doing so, the company continues its ambitious push into the PRC, which will culminate in the opening of its 1,500th café sometime in 2015.

In The Investor, a Chinese language publication, Starbucks China spokeswoman Wang Xingrong noted that the company was only adding four new items to its menu – a French croissant, a chocolate Danish, an Italian sausage roll, and a turkey and cheese sandwich. Nevertheless, she asserted that by packaging these new items with existing offerings the coffee giant was strengthening its image as a destination for breakfast. That being said, the decidedly Western nature of the new offerings is notable as it runs contrary to some of the company’s overall efforts to cater to local tastes.

According to Wang, the company’s decision to release and market its new breakfast options is a direct response to the demands of its customers, who are placing more emphasis on the importance of the morning meal and have expressed a desire to obtain it at Starbucks.

Overall, Chinese consumers are paying more attention to breakfast than ever before, leading to a budding “breakfast war” between fast food chains looking to capture a share of the growing market. Among those in competition are McDonalds, KFC, and several Chinese domestic chains, including Real Kung Fu and Yonghe King.

As The Investor notes, the price difference between existing fast food breakfast options and those on offer at Starbucks are stark. While a coffee and breakfast sandwich at McDonalds starts at 6 yuan and Chinese-style fast food breakfast runs between 6 and 12 yuan, a Starbucks breakfast is projected to run around 50 yuan. This has led some analysts to predict that Starbucks is not likely to attract many new customers with its decision to offer the morning meal. Rather, these analysts believe that the new service caters to the tastes of the café’s current customers, which may lead to a slight bump in sales, but which will not likely have a significant impact on company earnings.

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Despite these predictions, Starbucks’ decision to begin serving breakfast is important for both practical and symbolic reasons. Practically, it could help the company ward off challenges from emerging competitors in the coffee realm. KFC and McDonalds both serve coffee, with the latter even beginning to open specialty coffee windows on street corners in major cities. By offering both coffee and food, these food chains provide the convenience of a full breakfast at one location, a service Starbucks lacked until this month. Starbucks’ decision to offer breakfast, then, undercuts this potential competitive advantage, giving consumers the option of fulfilling all of their morning food needs at the café.

Symbolically, the advent of breakfast at Starbucks represents the company’s further evolution on the Chinese mainland. Starbucks plans to triple its presence in the PRC between 2011 and 2015 and believes that China will be its second biggest market outside of the U.S. sometime within the next couple of years. Offering breakfast appears to be simply the latest development in the coffee chain’s movement toward the sort of full-service café-cum-restaurant it operates in the U.S.

It remains too early to determine the impact of Starbucks’ decision to offer breakfast on its earnings.Some experts are pessimistic about its prospects for success. Starbucks, however, is no stranger to less than optimistic predictions about its chances in the PRC, a nation where tea has long ruled supreme. Yet it continually defies these projections, opening new stores at a rapid rate and operating a business model that one Boston Consulting Group senior partner equated to the perfect example of “getting it right” in China. With this in mind, it’s not a stretch to believe that serving breakfast may just be the latest “right” decision by the Starbucks leadership team.

 

Published October 31st, 2012

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