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In China, Starbucks Balances Global Image, Local Needs: Stores and Products

Starbucks is in the midst of an all-out assault on the Chinese market – by 2015 the company plans to triple both its number of stores and its workforce in the PRC all while continuously rolling out new lines of products and services.

This expansion is ambitious — perhaps even audacious, given the broader context – this year the PRC’s economy has stuttered, at least when judged by its own lofty standards, and China is traditionally a tea-loving nation. Whether Starbucks succeeds or fails in its mission will depend to a large degree on the question of localization — to what extent the company’s products, prices, and managerial practices should be adjusted to cater to local tastes and customs? While any foreign company with its eyes on the China market must consider this question carefully, the sheer scale of Starbucks’ expansion magnifies the importance of finding the right balance between its successful global image and the realities of local needs.

So far, Starbucks has demonstrated an ability to consistently strike this balance, with one senior executive at the Boston Consulting Group labeling the company’s strategy as “getting it right in China.” Today, as contextChina begins a four-part series on Starbucks’ expansion in the PRC, we will examine the question of what “getting it right in China” looks like in practice. In this article, we explore two major components of Starbucks’ business model – store design and product selection – with an eye toward how they are changing in the midst of the company’s massive expansion.

Starbucks in China is easily recognizable – many of the company’s stores feature its classic décor and the mugs and cups have its signature style and feel. Around Christmas, customers can even enjoy their drinks in one of the company’s popular red seasonal cups. There are, however, some significant differences in both size and style between the typical American Starbucks and those in the PRC. In terms of size, company executives have found that Chinese customers value open space and comfortable furniture more than their American peers. With this in mind, Starbucks is staying away from small stores and take-out windows in favor of larger cafes, including some that are over 3,800 square feet.

In terms of style, Starbucks has taken to incorporating certain aspects of Chinese art, culture and geography into the design of their stores. Two coffeehouses in Beijing exemplify this development: one, in Sanlitun Village, a hip upscale shopping district in Beijing, will soon be redecorated by local graffiti artists, while another, in Qianmen, a more historical area, features Chinese woodcarvings and traditional wood tables. To further this fusion of global and local style and décor, Starbucks recently opened a China-based store design center.

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Starbucks’ products also feature a mix of East and West. Since entering the PRC, the company has introduced a number of locally-inspired food and drinks. Among them are moon cakes during the Chinese Mid-Autumn Festival, iced rice dumplings during the Dragon Boat Festival, and Red Bean and the Black Sesame Green Tea Frappuccinos year-round. Given the company’s recent establishment of an in-country research and development center for formulating new food and drink ideas, the selection of Chinese products is expected to increase. As Starbucks China’s Chief of Marketing, Marie Han Silloway, recently revealed to contextChina, the first wave of these new offerings, a line of locally-inspired beverages, will be released sometime around the Chinese New Year.

Yet, despite these new options, the core selection of products offered by Starbucks in China remains remarkably similar to that found in the company’s U.S. cafes. When Starbucks began serving breakfast at its mainland stores for the first time this last October, it unveiled four Western-style options – a French croissant, a chocolate Danish, an Italian sausage roll, and a turkey and cheese sandwich. The current Christmas promotion features a Toffee Nut Latte, a Cranberry White Chocolate Mocha, and the company’s Signature Peppermint Chocolate. In short, the company’s traditional offerings still anchor its service in the PRC.

Starbucks’ ambitious expansion is driving innovation in store size and design as well as its selection of products. Attracting a larger customer base, an increasingly important goal given the company’s expansion into China’s second and third-tier cities, requires a measure of adaptation to local tastes and styles. These adaptations have led some publications, including the Wall Street Journal, to conclude that Starbucks is becoming “more Chinese.” But Starbucks’ efforts to localize are aimed at enhancing, not transforming, its traditional brand image. In other words, the company’s PRC cafes are best envisioned as “Starbucks with Chinese characteristics” rather than a replication of the American Starbucks or a whole new Chinese version of the coffeehouse.

Successfully expanding to 1,500 stores in the PRC by 2015 will require Starbucks to maintain a balance between its global image and local needs. Striking this balance will allow the company to not only satisfy its current consumer base – the young, cosmopolitan, and well-off – but also appeal to members of China’s increasingly diverse and rapidly growing middle class. Failing to do so, on the other hand, would greatly endanger both the Starbucks reputation and the company’s bottom line.

Published December 19th, 2012

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