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Will China be Starbucks’ Cup of Tea?

A Starbucks sign in Beijing shows holiday-themed drinks.

Even a slowing Chinese economy does not appear poised to curb the massive expansion of Starbucks in China. At its annual investor conference this month, Starbucks China and Asia-Pacific President John Culver shared: “We are very aware of the economic environment there, but there is clearly a pent-up demand that is in the very nascent stage of us achieving saturation.” Just how much “pent-up demand” does the company see? Enough to support a projected 1,500 stores by 2015. Such an increase would amount to more than doubling the company’s current 700 stores nation-wide and would make China Starbucks’ second largest market, behind only the U.S.

As one of the highest profile and most successful American consumer brands in China, Starbucks’ experience in the country offers many lessons to other firms pursuing go-to-market strategies in China. One of the keys to Starbucks’ success has undoubtedly been the company’s marketing strategy, the result of which has been to elevate the Starbucks brand to something both aspirational and deeply communal. That dual strategy is motivating China’s newly minted middle class and at the same time reflecting China’s heritage. Blending these two is not always easy, but the company has been remarkably successful thus far doing so.

Marie Han Silloway

Last week, contextChina discussed these challenges and the company’s plans to continue its growth in China with Marie Han Silloway, Starbucks China’s chief of marketing. Silloway’s comments illuminate what Starbucks is doing to continue growing in China through an ongoing investment in its people, innovative products developed for the Chinese consumer, and store designs that reflect meaningful historical and local narratives.

*Editors Note: If you enjoy this article, you can find more like it in the Starbucks Series Archive, or we can provide you with a number of custom research options. Learn More

Q: How does Starbucks balance between the need to localize its services and products versus staying true to what has made the Starbucks brand successful in its home market?

A: From our standpoint, the world ‘localize’ should be refined – we look at what we need to do in order to drive relevance in China. I would say we do that in a number of ways. First is in terms of our products. We have a number of products that are successful globally like the salted caramel mocha that we launched this past October. We also have beverages we have developed in the Asia Pacific region and in China such as the Black Sesame Green Tea Frappuccino. I can also tell you starting this coming Chinese New Year we will be launching a new set beverages inspired by this region. Other than beverages, we provide food offerings relevant to our local Chinese customers such as moon cakes for the Mid-autumn Festival and the Starbucks Iced Rice Dumpling for the Dragon Boat Festival.

In terms of marketing, there are a number of ways we customize our messaging. As an example, if you look at Christmas in China, it has really grown in importance over the last 10 years. When I first arrived in China, Christmas was not observed. But over the past 10 years, it has become a more popular holiday in China. Starbucks wants to bring global traditions to this market so currently our Christmas promotion in China offers a trio of really fantastic beverages: our returning hero beverage called the Toffee Nut Latte, Cranberry White Chocolate Mocha and our Signature Peppermint Chocolate. This all helps define global holidays in a relevant way.

The final area where we aim to drive local relevance is in store design. We treat every store as a unique store where we aim to celebrate the local heritage. In Beijing we have a store in a historical pedestrian area called Qianmen Street, so the store design features beautiful woodcarvings and traditional wood tables. In a new store in Fuzhou this ‘small’ village of 6.6 million people has a very deep history of Wei Qi, [a strategy game also called ‘Go’ in English] and in this store we were incredibly inspired by this history. You can see that in the design elements we’ve used the black and white chess pieces to create screens and we etched words representing the different strategies related to the game into the tiles of the floor.

Q: Is the difference in what we call “localization” more noticeable in management practices versus products, services, or marketing techniques? If so, how?

A: One of the biggest mistakes companies make is they try to bring all their practices to China without any adaptation. Localization means different things to different people. For us, it is about being very respectful to local culture and adapting. From a personnel standpoint, there are definitely adaptations because China is a different type of market [than the US]. As we expand, especially into Tier 2 markets, we have to make sure we are training our store partners well in delivering the authentic Starbucks experience.

The relationship with coffee is very different in China than in the U.S. Americans have the highest per capita coffee consumption in the world, and China is still a developing market from a coffee consumption standpoint. Educating our customers on what makes our coffee unique is critical. Starbucks has only been in China for 14 years, and we have many customers who embrace coffee culture who did not grow up with it.

With respect to our own partners, whether folks work in our corporate offices or they become baristas, we have to make an investment in them. Last week, we announced the opening of Starbucks China University in Beijing. This is really about building capability in China for our organization. The programs here are open to any of our 12,000 partners across China. We have very ambitious goals and there is no way we can be successful unless we all grow together. The university will offer a range of courses; we have a dean based out of the university in Beijing. We have an entire classroom where you learn how to make our signature espresso beverages.

In terms of product innovation, what we deliver to the customer needs to be viewed as unique and differentiated and something only Starbucks can deliver. So, when we look at innovations for espresso, our global coffee leadership team in Seattle will look at trends, identify breakthrough tastes and profiles that can be introduced in our markets all around the world.

We have introduced global beverages like Refreshers, the Salted Caramel Mocha, to some of the locally developed beverages which we are going to launch a whole range of starting in January. Over the years, we’ve also developed two major festival foods platforms: Dragon Dumplings to celebrate Dragon Boat festival and an exclusive line of moon cakes to celebrate mid-Autumn festival.

Published December 19th, 2012

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