China Herald: Why has Starbucks no real competitor in China?

Jeffrey Towson

Competition in China is rough and bloody for almost every company that even has the smell of possible success. But Beida business professor Jeffrey Towson did not yet find a reason why this rule does not apply to Starbucks. No competitor gets near the giant and - he wonders at his weblog - there is no real reason for that.

Jeffrey Towson:

Chinese Wanda is openly challenging Disney. Uber spent $2B fighting with Chinese DidiChuxing. Adidas has been fighting Chinese Li-Ning and Anda for decades. And Apple is now struggling against multiple rising Chinese competitors,(Xiaomi, Huawei, Oppo, etc.). One thing you can always count on in China: A successful international company will inspire serious domestic competitors.

So why doesn’t Starbucks have a serious competitor in China? I’ve been asking people this for months and I still can’t get a good answer. It’s weird.

Starbucks has been in China since 1999 and currently has about 2,400 outlets. They have likely had the majority of the China retail coffee market for years. And CEO Howard Schultz has recently announced plans to open 500 new outlets per year. That will get them to 5,000 China stores by 2020.

Also, on Starbucks’ November 3, 2016 earnings call, Schultz said “our newest class of Starbucks stores in China is delivering the highest AUVs, ROI and profitability of any store class in our history in the market.”

So Starbucks in China has big market share, rapid growth and apparently attractive economics. Although they are breaking the #1 rule of doing business in China as a foreigner: If you are doing really well, keep it quiet.

Starbucks does have some smaller competitors in China. There is Costa Coffee from the UK. Costa is planning to have 900 China stores by 2020. There is CaffeeBebe from South Korea and Coffee Bean from Los Angeles. Both are fairly small in China. There is UBC Coffee (originally from Taiwan) but this is really more of a restaurant. And there is Pacific Coffee of Hong Kong, which has been majority acquired by China Resources.

You could also consider convenience stores like Family Mart and 7-11 as competitors. Certainly lots of coffee is sold there and they both have huge operational footprints. Also, there is McDonalds which has its McCafes. But these are a stretch as direct competitors I think.

Overall, I just can’t point to any serious Chinese competitor for Starbucks. I don’t see a China Mobile, Alibaba, Suning or Wanda-type company fighting them for their customers.

More possible answers at Jeffrey Towson's weblog.

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