Starbucks turned a nation of tea drinkers into coffee lovers. Business analyst Shaun Rein explains in CNBC what Starbucks did right to succeed in China: they went local.
Instead of trying to force onto the market the same products that worked in the U.S. like regular coffee, Starbucks developed flavors, such as green tea flavored coffee drinks, that appeal to local tastes. Rather than pushing take-out orders, which account for the majority of American sales, Starbucks adapted to local consumer wants and promoted dine-in service.
By offering comfortable environments in a market where few restaurants had air conditioning in the late 1990s, Starbucks became a defacto meeting place for executives as well as gatherings of friends. In other words, Starbucks adapted its business model specifically for the Chinese, rather than obstinately trying to transplant everything that worked in America into China, as so many brands like Best Buy and Home Depot have done…
Starbuck’s high pricing strategy of specialty drinks allows it to have its Chinese outlets to be more profitable per store in China despite the lower volume. Overall in Asia, its operating margins were 34.6 percent in 2011 versus 21.8 percent in the U.S. Too many brands push for market share by cutting prices but in reality they should be aiming for margins.
Not only does Starbuck’s premium pricing strategy fit market demands but it also allows it to regularly roll out higher margin specialty products like gift sets that offset rising commodity costs. As China’s urbanization rate nears 52 percent, companies need to put into place strategies to handle rising commodity costs.
Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers’ request form.
Shaun Rein is the author of the upcoming book The End of Cheap China: Economic and Cultural Trends that will Disrupt the World. More about Shaun Rein and his book on Storify.
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