China coffee market expands as chains plan to open more shops

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By CGTN’s Xu Xinchen

Starbucks said it would buy the remaining 50 percent stake in its eastern China business from its joint venture partners for about 1.3 billion US dollars, making the largest single acquisition in the company's history.

With the acquisition, Starbucks will take full control of 1,300 shops in Shanghai, Jiangsu and Zhejiang provinces. It has a total of 2,800 outlets across the country.

With the control of all of its shops in China, the company is expected to invest further and expand its local branding.

A girl walks into a Starbucks shop. /VCG Photo

“China is one of the few overseas markets for Starbucks where they have a full blown organization set up locally including supply chain, sorting, etc.,” said Thomas Wu, Partner of Roland Berger.

“Given the acquisition, Starbucks will be able to further integrate its China business especially its future investment into more upscale stores.”

With the purchase Starbucks also announced an expansion plan in China, to reach a total of over 5,000 shops by 2021. That would put pressure on other coffee chains in China. At the moment, British coffee chain, Costa, has fewer than 400 outlets in China with plans to double that number by 2020. Hong Kong coffee chain, Pacific Coffee now has some 300 shops.

VCG Photo

Experts believed that the two smaller chains are likely to stop competing among themselves for the second place in China instead of threatening Starbucks' lead.

“I think for Costa and Pacific is that who is going to be a clear runner-up,” said Jack Chuang, OC&C Strategy Consultants.

“Costa has a good position and that in the UK, they are leading Starbucks for a long time. So they do have that operational capability, they do have the experience, the challenge is China has the right branding power.”

Chuang also added that the market potential for coffee consumption in China is enormous. According to the International Coffee Organization, only three cups of coffee are consumed per capita a year in China, while that number climbs to 250 in the UK and over 360 in the US. Coffee consumption in China has been growing 15 percent annually, much higher than the two percent global average.