A look at Starbucks' future in China

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Starbucks Coffee has become one of the biggest success stories in the Chinese market. But that success did not come overnight, it's been closely linked to China's economic rise over the past two decades.

As the number of loyalty members has tripled over the past four years, reaching some seven million people, the coffee giant plans to open an estimated 600 new stores annually across the Chinese mainland in the next five years.

The goal is to double the market's store count from the end of 2017 to 6,000 locations in 230 cities.

Howard Schultz, Starbucks founder /CGTN Photo

Starbucks founder Howard Schultz says he has no doubt that for Starbucks, China will be largest market in the world and it will surpass the US.

Today, Starbucks operates approximately 3,300 stores in 141 cities in China and has 45,000 employees. With a new store opening every 15 hours, Starbucks China's strategy is shifting accordingly.

CGTN team filming at Starbucks /CGTN Photo

In August, Starbucks announced a deep, strategic "New Retail" partnership with e-commerce giant Alibaba, which it says will transform the coffee industry in China.

This month, the delivery partnership between Starbucks and Alibaba will start with 150 Starbucks locations in Shanghai and Beijing. Eventually, the program will expand to 2,000 stores and 30 cities by the end of the year.

Kevin Johnson, Starbucks CEO / CGTN Photo

Starbucks CEO Kevin Johnson thinks that overtime delivery will catch on in the US, but right now in China "I think that's where the innovation and that's where delivery is becoming very popular."

The United States is the largest market for Starbucks so far. As of October 2017, the country had nearly 14,000 stores. China ranked second ahead of Canada with a total of 1,460 locations.

In 2017, Starbucks generated 15.6 billion US dollars in the US, with the rest of the world making a little over four billion US dollars. Despite the large gap, the Starbucks founder sees a bright future and some big changes.

Starbucks US' profit /CGTN Photo

Startup brand Luckin Coffee is widely considered to be a local disruptor that could threaten Starbucks, as it holds a staggering 74.6 percent slice of the market share.

By offering coffee at much lower prices, or even sometimes free of cost, and giving customers the convenience of ordering their coffee through a mobile app, Luckin has managed to sell more than 18 million cups of coffee to 3.5 million people within seven months of launch.

In May, Luckin wrote an open letter, accusing Starbucks of monopolistic behavior. Starbucks called it a publicity stunt.

CGTN team filming at Starbucks /CGTN Photo

But Professor Jeffrey Towson from Peking University says it's not about winning.

He says "the market is so big potentially that if they get any degree of traction in the mass market retail coffee, they will be big and win big without Starbucks. Now however Chinese consumers are somewhat fickle in any industry just about, you see market shares swing every year... It would not surprise me at all if we see 10 or 20 percent of Starbucks volume shift."

Starbucks coffee machine /CGTN Photo

Indeed, scale is key in the retail business, as experts say location often trumps brand. Yet it remains to be seen if Luckin's new retail model for coffee will work in China.

Starbucks has announced plans to more than triple their revenues and double their operating income in China by the end of 2022.

While the story of Starbucks China has largely been a story of China's burgeoning middle class, meeting the Internet challenge as a brick-and-mortar chain could be a challenge in and of itself.