Starbucks sees its cafes in China stimulating sales worth billions of dollars in recent years

At a recent Starbucks shareholder meeting in Seattle, Washington state, 11 baristas from Chengdu, 6,300 miles away, performed bian lian, a dramatic, operatic art of Sichuan province.

More than 2,800 admiring partners, shareholders, invited guests and Starbucks board members watched in rapt attention as the artists in bright costumes and multiple masks performed, changing from one mask to another in the blink of an eye.

The world's largest coffee chain had a 73.3 percent share of the top-end cafe chain market in China in 2015. It was followed by McCafe of McDonald's Corp (9.3 percent), Costa Coffee of Whitbread Plc ( 9 percent) and Pacific Coffee of China Resources Enterprises Ltd (3.9 percent), according to Euromonitor International data.

Kevin Johnson, president and chief operating officer of Starbucks, said China is now the company's second-largest market in terms of the number of stores outside of the United States. It continues to be the market that promises long-term opportunities for Starbucks.

Starbucks notched up sales worth 12.23 billion yuan ($1.87 billion) in 2015, way ahead of McCafe (1.54 billion yuan) and Costa Coffee (1.50 billion yuan).

"We have more than 2,000 stores in China (in more than 100 cities). We'll add 500 stores per year for the next five years," said Johnson. "We anticipate China's business more than doubled."

Earlier this month, Johnson unveiled Starbucks' plans to extend the Teavana brand into its retail stores in China and Asia Pacific by the end of this year. But there is no plan to expand the exclusive Teavana stores. Starbucks operates about 300 of them in the US and Canada.

Tea sales at Starbucks grew by 17 percent in 2015. All tea categories posted strong growth. Iced tea led the pack with 29 percent year-on-year growth.

Michael Conway, president, global channel development, Starbucks, sees potential for strong growth in the ready-to-drink segment in China. "The China market is a key anchor to our ready-to-drink strategy as we strengthen and build our partnership with Tingyi to a larger number of markets than what we have today and reach more Chinese customers."

In addition to convenience stores, hypermarkets such as Wal-Mart will offer Starbucks ready-to-drink beverages. This will deepen market penetration, he said.

The partnership with Tingyi has enabled Starbucks to make its drinks more relevant to local tastes and make them available in a timely manner.

For example, Starbucks will launch a new ready-to-consume drink this summer. The beverage is tailor-made for Chinese consumers.

Besides manufacturing in China, local leadership talents and innovation have powered Starbucks' rapid expansion in the country over the past 17 years.

John Culver, group president of Starbucks Coffee China and Asia Pacific, channel development and emerging brands, said: "One of the things we do to become successful is, we allow the local leadership team and the management team to determine what's best for our business, and take decisions accordingly."

Over the last four years, that approach has led the company to focus on how to strike a balance between being a local company and a global brand. It built an emotional connect with its local staff and stakeholders through regular meetings.

That is expected to hold Starbucks in good stead as it seeks to exploit the growth opportunity presented by the expected doubling of Chinese middle class to 600 million by 2022, said Culver, who has been working in Asia for nine years. "We attract more customers to our stores in China today than we had in the past."

He said when Starbucks cafes opened in China 17 years ago, tourists and expatriates were the main customers. "Now, the stores are crowded with local Chinese consumers. We are growing in a focused and disciplined way, to make sure the brand is enhanced. Our partners will continue to deliver a great cafe experience to customers, going forward."

Elizabeth Friend, senior food service analyst of Euromonitor International, said last year and the first quarter of this year have been eventful for global cafe chains. For, demand for specialist coffee grew consistently, leading to rapid innovation and growing competition among the players.

While regions worldwide will see strong growth, Asia Pacific will likely record the largest sales rise, with over $3.7 billion in new value growth from this year to 2020.

As much as $2.2 billion of this growth will come from China alone, where Starbucks is leading the charge for a rapidly growing, Western-style tradition of drinking premium takeaway coffee and socializing in coffee shops, she said.

Friend said coffee players are seized of the growth potential in China, although there has not yet been any significant shift from tea to coffee beverages in this market.

"The key to marketing messages is to try and convince consumers that you are here to add to the diversity of drinks, rather than asking the Chinese to replace tea with coffee," she said.

At this stage, it is important to identify which products might best meet consumers' tastes and develop the suitable channels to distribute them, she said.

wangzhuoqiong@chinadaily.com.cn