A Starbucks outlet in Beijing. The US-based coffee chain now has 700-plus outlets in more than 50 cities in China. Provided to China Daily

Coffee chain looks for further expansion as it seeks to fend off rival outlets

Coffee industry veteran John Culver says he is very proud to be a pioneer in bringing the drinking culture of the beverage to this vast country with its 1.3 billion population and many thousands of years of tea-drinking history.

"Thirteen years ago, when we first entered this market, a coffee house culture did not exist in China. The Chinese had no idea what high quality Arabica coffee was and they really had no place to go to take their friends and family to try it," says Culver, president of Starbucks Coffee China and Asia-Pacific.

After opening its outlet on the Chinese mainland in 1999, Starbucks has swept the market with its American-style coffee culture. Its image of a mermaid is now an icon of a chic Western lifestyle among Chinese people. Today, the chain consists of 700 cafes in more than 50 cities in China, a firm foothold by any standard in the land of tea drinkers.

Undoubtedly many stick to their tea drinking habit. But coffee has a fast-growing appeal to younger people in big cities. To them, it's not just the coffee. It's the entire experience created by the meticulously planned and designed environment of the cafes that serve the drink.

According to the latest Euromonitor report, Starbucks has a 61 to 62 percent market share in China's coffee house sector, way above its closest competitor.

The company just announced an ambitious plan to open 2,400 new outlets across the world over the next two years.

It has set a target of opening 800 new cafes by 2015 on the Chinese mainland alone, giving it 1,500 outlets in total across the nation.

"When we look back at the last 13 years since we entered the market, we see the Chinese found ways to embrace the Starbucks experience. They have made Starbucks part of their daily ritual, appreciating high-quality espresso (for example) and also coming to appreciate a third-place environment (neither work nor home)," Culver says.

The "third-place environment" is new to Chinese people - traditionally, treating guests with tea in one's own living room is the most common way for social interaction.

Nowadays more people like to meet their friends or business partners in a coffee house, which provides a cozy setting with soft couches and warm light, and also doesn't have the noise associated with Chinese teahouses.

Culver joined Starbucks in August 2002 as vice-president and general manager of food services, responsible for leading sales, marketing and operations.

His focus on building brand awareness in traditional food service venues included positioning the Starbucks brand with slogans such as "We proudly brew Seattle's best coffee".

Culver and his team worked to increase the presence of the Starbucks brand with key US customers and to ensure that Starbucks' quality standards were maintained in more than 15,000 outlets. He was later promoted to president, global consumer products and food services, leading the strategy to support Starbucks growth and expansion of product offerings worldwide, including packaged coffee, ready-to-drink coffee, ice cream and Tazo teas and drinks.

As early as late 2011, when Culver was about to take the position as president of Starbucks Coffee China and Asia-Pacific, he was expecting "China to become Starbucks' second home market outside the United States".

These days, as Starbucks holds the leading position in China's fast-growing coffee outlet market, his ambition looks like being realized soon.

The number of cafes in China doubled from 15,898 in 2007 to 31,783 in 2012. In contrast, the nation's teahouses grew by only 4 percent to 50,984 during the same period, a report by UK-based research company Mintel Group Ltd says recently.

Coffee chains only started appearing in China in the late 1990s but have since grown rapidly.

Teahouses are generally viewed as leisurely places where the elderly gather to chat and play cards, with their outdated interiors and management style deterring younger customers.

The market value of the nation's cafes and teahouses rose from 31.8 billion yuan ($5.05 billion) in 2007 to 71.6 billion yuan in 2012. Mintel predicts this will rise to 121.69 billion yuan between 2012 and 2017.

Meanwhile, more players are trying to get a slice of the big market.

Costa Coffee, from the United Kingdom, also has ambitious plans in China. It intends to have 500 cafes in the country by 2016. Hong Kong-based coffee chain Pacific Coffee also said earlier that it aimed to expand and overtake Starbucks on the mainland.

"We respect and embrace positive competition and what it brings to the market. The Starbucks experience is unique and offers something that no one else can deliver," Culver says, as he stressed the importance of a "direct emotional connection with customers".

"As we evolve and grow in China we are also creating that emotional connection with our customers in the digital space and rewarding them through programs such as My Starbucks Rewards."

Some have claimed that Starbucks' prices in China are inordinately high, and last year China Daily quoted a professor from Long Island University in New York who explained the alleged phenomenon.

"From the marketing perspective, the price-setting reflects how the brand positions itself in the market," said T. Steven Chang, chair and professor of marketing and international business. "Therefore, cost is not the only factor considered by the company. Starbucks actually is selling their whole package, including the symbol of good taste and prestige, the Westernized atmosphere they create in each retail store, and high-quality coffee and food."

But Culver disputes the claim of overpricing.

"We evaluate pricing around the world differently. We believe that the coffee penetration or market penetration in China is very, very different. In the US, for example, our business peak is breakfast time. In China, most customers come in the afternoon and use the coffee house as a social destination to connect with their friends."

He also makes it clear there is no plan to raise prices at the moment.

"Starbucks is committed to presenting an authentic coffee experience," Culver says. However, he says the company is also trying to make the beverages relevant to the local community.

It has set up a research and development center in Shanghai to innovate new products that meet local customers' needs, such as introducing several kinds of teas into menus.

It has also begun to source coffee beans grown in China. Last November, Starbucks set up a joint venture in Pu'er county, Yunnan province, and opened its first Farmer Support Center in Asia to help improve the quality of local coffee beans and make Pu'er a stable sourcing region.

"The opening of the Starbucks China Farmer Support Center was a milestone in Starbucks' continued investment in China and the Starbucks Yunnan Coffee Project," Culver says, adding that Starbucks believes Yunnan will one day play an important strategic role in the long-term supply of premium Arabica coffee.

Contact the writers at xieyu@chinadaily.com.cn and guoanfei@chinadaily.com.cn

(China Daily 02/22/2013 page22)