Not only is Starbucks growing in China, it is also enjoying handsome profit margins. Many go on to say that the reason why Starbucks is so expensive is simply because it can afford to be. So if Starbucks is so expensive in China, why do so many people go there? — Howard Schultz, CEO of Starbucks, in 2013. Why is Starbucks so expensive? Probably not anytime soon. Some Chinese economists claim that Starbucks has monopolistic power in China and that is why they are more expensive. Starbucks gets what most brands and retailers don't in China. Independently researched and ranked mortgage lenders. Culture come first. Hence, Starbucks is not popular because it makes good coffee, its popularity has risen in China because it is an American brand, and an expensive one also. Starbucks has been charging customers in China higher prices than other markets, helping the company realize thick profit margins, a report by the official China Central Television said. November 2013 October 2013, All (See the chart from WSJ for the percentage of rent in the expense.). A simple beverage of espresso and steamed milk is pretty damned expensive in China. Ergo, keeping a lower price would only mean lowering the exclusivity of the brand. In China, Starbucks is not a place where people simply ingest their daily regimen of caffeine, it’s a social place, a recreational place, or, if you chose, a place to find a bit of solitude. Starbucks cafes in China tend to be much larger than in the United States because most Chinese customers tend to linger, while 80 percent of U.S. customers take their orders to … I am an economic historian. Mortgages. According to my observation, the number of small coffee shops in China is much greater than that in the U.S. It’s really simple. Some other Asian countries surveyed–China, Malaysia, and the Philippines–are nearly as expensive, at around $7. In India, Indonesia, and Thailand, that latte costs the equivalent of $8 or so. Even today, the prices in China (about 30 RMB for a latte) are much more expensive than in the US on a purchasing power basis. "It's getting them from the port in Tianjin to the store in Beijing that's expensive." A simple beverage of espresso and steamed milk is pretty damned expensive in China. You'd probably think that the world's coffee supply had suddenly vanished. We care about our partners, so that they can provide customers with a Starbucks experience that exceeds their expectations; and about the community, so that we can all work together to contribute to others. Public Economics Eventually, though, Chinese customers may decide that a latte is just a latte—and the no-name place down the street is more than good enough. China's per capita income, at about $7,200, is around five and a half times less than the American figure. About 14 years ago, I met an entrepreneur who wanted to open up coffee shops around China. Over the years, the brand has created an exclusive brand name for itself. All Rights Shaun Rein talks about localization in an interesting article called “Why Starbucks Succeeds in China”, focusing on how Starbucks managed to grow in the Chinese market. So, as a result Starbucks set a high price for China’s consumer in order to meet their perception of this brand. These are not science facts or Starbucks sponsored and … Nevertheless, it's striking that in a developing country, one lacking an indigenous coffee-drinking culture, so many people are willing to pay a premium for Starbucks products. China’s per capita income, at about $7,200, is around five and a half times less than the American figure. Considering this, it's a small miracle that Starbucks is still in business there at all. Why Is Starbucks So Expensive In China The Atlantic Viral Cherry Freedom Meme Critiques China S Cost Of Living China S Coffee Wars How Luckin Coffee Coffee Box Plan To Take On Strategic Analysis Of Starbucks Corporation India Among The Most Expensive Places To Order A Starbucks Latte Why … Imagine walking into Starbucks and discovering that your grande latte cost $27. On one hand, China’s labor is very cheap and this has caused inequity in salary as a barista in China is making much less than a barista in U.S. This is post 3 of 6 in the series “Reasons Why China is Crucial to Starbucks' Prosperity” Starbucks Aims For China To Overtake the US, But Not As Quickly As Some Expect Starbucks Is Investing Heavily In This Tea-Drinking Nation, But So Are Its Biggest Rivals 3 Reasons Behind The Success of Starbucks in China … 淡淡如雪999: Lot’s of foolish/stupid money amongst Chinese people, easier to cheat. Or that you'd traveled by time machine many decades into the future. You may have noticed your Starbucks coffee got more expensive recently. Last December, Bloomberg reported that Starbucks plans to double its China workforce by 2015,  adding hundreds of new stores in cities across the country in the process. I never thought the coffee business would work in … But it completely missed the point: In China, Starbucks, and many other cafe chains like them, don’t just sling caffeinated beverages, they provide a luxury service for middle and upper class consumers; they sell class consciousness, status. Up-to-date mortgage rate data based on … How does Starbucks make it work? "A person's social standing was defined by the objects they own." "Traditionally foreign products were regarded as better-made, higher-status, and simply nicer," Fei Wang, a Washington, DC-based consultant who grew up in Wuhan, told me. Best Mortgage Lenders 2020. Why Is Starbucks So Expensive in China? Yet at a Starbucks in Beijing, a grande latte goes for about $4.80—or a dollar more than what it costs in the United States. January 2014 26, 2018, 04:45 PM This trend appears to be happening across other industries, too: A disgruntled shopper told the Wall Street Journal's Laurie Burkitt that it simply wasn't "worth shopping in China anymore.". Here's why the coffee chain raised its prices. "After living in America for awhile I was shocked at how expensive Starbucks was when I went back to China," says Wang. In this video I try and find the reasons and while talking about the competition. Starbucks gets away with expensive coffee in the morning — but it's losing out to cheaper competition in the afternoons (SBUX) Graham Rapier Jun. Slick technology and great products are a must, but putting family, community and … ... costs so much because of its tech capabilities. Currently Starbucks has opened over 4,400 stores in more than 180 cities in mainland China, employing over 58,000 partners. And why do people go there anyway? ... so the decreased growth rate isn't specific to Starbucks. The problem is getting these materials from point A to point B. The price tag of this fancy mug at Starbucks is extraordinary, ... Starbucks is selling the most expensive mug we've ever seen. Please sit back, get yourself a … Yet at a Starbucks in Beijing, a grande latte goes for about $4.80—or a dollar more than what it costs in the United States. They need to fire the moron who decided to drop quality for corporate profits. The base cost for a $1 cup of drip-coffee is about 40 cents while an espresso costing $2.50 costs just under a dollar to produce. Current Mortgage Rates. (Jason Lee/Reuters). China’s commodity/material prices are high, rents are expensive, so their must be an increase in costs. Theory Of The Firm, To satisfy Chinese customers, Starbucks open much larger stores that come with many seats. Since the Chinese economy opened up to import products in the late 1970s, these goods acquired a certain cachet with image-conscious consumers. Why Is Starbucks So Expensive in China? Behavioral Economics Logically, wouldn't it make sense for Starbucks to drop its prices a little in order to attract even more customers? "Transporting coffee beans from, say, Colombia to the port of Tianjin is about the same as transporting them from Colombia to the port of Los Angeles," says David Wolf, a public relations professional and expert in Chinese business. February 2014 The problem with this idea is pretty simple—operating a Starbucks store in China is expensive. The cyber third place for Starbucks friends, fans, and families alike! The culture and economics of drinking lattes in China, Starbucks plans to open hundreds of new stores in China over the next two years. Analysts speculate that the company’s mark-up on its products in China is higher than in any other market, and in the neighborhood of 16 times its European profit margin. Managerial Economics Why Starbucks Succeeds in China. But then why has it worked so well in China? Yet at a Starbucks in Beijing, a grande latte goes for about $4.80—or a dollar more than what it costs in the United States. This may explain the high price of Starbucks in China.” However, it is not just the value proposition, but one must also give credit the labor force that have managed to produce products at a consistent taste and rate for the consumers. Agriculture Western brands have developed themselves in China thanks to the concept that they have a better quality than their Chinese competitors. For a country where labor is cheap—Starbucks baristas in Beijing make much less than their American counterparts—this may seem counterintuitive. A simple beverage of espresso and steamed milk is pretty damned expensive in China. The report echoed a separate critique by the official China Daily newspaper published last week. Submit a letter to the editor or write to letters@theatlantic.com. 3 Reasons Why Starbucks Still Shines, ... too much optimism about Starbucks’ expansion in China set shareholders up for disappointment. Most cities in the country have coffee shops that provide a roughly similar cup of coffee—and similarly comfortable atmosphere—at much lower prices. 153k members in the starbucks community. Economic History Far from acting as a deterrent, high prices actually enticed customers who wanted to show off their new affluence; put another way, purchasing a good like a cup of coffee at a premium was a good way to obtain "face" in business or personal relationships. Yet at a Starbucks in Beijing, a grande latte goes for about $4.80—or a dollar more than what it costs in the United States. I received my Ph.D. from George Mason University. Based on my analysis, the problem that caused the high price of Starbucks beverage is due to a high operating cost of a Starbucks store. Starbucks is considered as a … However, stepping up to the Starbucks counter elsewhere in Asia feels like a far bigger extravagance. So if Starbucks wonders why sales have dropped and patronage declined, it is because there coffee tastes like $#!+ today and when I want to stop I remember how nasty the coffee tastes there any more. Why Is Starbucks So Expensive In China? So Starbucks is in a advantage position when negotiating the materials' price with its suppliers. TheAtlantic.com Copyright (c) 2020 by The Atlantic Monthly Group. The coffee beans Starbucks brews in its Beijing stores, as well as other materials like cups and mugs, don't cost any more to import in China than in the United States. I am an assistant professor in economics at Xiamen University, Fujian, China. Economics Of Organizations But in fact, the Seattle-based caffeine empire's China operations are thriving. In China, Starbucks coffee is a luxury good that can be afforded only by rich people. One major issue is culture. Popular. Why is Starbucks more expensive in China. The second factor is the bargaining power of the buyers, actually not like in the European market, in Asia especially in the emerging market in China. A simple beverage of espresso and steamed milk is pretty damned expensive in China. Could the Starbucks allure fade in China, as the country's once-non-existent coffee shop market matures? In fairness, per capita income is a crude way to measure the buying power of Starbucks' actual customer base: The majority of its stores are located in China's large, coastal cities, where most people earn a lot more than the nationwide per capita average. 2013. I can be reached at caseyang718@gmail.com. (Is it really so? Our cost of setting up the business in China and our cost of doing business in China is actually more than it’s been in many other markets, so that is why we charge more money []. This is despite the coffee cups being made in China and sent to the U.S. But it still begs the question – why is Starbucks so much more expensive than other coffee shops essentially offering the same quality of coffee? The report, basically, was true: Starbucks in China is more expensive than pretty much anywhere else in the world. We want to hear what you think about this article. I submit that if Starbucks coffee shops only operate in expensive cities like NYC and Seattle and the size of the stores is the same with those in China, the price per cup would be much higher. December 2013 Since the rent in big Chinese cities is very high, the fixed cost, including rent, has to be averaged into every cup of coffee. Starbucks products are sold at much lower prices in the US than in China, even with tariffs and transportation costs added. In-text: (Schiavenza, 2013) Your Bibliography: Schiavenza, M., 2013. China's per capita income, at about $7,200, is around five and a half times less than the American figure. The company has proven adept at adding local touches in its Chinese stores, such as green tea flavored coffee drinks and collectible mugs, and has shown a flexibility that has eluded other foreign companies hoping to capitalize on the market. There are signs, however, that Chinese preferences for high-priced, imported goods may be waning. Though there is a reason for Starbucks’ success in China that goes beyond price gouging, status, and serving sugar packed tea and crappy coffee to people who don’t know the difference:. And so China is left with a divide between the state-owned media that reflexively invokes age-old propaganda devices in the name of entertainment and a … Industrial Organization The company even expects China to become its second largest market—behind just the United States—by this time. March 2014 China's per capita income, at about $7,200, is around five and a half times less than the American figure. So if Starbucks is so expensive in China, why do so many people go there? "Starbucks has been able to enjoy high prices in China, mainly because of the blind faith of local consumers in Starbucks and other Western brands," Wang Zhendong, director of the Coffee Association of Shanghai, told CCTV. The cost of ingredients and labor are far cheaper in China than in most other nations where Starbucks operates. With the rise of e-commerce—and more frequent foreign travel—Chinese consumers have begun to feel that they're paying too much for simple pleasures like a cup of coffee. And Starbucks had the good fortune of entering the country at a time when coffee drinking became fashionable among hip, young Chinese consumers. (Image Courtesy: Snopes) We would love to hear from you. Reserved. China has invested billions of dollars over the years to improve its port and transportation infrastructure, but the combination of taxes, fees, and middle-men add to logistics costs—which are then passed on to customers in the form of marked-up frappuccinos and lattes. But labor is just one component that goes into making a grande latte, as this Wall Street Journal infographic shows: What's expensive are the logistics. Political Economy Charts: When College Presidents Are Paid Like CEOs It’s Time To Cry: Sarah Silverman’s Dog Died And She Wrote The Most Beautiful Obit For Him, it was lovely and YES I CRIED Property Right Afghan vets reunited in NY with 8 battlefield dogs, what a touching story. 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