China was and still can be considered a tea-consuming country and coffee markets were amongst the smallest in the globe in China before 1999. In any business, it can be easier to increase sales of a product within a market with demand than in a market that has a huge potential of consumers and a rising economy but has low product demand. This is the problem that faced Starbucks as it considered its entry into the Chinese market. There have been many literatures discussing the reasons for the success of Starbucks’s success in Chinese market. This report identifies the reasons for Starbucks’s success as the shifts in consumer behavior and the changing retail landscape in China. The concept map is described and two research methods are used to identify the reasons for this success.
China was and still can be considered a tea-consuming country and coffee markets were amongst the smallest in the globe in China before 1999. In any business, it can be easier to increase sales of a product within a market with demand than in a market that has a huge potential of consumers and a rising economy but has low product demand. This is the problem that faced Starbucks as it considered its entry into the Chinese market. This meant that Starbucks had to proceed in a slower than usual pace in its entry as it set its first store in Beijing China in 1999. Starbucks was founded in 1971, and until then, had only concentrated its expansion strategy within the United States and other coffee consuming countries. By 2000, the company was acclaimed to be opening about a store per day. Upon arrival in China in 1998 and the subsequent opening of a store in 1999, Starbucks had only ventured in premium coffee for the markets (Sholihah et al., 2016). This paper discusses the reasons for Starbucks’s success in the Chinese market.
Indeed within the next 4 years after its opening, Starbucks had opened 50 outlets and by 2006, it had increased them to 165 in China, to become the country’s top coffee vendor. Starbucks considered Chinese as its main growth venue given its size and the likings that the evolving middle class had. Generally, markets for coffee shops in China developed by 144 percent from 1999-2008. The rise in coffee consumption in the Chinese market started with its big metropolises like Beijing, Shanghai, and Guangzhou. By 2006, Starbucks had projected that the Chinese market would be its leading after the United States thereby planning to launch 100 outlets annually. The Chinese market at the time placed value on certain Western brands and Starbucks was amongst the preferred choice (Sholihah et al., 2016).
Starbucks became the favorite outlet for over 500 million urbane population of China due to its perceived ambiance considered as a sign of good quality and the Chinese consumers easily embraced Starbucks’s design. This informed Starbucks’s design of outlets which had plush chairs and davenports that were larger in size which accommodated hordes of consumers. This initial success propelled Starbucks’s expansion agenda and within the next few years, it had gained unprecedented success in China’s coffee industry. Over the recent past, Starbucks’s success has seen it build over 3,300 stores as of 2018 and had announced to increase their stores to over 6000 within the next 4 years. In what was seen as an accomplishment of the apex of success in the country, Starbucks launched in largest outlet globally in Shanghai in 2017 (Pham, 2018).
2.0 Concept Map
From the above, it is clear that Starbucks has succeeded in China. Therefore, this report analyses the reasons why Starbucks succeeded in China despite the market being predominantly tea drinking. The main factors that this report finds are the shift in consumer behavior and the changing retail landscape in China. Chinese market over the past few years has been at the forefront of transforming the international retailing environment. Initially, Starbucks found itself responding to a dizzying array of consumer behaviors. There has been an increase in social media and online purchasing, increased adoption of mobile banking and payment as digital options are now dominant in Chinese markets than any other markets. This report discusses 2 main branches in this concept map. The first one is shifted in consumer behavior (Zhang & Feng, 2014). The second theme is the changing retail landscape (PwC, 2017).
2.2 Description of Concept Map
Many observations of Chinese consumption market have noted its evolution from a conventional culture to assuming Westernized consumption behaviors. For big brands, big shifts in consumer behaviors present new opportunities and challenges as well. This report looks at 5 sub-themes under the shifts in consumer behaviors which include digital everywhere, convenience/personalized experience, the pursuit of wellness/health, a “me” culture, and multifaceted purchasing patterns. Under the theme of changing retail landscape, this report observes three themes namely; new retail, content-driven, and new growth avenues.
3.0 Literature Review
There exist various researches on the reasons why Starbucks succeeded in the Chinese markets. This is due to the fact that the Chinese market was dominated by tea-consumption and also due to the circumstance that other Western beverages and foods companies like Dunkin Donuts, Krispy Kreme, and Burger King had been unsuccessful in the same market. CNBC’s Shaun Rein (2012) attributes Starbucks success to its adaptation to the local market. Starbucks made flavors like green tea-flavored coffee beverages which appealed to Chinese consumers’ tastes instead of forcing Starbucks’s products which had been a success in the US (Rein, 2012).
Starbucks established itself as a comfy environment in the market incorporating modern facilities such as air conditioning which a few restaurants by then had embraced. This helped it in becoming the choice meeting place for executive and friends meetings. Starbucks poised itself as the aspiration brand and set a higher price for coffee than even that of the US and the Chinese middle-class consumers saw coffee drinking as a sophisticated and luxurious. This high/premium pricing stratagem by Starbucks earned it more profits. Further, Rein (2012) considered Starbucks’ proper treatment of workers as another reason since workers were motivated to serve their customers well, hence earning Starbucks customer loyalty.
Forbes’s Michael Zakkour believed that Starbucks success was attributable to its full commitment to the Chinese market, aptly-executed partnerships with Chinese firms, superior supply networks, adoption of domestic technology, and offering Chinese products on the menus. Zakkour (2017) posits that the very basic strategy which earned Starbucks success is its strategy to get into the nitty-gritty of Chinese culture which informed its decisions in the development of long-term vision, making Chinese collaborations, and offering local products to the market (Zakkour, 2017).
Other researchers posit that Starbucks’s success was owed to 3 modern product management principles which include the ability to nurture and progress an international brand while adapting the products to domestic markets. This means that Starbucks created a new market with the knowledge that young demographics and emerging China’s middle class perceived the Western cultures as harbingers of modern lifestyles thus these two groups viewed Starbucks premium as the exact replica of their desired modern lifestyle. Further, since China is a highly social nation, opening of wide stores where people would meet to discuss issues made Starbucks the preferred restaurant. The other product principle was the adoption of mobile payments. China has many mobile payment users superseding European users combined and since Starbucks had had experience of such platforms in the US, the transition was easy. In addition, the researchers suggest Starbuck’s success to be further augmented by the other contemporary issue of local partnering. Among the partners that Starbucks partnered with were Taiwan’s coffee company the President Group and H & Q Asia Pacific (David, 2017).
Another researcher, Gigi Devault (2018), argued that the reason why Starbucks was a success in the Chinese market was due to its smart international marketing research. The researcher contends that Starbucks conducted appropriate market research which enabled the company to have an insightful knowledge of the Chinese market hence launched its stores and franchises tailored to the needs and values of the market. Starbucks did not employ the conventional approach of advertisements and promotions but rather established outlets in areas of high-traffic and high-visibility hence not attacking the cultures of Chinese consumers (DeVault, 2018). Starbucks used market research to identify intellectual protection laws and therefore has helped the company to avoid replication and copying of their products in China. Starbucks had ensured that all its trademarks in the Chinese market had been registered. Less research has been done on the two areas which this report discusses and the existing research just mentions them without much detail. There is a need to understand the two areas so as to fully understand the sinews for Starbucks’s success in the Chinese Market.
The purchasing patterns in China have changed and resulted in 2 unique patterns for fast-moving consumer goods. This is where coffee is among the beverages that have experienced the shift. This multifaceted way of purchasing where consumers would increasingly adopt new beverages and gradually drop purchases of old traditional items helped Starbucks since it was seen as a new item in the market and Chinese consumers immediately embraced this new product. This report focused exclusively on Chinese urbane areas and by the use of survey system calculation, a sample space of 3500 people was surveyed to understand the two main themes in the concept map. This was a fair representation of the population of about 1-20 million people (SurveySystem, n.d.). The research areas were shifts in consumer behavior and the changing retail landscape. The best method that quantitative approach used was observation and recording purchasing patterns and preferences as well as consumer behavior and surveys which proved best to obtain primary and accurate information. In qualitative approach, this report employs both semi-structured interviews as the best methods which allowed the participants to expound on their views and also focus groups so as to understand retail landscape and consumer behavior from a wider perspective.
4.1 Research on shifts in consumer behavior
The first method that this report uses to determine shifts in consumer behavior is a qualitative research method. The reason for choosing this is because it gives a rich and detailed picture on the way the Chinese consumers behave and how it changes. This research is specifically chosen since it provides a means by which the social trends in Chinese consumer markets can be established (Creswell, 2017). The research questions that this approach seeks to answer are; how has the pursuit of wellness shifted Chinese market consumer behaviors? How has this enabled Starbucks to succeed in China? The sample space chose was 3500 to represent the urbane Chinese population since Starbucks and the vast coffee industry is predominantly urbane.
The participants in this research were urbane people of ages between 18 and 55. The method used to collect data was questionnaires that employed SERVQUAL’s theory to gauge how Chinese consumers shifted their behavior to care about health. The figure below shows the questionnaires and results.
|Responsiveness to health concerns||40 percent of participants aged 40-55 showed increased concern of products and their health.|
|Assurance of wellness||65 percent of all the participants raised concern on the assurance of a product towards their general wellness|
|Tangibility||There was increased support amongst the participants on stores/outlets that could be physically located as well as personnel|
|Empathy||The participants lauded the products that gave them an opportunity to air their views about the experience and products as it showed care|
|Reliability||The participants contended that they remained loyal to a company if the brand was consistent.|
(“SERVQUAL – IS Theory,” n.d.)
Quantitative research was also employed in this report to understand how the shifts in consumer behavior are the reason for Starbucks success in the Chinese market. The reason for choosing quantitative research is to obtain numerical and actual data which is used for the detailed analysis of the Chinese consumer behaviors (Creswell, 2017). The report in this research method used secondary data obtained from Zhang and Feng’s 2014 analysis of Chinese consumers’ behaviors. The rationale for choosing a quantitative research approach was to obtain statistical records which can be considered as accurate representation (Zhang & Feng, 2014). The research questions that this research method attempted to answer were; how does the Chinese consumers’ purchase pattern change? How have these purchasing patterns helped the foreign companies capitalize on the markets? The chart below shows the results:
Series 3: Yes
Series 2: Neutral
Series 1: No
Questions: Would you purchase new products in the market? Would the stand be the same if it were a foreign company?
4.2 Research on the changing retail landscape.
This report used qualitative analysis to attempt to answer the question of how the current Chinese new retail landscape is and how content driven-e-commerce has revolutionized the current Chinese consumer retail practices. The best method used for qualitative research here is focus groups which generate actual data that will be used to make a generalization of the whole of Chinese markets using the available data. The reason for choice of qualitative research is that it could provide useful information on how Chinese consumers as groups or individuals have made Starbucks successful by changing their retail landscape. The method of collection of data was surveyed on 3500 Chinese consumers who were asked about their preferences in shopping behaviors (Creswell, 2017). The consumers were asked the frequency of their online and in-store shopping in terms of daily, weekly, monthly, or annually. The results were as shown in the charts below:
The participants who showed the greater propensity of in-store shopping were those aged between 25 and 55. The younger generation showed that they neither did their shopping in-store at all or a few times annually (Booker et al., 2017).
This research to determine how the current retail landscape in Chinese market is used mixed methods research which combined primary data collected by quantitative research and secondary data collected from PwC’s 2017 report on total retail landscape in China and combined the two research methods to come up with a new scheme (PwC, 2017). The reason why this mixed research method that uses survey of focus groups as the best methods is because the observations and results will provide a better comprehension of the retail landscape in China, from the viewpoints of both qualitative and quantitative research methods thus offsetting the weaknesses that any of the two methods has (Creswell, 2017). The primary data was collected by interviewing the 3500 members of the urban centers in China. The rationale for the choice of this research method was to obtain the best result that combines analyses of the two methods. The analysis sought to answer the question of how frequent the Chinese consumers utilized online-payment and shopping and how this was tailored to their preference of Starbucks. The chart below shows the combined results.
The participants and indeed many Chinese consumers showed greater frequency of mobile payment and online shopping and preferred Starbucks. The participants and consumers prefer Starbucks due to their perceived performance according to SERVQUAL’s 5-point adherence in service (“SERVQUAL – IS Theory,” n.d.).
Chinese consumers began abandoning their conventional shopping habits and started adopting digital commerce. Mobile phones are now ubiquitous in the Chinese markets, with a record of 1.3 billion users, and these not only made it easier for Starbucks to reach the consumers in their social media platforms such as Tencent for marketing but also enabled the Chinese get access to Starbucks’s products. Digitization has been pivotal in the success of Starbucks in China. While digital channels are continually becoming pervasive, digital consumption is becoming popular. Starbucks understood that this shift meant that growth was no longer a subject of movement of consumers through a regular purchasing procedure but rather meant the creation of smart, seamless, and secure experience in all areas of the business to meet Chinese markets’ expectations (Booker et al., 2017). Starbucks ensured that consumers experienced a continuous and cross-channel moment.
Further, in digitization, China’s populace has continued relying heavily on social media platforms. A platform like WeChat currently has over 900 million active users, and it is clear that the Chinese consumers have shown an unbridled desire for using social media platforms as arenas for learning about brands and also sharing information regarding their experiences with certain brands. More reliance on social media by the consumers gave Starbucks the opportunity to comprehend consumer needs and to create products that met these user’s expectations (Nunlist, 2016). Therefore, the phenomena of digitalized Chinese societies signified a good thing for Starbucks who had had experience with a technologized market in the US.
The Chinese market experienced a kind of saturation of brands in the beverage and food industry. International and local brands began to fight out for consumers’ attention. This made the consumers become more selective, has high expectancy on experience, and began demanding personalized experiences. There was increased push for authenticity that went beyond the conventional focus on the label, the brand, the foreignness of a company, and the consumer behavior shifted to a desire and interest of a product’s offers, rich storytelling, illustration of a brand’s history, and communication of the values of the brand (Booker et al., 2017).
This shift was embraced aptly by Starbucks as it diversified from the common positioning of its brand as foreign, but incorporated their story and heritage into their consumer experiences coupled with rich story and history of its success which manifested themselves to clients as personalization, earning it a top spot within the Chinese market. Further, the shift of consumer behavior is evident in China’s population interest in convenience which has seen many people spend less time preparing their meals at homes. Starbucks is located in high traffic and high populations were seen as one of the solutions for the Chinese market conveniences as more and more middle-class people started feeling the need for conveniences (Nan, n.d.).
As the economic conditions of Chinese consumers rose up, the pursuit for health/well-being and wellness endures began growing. There was an increased craving for healthier beverages and foods augmented by the consumer’s increased incomes. This trend has contributed to “premiumization” as average prices rose over the inflation rate in almost all industries (Rein, 2012). Products which the Chinese market considered healthy and natural were embraced and increased demand in these products was witnessed. There was also increased demand for foreign products as they were perceived healthier and safe for health. Starbucks positioned itself as a healthy beverage industry which embraced naturally derived products and coupled with the fact that it was a foreign brand; the Chinese consumers could not resist its allure earning the brand loyal clients (Sholihah et al., 2016).
The other branch of this concept map is the changing of the Chinese retail landscape. This encompasses three phenomena; new retail structure, content-driven e-commerce, and new growth avenues (PwC, 2017). China’s growth rate in the last 3 decades has been in double digits, and online retail has gradually risen up accordingly. Currently, China is characterized by mobile-first consumers’ behaviors, a vibrant embrace of social commerce, and dominant payment infrastructures. Brands compete for consumers and the wallets share and internet giants aim at building broader digital environments so as to strengthen their existing network structures. The most innovative brands can survive such as dynamic retail landscape. Whilst in the past brands used to grow by capturing transactional aspects of activation of online channels, optimization of merchandise, and investment in traffic generation, Chinese market retail landscape has started transforming. This advent has been considered an era of experience led commerce that has seen a convergence of offline and online retailing.
A new retail normal has been attained as there has been increased maturity of businesses by use of data analytics and omnichannel technologies in the creation of smooth consumer experience between online and offline channels. Starbucks began embracing the progression of digital by experimenting with online-to-offline marketing that signified the use of offline channels to attract consumers into their outlets in China. Starbucks responded to a market shift and began investing in omnichannel capacities which focused on the broad spectrum of operations such as marketing, merchandizing, consumer service, and satisfaction. This improved the company’s efficiency in operations, customer satisfaction with the products, and fulfillment (PwC, 2017). While companies used to initially rely on internal consumer data, the advent of data analytics has helped companies to advance customer profiling, conduct precision marketing, and personalize their products.
Brands also use data analytics to enhance product development, merchandising strategy, and physical presence. In addition, the new retail platform has seen customer expectations on the security of their data increased. Starbucks took all these into cognizance as it realized that surviving such an environment required an apt response to technological advancement incorporated into the market demands (Booker et al., 2017).
Content-driven e-commerce has changed the retail landscape as there have been increased shifts from e-commerce as a transaction entity into being incorporated as social engagement tool at the center of consumer digital experience. China has seen a growth of e-commerce platforms like Alibaba’s Tmall where consumers can search their products from. Such platforms enable brands to create rich consumer experiences by incorporation of videos, live-streaming, VR, games, and key opinion leaders. This has made companies to outsource their e-commerce operations to these e-commerce platforms to manage their daily merchandising, logistics, and promotions on third-party platforms and brands’ sites. This indeed changed the retail landscape and Starbucks in 2015 announced to had partnered with Alibaba’s Tmall which earned it more consumers. E-commerce, social, and advent of technology drove growth opportunities as new avenues for foreign companies such as Starbucks to grow as this new retail landscape was triggered by millennials needs for luxurious, authentic, and high-end products (PwC, 2017). Thus this report has proved that indeed the shift in consumer behavior and the changing retail landscape in Chinese market are the primary reasons for Starbucks’s success in China.
The success of Starbucks in China which was initially a tea-consuming country can be attributed to many reasons. They incorporated modern facilities such as air conditioning which a few restaurants by then had not embraced, commitment to the Chinese market, aptly-executed partnerships with Chinese firms, superior supply networks, adoption of domestic technology, and offering Chinese products on the menus. This report however identified that the main reasons why Starbucks succeeded in Chinese market was due to a careful study they did on the shifts in consumer behavior and the changing retail landscape. The shifts in consumer behavior aided the company to sell its brand and maintain a large customer base while the changing retail landscape helped Starbucks to undertake business operations smoothly and efficiently earning it more clients. The two reasons are what has propelled Starbucks in Chinese market to become the biggest coffee vendor in the country.