Olivia Parker
Sep 21, 2017

Can Starbucks stay on the boil in Asia?

BRAND HEALTH CHECK: Starbucks is buying big into China—but it may all amount to a hill of beans.

A Shanghai branch of Starbucks
A Shanghai branch of Starbucks

It's been an important year for the coffee conglomerate in Asia. Last September saw the chain launch Teavana, a tea company it bought in 2012, into 6,200 of its stores across the APAC region, part of a global effort to increase the brand's focus on tea.

The firm also started releasing Teavana Frozen Teas exclusively in Asia this month. These 'beverages with textural and visual appeal', which include ingredients from pomegranate pearls to Kyoho grapes, are designed to appeal specifically to Asian preferences. 

In July, Starbucks made its biggest ever purchase in a bid to consolidate its position in China, buying the remaining 50 percent share of its business from partners in the eastern part of the country for US$1.3 billion. It's a move designed to offset slowing growth in the US; China is expected to eventually overtake the States as the brand's largest market, with a store target of 5,000 by 2021. These will include "premium roastery" shops and plenty of innovations, according to executive chairman Howard Schultz, to appeal to experience-loving social media users. Starbucks is also closing all of its online stores in the coming weeks to focus more heavily on positioning its shops as 'destinations'. 

So far, so positive: but consumer analysis reveals a more complex picture. Starbucks dropped two places from 12th to 14th position in Campaign Asia-Pacific's Asia's Top 1000 Brands research this year and while the brand is undoubtedly popular in some markets, like Korea, where it is set to post record operating profits this year, it suffered heavily in consumer opinion in certain other markets, such as Vietnam, where it fell from 32nd to 54th position. 

Despite big plans for China, Asia as a whole makes up just 15 percent of Starbucks' overall revenue, and each store currently brings in under half the amount per month of its US counterparts. We asked two regional experts what they think the future holds. Read on for their analyses. 

JONATHAN CUMMINGS
Chairman, Hong Kong
Fitch

The coffee shop industry appears to being heading into a period of consolidation and reframing after a decade of rapid growth. This is only ever good for consumers as it fuels innovation with all players, from market leaders to fresh startups, having to look for ways to differentiate and standout. Starbucks has grown phenomenally in Asia and is the clear market leader, but the brand faces a number of challenges; from a more savvy consumer base to some bold and talented new competitors across the different Asian markets.

Jonathan Cummings

In major urban centres across Asia, from Singapore and Hong Kong to emerging cities such as Cambodia's Phnom Penh, we are seeing a rise in independent artisanal coffee shops offering a cool, high-quality, localised and personal experience to a customer base looking for something more than a semi-automated, machine-produced cappuccino. Arguably, these independent shops are a bigger competitive threat than the other major international or domestic chains such as Costa, Pacific Coffee or The Coffee Bean & Tea Leaf. 

There is still undoubtedly a huge growth opportunity for Starbucks, on scale of location opportunities alone—and especially in tier 2 and 3 cities in China. But innovation in experience will be key, especially in the major cities. The ‘Starbucks Reserve’ concept [upscale coffee shops] is a great example of how they are adapting to meet the needs of a specific audience segment, namely white-collar workers in Grade A office locations. I’d like to see more of this level of thinking for different locations and audience groups. Perhaps the recent buy-out of the brand's partner in China will give it the control and freedom to do just that.

CHRISTINE WANG
General manager, ecommerce, Greater China
Publicis Commerce

Starbucks has always been very effective with social commerce campaigns and integrating the online and offline store experiences. An example would be their WeChat Wallet integration from this year's Valentine’s Day—'Say it with Starbucks'.

Christine Wang

What is interesting to me is that when the Tmall store launched [in late 2015], it was focused on connection and gifting, selling “specially designed e-cards, Starbucks cards and coffee vouchers, providing customers with a quick and easy way to light up someone’s day.” It was perfectly in line with the brand’s core value: connection. As time has gone on and users have continued to use the store, Starbucks has expanded the portfolio to include merchandise and coffee to brew at home.

But, when I look at different analyses of the brand, I see that people claim they are focusing on Reserve coffees to drive connoisseurship in the wake of increased competition. I don’t really see that reflected in the Tmall flagship, which is still very much driven by occasion and gifting. The highest-selling SKU’s are still gift cards, not drink vouchers or merchandise. On Tmall Chaoshi, the top products are packs of Frappucinos.

I think that is an area for improvement, potentially with more purely digital campaigns now that they have a bigger presence on Tmall.

See more Brand Health Check features

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