Starbucks feeds into pent-up demand for coffee culture

China is better known as a nation of tea drinkers, but the coffee company Starbucks expects the country to overtake Canada as its second-largest market in 2014.

The fast-growing Asia-Pacific region will have nearly 4,000 cafes by the end of next year, including 1,000 in mainland China, where Starbucks is on track to have 1,500 cafes in 70 cities in 2015.

The coffee chain currently has about 700 outlets in China, compared to 11,000 in the US.

Starbucks’ stores in China now average €683,000 in annual sales, up from €391,000 in 2008. Sales in the fourth quarter to the end of September were up 10 per cent, and have remained in double digits during the past two months.

“We have seen the momentum we had in the fourth quarter carry over,” said John Culver, president of Starbucks’ China and Asia-Pacific business.

Starbucks has developed a strong presence in China since the coffee giant opened its first branch on the Chinese mainland in Beijing in 1999.

It even managed to open in Beijing’s Forbidden City, the ancient palace of China’s ruling dynasties, though it was forced to shut down in 2007 after protests that having the shop there was not in keeping with Chinese culture.

Coffee is a big hit among the legions of young urban professional city dwellers in the cities of eastern and southern China.

Costa Coffee has also been growing aggressively in China. The company’s owner, Whitbread, aims to increase its shop count in China to 340 by fiscal 2015, up from 70 currently.

Starbucks seems to be succeeding in China where other varieties of overseas food and beverage brands are finding it tough.

Yum Brands, which owns KFC and Pizza Hut, has seen sales growth fall, as has McDonald’s, as the slowing economy eats into spending power.

KFC is everywhere in China and is possibly suffering from its sheer ubiquity. The challenge is to remain locally relevant and to make sure customers keep coming back.

Starbucks has been successful with its loyalty programmes.

“China has been a gold rush for US companies and the truth is China will not be a lasting success for many of them,” chief executive Howard Schultz told an investor conference.

“We continue to see very healthy growth coming out of China. We are very aware of the economic environment there, but there is clearly a pent-up demand that is in the very nascent stage of us achieving saturation,” said Schultz.

And there will be plenty of tea sold too in its outlets during this period, as Starbucks increasingly turns to China’s beloved cha for expansion.