Starbucks can’t justify high prices in China

English>>

Editor's Pick

Starbucks can’t justify high prices in China

(Chinadaily.com.cn) 15:09, October 16, 2013

Email|Print|Comments

twitter

facebook

Sina Microblog

Starbucks products are sold at much lower prices in the US than in China, even with tariffs and transportation costs added. CBN Daily reported.

Coffee is not the only cheaper product in the US. Its cups, which are made in China, are also much less expensive than they are in China. The coffee mug is $10 to $14 (about 61 to 85.6 yuan) in the US, while it is sold for 95 to 110 yuan in China. Starbucks stainless steel cups in the US cost about $16 to $20 (about 98 to 122 yuan), while the domestic price is 220 to 350 yuan.

Starbucks said that pricing of its products is based on various factors such as raw materials, equipment, infrastructure investment, logistics and transport fees, staff salaries, rent, exchange rates, import tariffs and other operating costs. Compared with the US, the cost of Starbucks coffee in China is higher in transportation fees and tariffs.

But Wang Zhengdong, director of the Coffee Industry Association of Shanghai Food Association, said that the cost of every cup of coffee would only be pennies more with added transportation fees and tariffs.

In fact, the price of coffee beans has been going down worldwide for years. The price of coffee beans now is 30 percent less than it was in 2011. But Starbucks made two consecutive price hikes last year in China, with an increase of three to four yuan more for each cup of coffee, Wang added.

There is also a huge gap in average income between China and the US, so labor costs would be far lower in China than in America.

Starbucks explained that the Chinese market is still in its early stage of development, and at this stage, there are a lot of investments needed in infrastructure, and the number of stores in China is much less than in the US market. The overall smaller scale business results in a relatively higher cost in logistics, warehousing and others. But Starbucks declined to provide specific cost data.

Experts in the food retail industry say that 90 percent of the cost is for raw materials, labor costs and rental fees. At present, these costs in the domestic market are much lower than they are in the US. So the high price of Starbucks products doesn’t have much to do with costs.

Wang said that domestic consumers’ blind faith in foreign brands is the main reason for the high price of Starbucks. Coffee products should exist as popular consumer products, and a reasonable price in China should be around 10 yuan per cup.

The current coffee market is mainly led by foreign brands such as Starbucks and Costa. Many domestic coffee shops whose products are of better quality and lower price are much less frequented by customers. More efforts are needed in developing domestic coffee brands, and consumers also need to change their attitude and not regard foreign-brand coffee as high-end products, Wang added.

（Editor：LiXiang、Liang Jun）