Why are Starbucks profits so high in China?

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Why are Starbucks profits so high in China?

(People's Daily Online) 09:55, October 23, 2013

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Starbucks' products in China are about one third more expensive than in the U.S.. Media have accused the company of profiteering from the China market. Starbucks claims that its operating costs in China are different from other countries.

Recent reports in the media have highlighted the fact that the price of Starbucks products in Beijing is much higher than that in Tokyo, New York City, Hong Kong and London. A cup of Starbucks coffee priced at 3.81 dollars in London will cost the equivalent of 4.81 dollars in Beijing, 26 percent higher. The company's financial statements confirm its high profits in China. In the second quarter of fiscal year 2013 the profit margin in China/ Asia-Pacific region was about 32 percent, while the profit margin in the Americas was 21.1 percent, and in Europe, the Middle East and Africa only 1.9 percent.

Starbucks said its operating costs and market drivers in China are different from other regions. But in the fact is that Starbucks operating costs are limited to materials and daily operations. In an era of globalization, material costs will vary little in different areas. China's daily operating costs will clearly be lower than the U.S., although we should recognize that the level of taxation and logistics costs must be included in product prices.

The truth is that the main reason for the significant price differential is the attitude of Chinese consumers. Starbucks relies on its upmarket brand positioning to persuade Chinese consumers that Starbucks’ products belong to a top-of-the-range elite. This allows Starbucks to maximize its prices.

There are several ways to address the problem. First, we need a free and fair market. Second, we need to reduce tariffs and prevent them from becoming a major constituent in the high prices of foreign brands. Third, business groups need to develop a greater respect for customers if they are to address the irrational worship of foreign brands. And Chinese brands clearly need to improve their own position to be able to compete with foreign imports.

Edited and Translated by Yao Chun, People's Daily Online

Read the Chinese version: 星巴克回应在华卖高价称各市场运营成本不同, source: Beijing Times

（Editor：YaoChun、Liang Jun）