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Starbucks reaffirms confidence in China with opening of extravagant store in Shanghai

Starbucks Reserve Roastery in Shanghai Photo: Starbucks 

The recent opening of a lavish store in the Chinese city of Shanghai, the first non-US location for a new series of shops designed to provide coffee lovers with a more immersive experience, shows the importance Starbucks is attaching to the Chinese market, which the US coffee chain sees as one of its top sales drivers.

Last week, Starbucks opened its second Reserve Roastery on Shanghai's Nanjing Road West, drawing attention from hundreds of locals who spent nearly an hour queuing outside the store before getting served.

The up-scale Reserve Roastery is Starbucks' commitment to the immersive experience of coffee craft and the ceaseless pursuit of the world's rarest small-lot coffees.

The Shanghai location, which is the second Reserve Roastery globally, is described as the world's largest Starbucks store, which covers an area of 2,700 square meters and is more than twice as large as the first Reserve Roastery in Seattle, where the coffee chain is headquartered.

Most importantly, the Reserve Roastery in Shanghai boasts a ceiling decorated with 10,000 handmade tiles made from American walnut, a two-story copper-made cask where freshly-roasted coffee beans are stored and which is adorned with 1,000 traditional Chinese stamps and chops, the augmented reality technology enabling customers to learn more about how coffee beans are roasted and three coffee bars including a tea bar made from three-dimensional printed materials and a bar where customers can be served with authentic Italian delicacies.

With the special designs, the Shanghai location is seen as an important part of Starbucks' strategy to strengthen its brand image in the Chinese market, where the Seattle-based company plans to increase the number of stores to 5,000 by 2021.

Kevin Johnson, chief executive officer of Starbucks, described the Reserve Roastery in Shanghai, which is home to more than 600 Starbucks stores, as the company's innovation center where customers can experience Starbucks' coffee culture, experiential retail and digitalized services, according to a report by Caixin, one of the leading business news providers in China.

Besides the existing traditional coffee drinks, some of which are made from coffee beans grown in southwestern China's Yunnan province, the Shanghai shop also offers coffee bean-brewed beers, coffee products made through the vacuum filtration technology, chocolate, Princi-branded bread and even apparels, said Johnson, according to the Caixin report.

The executive refuted the notion that the Starbucks brand would become less popular in China in the face of strong challenge from domestic and global rivals by saying that the model of "ordinary stores plus Reserve Roasteries" will keep the brand competitive and impressive among Chinese coffee lovers.

The new wave of Starbucks' expansion in China started in 2016 when the company announced a gargantuan blueprint to open 500 stores annually in the country for the next five years. Currently, Starbucks operates nearly 3,000 stores in 130 Chinese cities. According to the company's fiscal report, as of October 1, 2017, there were 1,540 company-owned stores and 1,396 shops operated by franchisees in China, accounting for 10 percent of the global total.

Johnson attributed the rapid expansion in China to Starbucks' deep insights into China's market and customers, with data showing that 8.5 million out of 95 million consumers visiting Starbucks' global stores per week came from China, where coffee consumption still lags far behind that of North America, representing a big growth space.

Johnson also said that Starbucks is planning to penetrate into China's smaller cities with launch of some traditional Chinese food such as mooncake and rice-pudding, despite the fact that people there have relatively lower incomes. In order to reach the goal, the company will deliberate on what types of stores will be opened and how the coffee products will be priced there to meet local demand, according to Johnson.

Data released by China's National Bureau of Statistics in July showed that the national per capita disposable income was 12,932 yuan, a nominal growth of 8.8 percent year-on-year or a real increase of 7.3 percent after adjusting for inflation in the first half of 2017.

Starbucks bets that the explosive expansion of the middle class, rising affluence and a greater penetration of Western lifestyle will present a huge growth potential for its business in China, predicting that 600 million Chinese people would enter the global middle class over the next decade and these rich people are expected to become target consumers of Starbucks.

Focus on full ownership

In the interview with Caixin, Johnson also put emphasis on the development of a company-owned business model in China, which he said will be adopted in the next 10 years as part of efforts to maintain fast expansion there.

In mid-2017, the US coffee chain signed a deal to buy the remaining 50 percent stake in its business in East China, the relatively developed region of the country, from its joint venture partners Uni-President Enterprises and President Chain Store for $1.3 billion, its biggest-ever transaction that would enable the company to obtain 100 percent ownership of about 1,300 coffee shops in Shanghai, and Jiangsu and Zhejiang provinces.

The move is different from the struggling American fast food chain McDonald's which sold the franchise right of its restaurants in the Chinese mainland and Hong Kong to three strategic investors at the beginning of this year, showing its strong confidence in China.

Embracing digital services

With the growing number of Internet users and the rapid development of digital technologies in China, Johnson said that Starbucks will resort to advanced technologies such as mobile payment and delivery service to improve customers' experience.

In September, Starbucks stores in the Chinese mainland were connected with Alipay, a mobile payment service developed by the country's e-commerce giant Alibaba Group. And the appearance of Jack Ma, founder of Alibaba, at the opening ceremony of the Reserve Roastery in Shanghai shows the deepening of the partnership.

Media reports said that the augmented reality technology used at the Shanghai Reserve Roastery is a result of Starbucks' collaboration with Alibaba's artificial intelligence laboratory.

At the opening ceremony, Starbucks Executive Chairman Howard Schultz hailed the cooperation with Alibaba as a way to help Starbucks integrate the offline resources with online resources.

Ma echoed Schultz, saying "Howard believes in technology, believes in the future and believes in the Chinese market".


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