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Starbucks is the world’s leading retailer, roaster and brand of specialty coffee. It opened its new store in China in 1999 and despite initial hesitation and criticism of a coffee brand in a traditionally tea drinking nation, the Starbucks brand was very well received in China and has ever since established their presence there. As of 2005, the company has 185 owned & operated stores in the mainland, with plans to maintain the growth of its operations in China and in order to maintain a positive trajectory for its finances. The goal that Starbucks has set for itself is to build hip hangouts that tap into a new taste for China’s emerging middle class with a logo, to see and be seen.
Following this ideology, Starbucks opened retail outlets at high visibility locations. The primary promotion for these stores was word-of-mouth, from the several hundreds who had begun to frequent the locations, instead of mass marketing and advertising campaigns. The success of the concept resulted in most competitors following suit and revamping their locations to fit the needs of the modern consumer. Customers in China have embraced the high-quality coffee, personalized handcrafted beverages and the unique Starbucks Experience offered in all of the Starbucks stores. Coffee represents a change in a new western lifestyle and it’s becoming more popular for the young people in the country. The level of success that the company will achieve cannot be determined at this stage.
Even though Starbucks was confident about its growth in China, it initially had to face up to a large number of challenges. Following its opening in 1999, a large number of imitations of the Starbucks brand popped up. They tried to imitate and replicate all the features of the Starbucks stores. These imitating stores affected the business of the real brand and also resulted in a loss of market share for the American coffee chain. Additionally, a number of international competitors had begun to assess the Chinese market and were planning to expand their presence in the country, resulting in a perceived increase to the level of competition that would be present. Another problem faced by Starbucks was the outcome of the entry mode used by the organization, which had relied on partnerships and licensing as a means to expand quickly. However, this meant that the revenues that were now being generated were not enough to ensure a profitable business.
For Starbucks to enter China, it had to face one of the biggest challenges on any consumer-based retailer; to make the local consumers accustomed to drinking and appreciating coffee. This task was more difficult in the Chinese market because the local people are a traditionally tea-drinking nation, with an almost 5000 year old tea drinking history.
The introduction of specialty coffee in China by Starbucks made it the trend-setter and market leader, allowing it to enjoy the popularity that normally associates with initiating entities. In a tough market that had numerous tea houses to cater to the tastes and needs of the local consumers, Starbucks took an aggressive stance by entering one region after another and had moved China up to the No. 1 priority and proclaimed it to be the second largest future market after the US.