China Starbucks Market Analysis Essay: Opportunities And Threats.

Starbucks is considered to be one of the largest companies within the US market in terms of revenue generation. The company was founded in 1971, with a purpose of producing premier quality finest coffees, in the market. After its initiation, the company gradually started to expand into other local and international markets, in order to increase the overall profitability. As per the latest records, the company currently operates its business in over 74 countries and acquires more than 90 million customers per week. The company’s popularity has also expanded to the other markets, as there are more than 25 thousand Starbucks outlets on a global basis. The revenue record has also increased for the company compared to the previous year, which currently stands at 24.61 billion US dollars (He, Xiang, & Yin, 2021). According to the market experts, the revenue will gradually increase further, if the company manages to successfully acquire some of the giant markets like China. It has been identified through the given case study that; Starbucks faces a lot of competitive threats from the local beverage companies (Cheng, 2021). The investors invest more on the local companies than the Starbucks, which is a risk in terms of sustaining in the market. Therefore, the company needs to develop better marketing strategies that are beneficial for the generating more revenue. The main aim of this report is to analyse and evaluate the market environment of China, and developing effective strategies.

Figure 1: Starbucks International markets

(Source: Wang, 2020)

Political: In terms of political stability, China scores -0.43 points in the global political stability index. The negative score indicates that the unstable situation of the political condition in the country. In terms of corruption, China stands in the 66^th position of the Corruption index among the 180 countries. It indicates that the corruption level is also high in the country, which means there are chances for the company to provide bribery to the authorities in terms of expanding into the local markets of the country. Due to this reason, the expenditures of penetrating into the market increases for the company, resulting in lesser profit returns.

Economic: Currently, the GDP rate of China has increased by 2.3%, indicating the financial growth of the country. However, on the other hand the inflation rate of the country increased by 2.42% in 2020 (Datacommons.org. 2022). Due to the increased inflation rate, the prices of the products increase, which is a negative factor for the company.

Social: Each year China witnesses a population growth rate by 0.3%, and has the largest population density in the whole world. Therefore, it is easier for the company to achieve a stronger workforce within the organisation that eventually increases the productivity level. Per capita income of China is 17,200 PPP dollars, which means that the poverty level is slightly higher in the country (Wang, 2020). Therefore, the high-end coffee products will not be effective in the market.

Technological: The R&D investments of China accounted for 2.44% of the overall GDP rate, which means that Starbucks has opportunity to implement several advanced technologies in order to increase their quality of products (Shim, et al., 2021). The technical facilities are beneficial for reducing the manual efforts of the employees and increase the overall productivity rate.

Economic Analysis

Legal: Protection of Consumer Rights and Interests Act was launched by the government, in term of safeguarding the customers from any criminal offenses. Therefore, Starbucks has the opportunity to maintain the ethical considerations and integration in the business procedures (Bisello, 2021). In addition, the Criminal law of China protects the business from the crimes like, business data breach or product copyright issues, creating a safe environment for the business.

Environmental: China has passed a legal act of Solid Waste Environmental Pollution Control Law, under which it is mentioned that, all businesses are required to follow an appropriate waste management structure, in order to prevent the pollution level from increasing. Therefore, Starbucks has the opportunity, to increase its brand reputation by implementing waste management facilities under the corporate social responsibility elements.

Competition threat is high for Starbucks in the markets of China because, as per the given case study, it has been observed that the investors are focusing on the local companies other than Starbucks. Despite the competitive threat, Starbucks has managed to acquire a market share of 36.4% approximately. On the other hand, the largest competitors of the company in the Chinese market, is a local brand named as Hey Tea, who currently acquires 27.7% market share in China (OWUSU, 2022). Therefore, it can be said that, if the investors continue to invest on the local companies like Hey Teas, Starbucks will lose their position in the market.

Figure 2: Starbucks challenges in China

(Source: Lock, 2021)

In terms of new entrants, Starbucks has a moderate threat in the markets of China because of the growing number of local businesses. In addition, the local beverage companies provide products at a very affordable range, which attracts a greater number of customers from the market. In addition, it can be observed from the provided case study that the customers provide a bias reaction towards the local brands, increasing the popularity scores for the local companies. The food and beverages industry in China has increased by 7.8%, indicating that the businesses are growing gradually (Feng, 2021).

Starbucks faces high rate of substitution threat from the market, because the product ranges of the company are high-ended, which many of the customers cannot afford due to financial backgrounds. In addition, the switching costs are low which can be considered as a strong force. The customers have the capacity to switch to the alternative products that are in-expensive, like the Hey Tea of China.

In this case, the power of the customers is high because Starbucks is a foreign brand, that has penetrated into the Chinese market. Therefore, the company has to change the organisational identity in accordance with the cultural differences and the customer demands. Therefore, it can be said that the sustaining factors of the company is highly dependent on the customer satisfaction (Melnyk, & Wang, 2020). As a result, the company has to launch a wide range of products that are preferred by the local customers other than the products the company usually launch in the US markets.

Social Analysis

The supplier’s power is weak in terms of the Starbuck’s company because of the moderate size of the individual suppliers of the organisation. The company do not own a robust supply chain, and sticks with the existing suppliers and distributors. In order to successfully expand in the international market, it is important for the company to increase the supply chain management facilities.

According to the selected case study, it can be observed that within the food and beverage industries in China, the tea market is increasing over the coffee market. Although being one of the largest food and beverage company in a foreign market like China, it has become difficult for the company to sustain the top position because of the local competitors. Despite the difficulties, Starbucks managed to develop 5360 outlets all over the country, by the end of 2021. It can be observed from the previous discussion that in terms of external environment, the political factors as well as the social factors are not beneficial for the company. The issues are increasing for Starbucks in the Chinese market as the stores sales fell by 7% due to decreased transaction of the customers (Simmons, 2021). Beside Hey Tea, Starbucks has another important competitor in the Chinese market named as Luckin Coffee, which currently acquires 20% of the market share in China. In addition, the business model of Starbucks is also imitable as the competitors also expanding in the market by opening stores and outlets in various localities of China (Wang, 2020). Therefore, it can be said that it has become high time for the company to revamp their condition in the market, in order to increase their overall revenue generation. One of the important purposes of Starbucks is to double its outlet within every important location of China, such as over 230 cities in the country (Lock, 2021). In order to achieve that target, within 15 years, Starbucks need to restructure some of the international strategies. Some of the recommendations are given below.

Respecting the culture: Chinese culture is extremely different from the western cultures, as it can be observed that the customers prefer tea more than coffee in this market. Therefore, to attract the customers, Starbucks can launch wide ranges of tea products alongside the existing coffee ranges (Sidarava, 2021). One of the main opportunities is that, the customers will be satisfied according to their preferences. In terms of challenges, the company might have to restructure their product planning procedures and operations, for which a lot of investments will require.

Collaboration:  Starbucks can collaborate with some of the important local brands, that are beneficial in terms of increasing brand awareness among the customers. The company will also get an opportunity to expand into further localities of the country, resulting in accomplishment of their main objective (Nair, et al., 2021). The major challenge of collaboration is that, the revenue generation will be divided. As a result, it will become difficult for the company to acquire a larger market share within this industry.

Technological Analysis

Restructuring the product ranges: It will be beneficial in terms of developing the product ranges as per the customer demands. With this strategy, Starbucks can focus on developing products other than coffee variations, which will also provide a unique value to the company (Gao, Zhao, & Chen, 2021). However, one of the main challenges is that, this process can be extremely time consuming and additional expenditures of the company will also increase.

Conclusion

It can be considered from the overall discussion that; Starbucks has the opportunity to successfully position themselves in the Chinese market. As per the current scenario, the local competitors are thriving in the market. There is a huge competitive threat over the company as well as Starbucks do not have any competitive advantage from the market. In terms of external market condition, one of the noticeable factors that has raised is that, the rise of local companies. The chances of substitutes, new entrants and competitors are extremely high. The risk of losing market share is also high, which can also be difficult for the company to sustain the international market. Therefore, Starbucks can re-structure their strategies in order to revamp the sustainability factors in the Chinese market.

References

Bisello, G. (2021). Starbucks and Illycaffé: different strategies to successfully enter the Chinese coffee market. https://dspace.unive.it/bitstream/handle/10579/20350/861550-1257816.pdf?sequence=2

Cheng, E. (2021). Starbucks faces more competition from local beverage brands in China, its biggest market outside the U.S.. CNBC. Retrieved 7 April 2022, from https://www.cnbc.com/2021/04/28/rising-competition-for-starbucks-in-china-from-hey-tea-and-others.html

Datacommons.org. (2022). People's Republic of China - Place Explorer - Data Commons.  Retrieved 7 April 2022, from https://datacommons.org/place/country/CHN?utm_medium=explore&mprop=amount&popt=EconomicActivity&cpv=activitySource%2CGrossDomesticProduction&hl=en.

Feng, L. (2021). Analysis of Starbucks'“Third Place” Cultural Experience Marketing Mode. https://www.atlantis-press.com/article/125957330.pdf

Gao, J., Zhao, J., & Chen, J. (2021, June). Starbucks’ Customer Brand Strategy. In 2021 International Conference on Enterprise Management and Economic Development (ICEMED 2021) (pp. 231-238). Atlantis Press. https://www.atlantis-press.com/article/125957375.pdf

He, G., Xiang, S., & Yin, J. (2021, December). Corporate Value Investing Research in Covid-19-A Case of Starbucks. In 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021) (pp. 2790-2796). Atlantis Press. https://www.atlantis-press.com/article/125966325.pdf

Lock, S. (2021). Starbucks revenue worldwide 2019 | Statista. Statista. Retrieved 7 April 2022, from https://www.statista.com/statistics/266466/net-revenue-of-the-starbucks-corporation-worldwide/

Melnyk, M. I., & Wang, Y. (2020). Financial results of Starbucks in Chengdu city, China. https://repo.snau.edu.ua/bitstream/123456789/8302/1/Melnyk%20Mariia.%20Financial%20results%20%282%29.pdf

Nair, R. K., Sinha, R., Crasto, S. G., Kian, K. W., Kee, D. M. H., Abdullah, S. A. B., ... & Ganatra, V. (2021). The effect of Starbucks marketing campaigns on consumer buying behaviour. Asia Pacific Journal of Management and Education (APJME), 4(1), 72-81. https://ejournal.aibpm.org/index.php/APJME/article/viewFile/1052/977

OWUSU, T. (2022). What Happens if Starbucks China Problem Gets Bigger? - TheStreet. TheStreet. Retrieved 7 April 2022, from https://www.thestreet.com/investing/starbucks-struggles-in-china.

Shim, J., Moon, J., Song, M., & Lee, W. S. (2021). Antecedents of purchase intention at Starbucks in the context of COVID-19 pandemic. Sustainability, 13(4), 1758. https://www.mdpi.com/2071-1050/13/4/1758/pdf

Sidarava, L. S. (2021). The Chinese attitude to foreign brands in the case of Starbucks’ success. https://elib.bsu.by/bitstream/123456789/260137/1/607-610.pdf

Simmons, J. (2021). Starbucks’ Shares Fall As The Local Beverage Brands In China Give It Tough Competition | Your Digital Wall. Your Digital Wall. Retrieved 7 April 2022, from. https://yourdigitalwall.com/2021/05/15/starbucks-shares-fall-as-the-local-beverage-brands-in-china-give-it-tough-competition/#:~:text=Hey%20Tea%20is%20the%20biggest,on%20top%20of%20each%20drink

Wang, Q. (2020, November). Cost of the Accounting Scandal of Luckin Coffee to Multiple Aspects and the Influence Under Current Economy and Pandemic Time. In 2020 2nd International Conference on Economic Management and Cultural Industry (ICEMCI 2020) (pp. 170-173). Atlantis Press. https://www.atlantis-press.com/article/125947127.pdf