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Starbucks plans ambitious growth in China amid US trade tensions

Coffee chain aims to nearly double number of shops to 6,000 in four years

Starbucks Coffee opened its premium "roastery" shop in Shanghai in 2017.   © Reuters

TOKYO -- Starbucks has set out ambitious expansion plans for China, announcing on May 16 that it aims to nearly double the number of coffee shops there to 6,000 by 2022.

The Seattle-based coffee shop chain believes there is ample room for growth in the country's smaller and midsize cities, as consumer tastes become more westernized. Even as trade tensions rise with the U.S., China appears to present opportunities for the company to press ahead with its growth strategy.

"No Western company or brand is better positioned to evolve with the rapidly expanding Chinese middle class," said Starbucks President and CEO Kevin Johnson in the statement. "We continue to mindfully evolve a coffee culture in China where the reward will be healthy, long-term, profitable growth for decades to come," he added. "We are committed to long-term investment in China." 

Starbucks currently has about 3,300 shops in 141 Chinese cities. It plans to grow by a net 600 stores per year and have a presence in around 230 cities.

It opened a "reserve roastery" shop in Shanghai in 2017, offering premium coffee experiences with "master roasters" who take particular care in preparing specialized coffee. In June, Starbucks will open its largest shop globally in Beijing.

Starbucks dominates China's specialist coffee chain market, controlling a 58.6% share, according to Euromonitor International. The second major player, McDonald's, trails by a wide margin with only 6.1%.

Starbucks' strong commitment to the Chinese market was demonstrated by former CEO Howard Schultz, who visited China many times, even meeting with President Xi Jinping in Seattle on an official visit to U.S. in 2015.

Starbucks' 3,300 shops employ about 45,000 people in the country, and offer domestically grown coffee from southwest Yunnan Province using Arabica beans.

"We deepen our partnership with local farmers to develop more localized, high-quality coffee," said Belinda Wong, CEO of Starbucks China.

Starbucks' expansion plans are "very rational," since people in smaller and midsize cities "have started to pursue high-end lifestyles," said Shirley Lu, Shanghai-based research manager at Euromonitor, which estimates that China's market for specialist coffee shops was $4.46 billion in 2017, up 15% from $3.86 billion in 2016.

Among Starbucks' many smaller rivals in the country are Costa Coffee of the U.K., and Beijing-based Luckin Coffee, which has grown rapidly with its popular delivery service.

But these upstarts are far from threatening Starbucks' dominance.

"There currently aren't any brands that could put pressure on Starbucks," Lu said.

On May 15, Luckin Coffee accused Starbucks of pursuing a market monopoly in China, pushing out other coffee shops and pressuring suppliers. In an open letter, Luckin Coffee said Starbucks' had signed exclusive contracts with many property owners, hurt fair competition, and impeded the development of the coffee industry.

Starbucks' expansion plans also come as trade tensions rise between the U.S. and China, with some Chinese internet users calling for a boycott of U.S. brands.

Jin Jianmin, senior fellow at Fujitsu Research Institute in Tokyo, said that while the U.S. has a massive trade deficit with China, a full accounting of the economic relationship must take into account services and investment. Jin said such services includes tourism, entertainment and coffee shops.

In China's view, the economic relationship balances out because of the way it attracts investments from foreign companies. "Coffee shops are not a high-tech industry, so the Chinese government is not so wary," Jin said.

"Starbucks also seems to be giving its full attention to building a win-win relationship with the local economy," he added.

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