When Starbucks Chairman Howard Schultz returned from an 11-day trip to Asia, he sent an e-mail missive to a colleague: "Howard's moving...
When Starbucks Chairman Howard Schultz returned from an 11-day trip to Asia, he sent an e-mail missive to a colleague:
“Howard’s moving to China,” he wrote. Schultz was only half-joking.
Schultz said he plans to spend increasingly more time in Asia, specifically guiding Starbucks’ growth in China. The specialty-coffee retailer forecasts this historically tea-drinking nation will one day become its largest market outside of North America.
Here is an edited version of his interview with The Seattle Times the day after he returned to Seattle.
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Q: When did Starbucks start seeing a larger opportunity in China?
A: We opened our first stores five years ago in Beijing and in Taiwan. It wasn’t until the last two years or so that we began seeing traction, for lack of a better word, in our existing stores in terms of velocity of sales and what I would loosely describe as the growing relevancy of the Starbucks experience in China.
Q: Two years ago was the tipping point?
A: I think so. There wasn’t one single thing that prompted this change. Maybe it was getting to 100 stores or so. Also, our local partners both in Hong Kong and Shanghai specifically realized that perhaps they had underestimated how large the market could be in China. This is where they live, this is their business, and they’re saying to us: “We may have undersized the market.” Then we began to spend a lot of time there and began to realize, “You know what? You’re right.”
Q: Why is Starbucks growing in popularity?
A: The iconic nature of the Starbucks brand has traveled to China in ways that, candidly, we don’t understand. Anecdotally, we’re told it’s because of Starbucks’ presence in movies. Maybe they’ve seen it in other parts of Asia, but it’s hard to answer the specific question — how do they know?
We’ve become an employer of choice in China because of the work environment and the way Starbucks treats its people. We’re off to a very good start. We’re talking about thousands of stores, where China will become absolutely the second-largest market in the world for Starbucks, second to North America.
Q: How did Starbucks get a store at the Great Wall?
A: I think that the Chinese government is committed in almost every way to economic development. Their view of capitalism and government is different than ours. The government officials that we have met with over the years view Starbucks with respect and as a primary sign and validation of economic development.
They view it as a brand and as a place that signifies almost a sense of arrival for their local province or their city. That has resulted in Starbucks being asked to participate in certain projects and being part of things we wouldn’t normally be invited to take part in.
With regard to the Great Wall of China, it is one of the most frequented places in the whole country — more than 400 million visitors from outside of China. We were asked to build a beautiful store there and we’re pleased and honored to do so.
Q: How do you adjust to accommodate the tastes of the Chinese marketplace?
A: Our stores there are a mirror image of what you see in Madison Park and Pike Place. We learned over the years, by doing business in Asia and specifically China, that the Chinese consumer is highly aware of Western brands and has a desire to buy Western products. But they don’t want it diluted. They want the authentic experience. The only minor modifications are some taste-profile changes on food and some size issues.
Q: What are some of the differences from doing business in America?
A: Eighty percent of all our business in America is to-go. More than 80 percent of all our business in China is people staying in the stores. The interesting thing is that, in many ways, Starbucks stores are as large or larger than their own homes. It has become a primary place for young people to date. I couldn’t walk into a Starbucks store in China and not see a business meeting going on.
And the hours of operation, in terms of when our stores are busiest, is not in the morning, when we’re busiest in America, but in the afternoon or at night.
Q: What’s the most popular drink in China?
A: I think it’s a Caffè Latte, but our Frappuccino business did well because of the hot summer.
Interestingly enough, the success we enjoyed this summer in America because of the Green Tea Frappuccino — that product was born in Taiwan. It is the first product that Starbucks America did not create.
Q: How do you handle distribution issues as you expand in China?
A: We have hired people who have that knowledge and experience throughout China and we have brought our own resources to the table. But again, we’re talking about the need to build these kinds of competencies in the company that we have not had before.
One of the things you’ll learn about this kind of growth and development is, metaphorically, if you’re going to build a 100-story skyscraper, you can’t build the foundation while you’re building the building. And so the last two years has been about building the foundation.
The unit economics of doing business in China at a store level are very positive, but we have to build a very large base of support so we are in position to build a very large company there.
Q: Can you outline some of the challenges that you face in terms of distribution?
A: The challenges include distances, the traffic alone and the storage issues. And in many ways, the discipline of supply-chain operations for a company like ours.
Not many companies have done business in China that could give us that insight or understanding, so we are cracking the code in many ways for the first time.
Q: Why did Starbucks start an education fund in China?
A: Very few companies our size, at this stage in their development, would create a fund like this.
We did it because we want to demonstrate a level of sensitivity and respect for doing business in China.
We learned through our own research that children in rural China, especially young girls, do not have access to education.
And since we have our sights set on building a very large footprint of stores throughout the country — thousands of stores which will include rural China — we thought that we should demonstrate our commitment to giving back before we even open stores at the level that we have planned.
Q: Final thoughts?
A: I can’t imagine a more dynamic, larger opportunity than China — if done well. But there is no shortcut to success. You have to be willing to invest ahead of the curve and to be very respectful of the differences of doing business there and the sensitivity that one needs to have to be respectful of that.
Monica Soto Ouchi: 206-515-5632 or firstname.lastname@example.org