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October 21, 2013

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CCTV: Chinese pay higher price for Starbucks coffee

Labelling them a “luxury in coffee,” a China Central Television report yesterday said Starbucks coffee and mugs were more expensive in China than in London, Chicago and Mumbai.

A cup of 354 milliliters of Latte coffee costs 27 yuan (US$4.4) in China as compared to only 19.98 yuan in Chicago, 14.6 yuan in Mumbai and 24.25 yuan in London, the CCTV report said.

A Starbucks mug, which is sold for US$10.9 in the US, costs about 100 to 110 yuan in China, it pointed out.

Starbucks stainless steel cups, which are made in China, is also being sold at a higher price here. In the US, a stainless steel cup costs about US$16 to US$20, while in China it costs between 220 yuan (US$36) to 350 yuan.

The Seattle-based company told CCTV that its prices are based on several factors including raw materials, equipment, infrastructure investment, logistics and transport fees, staff salaries, rent, exchange rates, import tariffs and other operating costs.

The coffee chain said that the Chinese market was still in the early stage of development and required a lot of investment in infrastructure.

The relatively small number of store outlets lead to a higher cost in logistics, warehousing and others, it added, but declined to provide any specific cost data.

Starbucks China refused to comment further when contacted by Shanghai Daily yesterday.

Wang Zhendong, director of the Coffee Industry Commission of Shanghai Food Association, said that price of coffee beans has been going down since 2011 while Starbucks was raising its prices after that.

“The high price of Starbucks is mainly because of domestic consumers’ blind faith in foreign brands,” Wang told CCTV.

Starbucks, the world’s largest coffee-shop chain, plans to more than double its stores in China to 1,500 by 2015, John Culver,  head of Starbucks in China and Asia-Pacific, told Bloomberg at the end of last year. Starbucks raised its prices in China by two yuan last month, the second price increase in a year.

“Starbucks coffee is expensive, and I drink it about once every week,” said Shu Wen, a bank employee in Shanghai.

He said a cup of Latte in Starbucks is almost equal to the cost of a lunch and he does not visit them every day.

But not all of them worry about the high costs they have to pay.

“Starbucks offers a nice place to hang out with my friends on weekends and I don’t mind it charging a little bit more than other coffee shops,” said Crystal Xu, a Shanghai office worker in her late 20s.

In the three months ending June 30 this year, Starbucks reported a 29 percent annual revenue increase in its China and Asia-Pacific segment, higher than its overall revenue growth of 13 percent.

It added 523 new stores in the 12 months before June 30 while comparable store sales added 9 percent from a year ago. Its China and Asia-Pacific segment has an operating margin of 36.2 percent, higher than that of 22.3 percent in America and 3.2 percent in Europe, Middle East and Africa.



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