Starbucks’ market entry into China in 1999 was seen by many as a potentially disastrous idea. Why? Well, China has a rich history stretching back thousands of years revolving around tea culture, not coffee. The skepticism was high that Chinese people would ever favour coffee over tea & few people expected the Starbucks’ success story in China to happen.
The idea was even called “crazy” by those around Howard Schultz, but despite this the brand pushed ahead and today has around 7600 stores across the country.
Just to be VERY clear: Today the brand may be struggling to maintain their position, but this blog post was written to look at the market entry strategies, not analyse their position now & current struggles.
Table of Contents
Starbucks Influence on Chinese Coffee Culture Began with Research
Starbucks didn’t let the prevailing focus on tea deter them. They approached the challenge with a “Think Different” mindset and instead of seeing the tea culture as a complete barrier, they conducted careful market research.
This research revealed some key opportunities:
- China had a rapidly emerging middle class with rising incomes.
- This growing middle class was showing an interest in Western lifestyles and premium products.
- There was a desire for a Western coffee experience, a place where people could meet and socialise.
Starbucks essentially created demand for this Western coffee experience. They aimed to position themselves as a luxury and aspirational brand, conveying status that appealed to those aspiring to Western standards or seeking to climb the social ladder. The purchase of luxury goods at that time was seen as a way to pursue quality lifestyles, and the Starbucks brand, with its exclusivity, fit into this orientation. Even the Chinese government’s support for luxury consumption in cities like Chengdu played a role.
Starbucks’ Success Story in China was Founded on Smart Positioning
One crucial aspect of their approach was to “Position Smart”. Recognising that direct advertising and promotions might be perceived as a threat to the deeply ingrained tea culture, Starbucks avoided this conventional route. Instead, they focused on securing high-visibility and high-traffic locations to project their brand image. These were often in business districts, urban centers, luxury malls, and office towers.
Starbucks’ strategy wasn’t just about pushing coffee; it was about bridging the gap between tea and coffee cultures. They achieved this by introducing beverages using popular local ingredients like green tea. This included the highly popular Green Tea Frappuccino and the Black Sesame Matcha Latte. This strategy turned potential obstacles into advantages, helping Chinese consumers quickly develop a taste for Starbucks’ offerings.
They also deeply understood the importance of the “Starbucks Experience”. This isn’t just about the drink; it’s about the environment.
- Stores were designed to be comfortable social spaces, aligning with the Chinese cultural preference for communal gatherings and leisurely interaction.
- The chic interior, comfortable lounge chairs, and upbeat music differentiated Starbucks from competitors.
- They incorporated traditional Chinese motifs, such as calligraphy art, bamboo furniture, local artwork, and decorations, to create an authentic atmosphere.
- Crucially, the stores in China were much larger than those in the US (often over 185m2 compared to 110-140m2) to accommodate groups of friends and families who would spend hours socialising. The Starbucks Reserve Roastery in Shanghai is one of their largest outlets in the world at 2878 m2.
- They even adapted menu items to include popular Chinese snacks like curry puffs, moon cakes (during the Mid-Autumn Festival), and traditional cookies.
Starbucks’ Branding Strategy in China
Maintaining a “Brand Global” presence while adapting locally was key. Starbucks maintained its global brand integrity, partly by sending their best baristas from established markets to train new employees in China. These baristas served as brand ambassadors, helping to establish the Starbucks culture and ensuring service met global standards.
However, “global brand” did not mean “global products”. Starbucks developed a highly localised menu based on extensive consumer taste profile analyses to create a unique “East meets West” blend. Stores even had flexibility to choose from a wide beverage portfolio to fit their specific location’s customers.
Western brands like Starbucks often benefit from a reputation for quality products and services, which gives them a competitive edge over local Chinese companies in establishing themselves as premium brands. This is far less true today, as Chinese confidence in local brands has grown massively, but in the early 2000s it was certainly a formidable advantage.
Starbucks Pricing Strategy in China
Trying to compete purely on price by cutting costs against local competitors is usually seen as a losing strategy and honestly, you pretty much have no chance to do that as a Western brand in China. Starbucks priced its coffee higher, around US$6 for a cup (equivalent to 32 RMB at the time), which was considered costly by Chinese standards (about a 20% premium vs any other brands), but they maintained this strategy because high price was associated with quality in China, and carrying a Starbucks cup became a status symbol.
Many a time, I’ve tried to convince my business partners that I’m just as happy to drink cheap Luckin’ as expensive Starbucks, but for many Chinese Starbucks still has that aspirational touch to it.
Succeeding in China means Working with the Right Partners
Given the complexity and regional differences across China, Starbucks wisely chose to “Partner Local”. China isn’t one homogeneous market; there are distinct regional cultures (eg north vs east vs south) and massively varying consumer spending power (inland vs coastal cities). Remember that at the time of market entry the differences between the coastal tier 1 cities and the lower tier cities inland were considerably larger than today. To navigate this, Starbucks entered into regional partnerships:
- In the north, a joint venture with Beijing Mei Da Coffee Company.
- In the east, a partnership with Taiwan-based Uni-President.
- In the south, a partnership with Hong Kong-based Maxim’s Caterers.
These partners brought invaluable local expertise and insights into regional tastes and preferences, helping Starbucks adapt and expand quickly without (such) a steep learning curve. Building strong relationships with local partners and government officials was crucial in China’s bureaucratic environment to obtain the necessary permissions so having the right partners with the right connections was a key part of Starbucks’ success story in China.
In 2017, Starbucks eventually bought out its joint venture partner in East China for $1.3 billion, making China the only market where 100% of stores are owned and operated by Starbucks, compared to 59% in North America.
In it for the Long Term
Succeeding in China also requires a “Commit Long Term” perspective.
A key part of this is investing in employees. Starbucks focused heavily on recruiting and training its staff, ensuring they were cheerful and delivered the “Starbucks Experience”. Employees are seen as key to delivering the experience and are the best marketing ambassadors. They even implemented programmes such as an annual partner family forum and a parent care programme to support employees and their families, tapping into China’s strong values around family.
Long-term commitment also means patience. It takes time to educate the market and build customer loyalty (especially when there’s little prior coffee drinking culture).
China is Digital First
Beyond the physical store experience, Starbucks heavily leveraged digital strategy and innovation in China.
- They launched a customised mobile app with features like Order and Pay and a fully integrated Rewards Program (also available via Alipay & WeChat mini-apps now).
- They integrated seamlessly with China’s major mobile payment platforms, Alipay and WeChat Pay, enabling quick, secure, and cashless transactions which are dominant in China. China leads Starbucks’ global portfolio in digital payment usage, with at least 85% cashless payments, which isn’t surprising given that digital wallets count for probably 95% of payments in the urban areas where Starbucks is focused.
- The app also provides personalised recommendations based on purchase history, enhancing customer satisfaction and driving sales.
- Innovations like mobile ordering and in-store pickup were introduced, becoming particularly popular in urban areas to minimise wait times. This focus on integrating online and offline offerings originated in their China operations and has even been imported back to global markets. Many offices don’t actually have coffee machines (although for sure they have tea making facilities) because it’s just as convenient to order in…
Starbucks also learned to use Chinese social media platforms like WeChat and Weibo effectively. They ran targeted campaigns, including hashtag campaigns, and collaborated with local influencers (KOLs) and celebrities to enhance brand visibility, build trust, and generate impressions and engagement.
However this is one area that I feel that Starbucks struggled a bit to keep up. The speed at which China evolves and adopts new technologies and practices can be breathtaking, and Starbucks’ digital initiatives were initially behind the curve compared to most other companies. Although their loyalty program was fantastic, in the rapidly digitising Chinese market, Starbucks might have been slower to embrace digital tools and platforms from the outset compared to local players. This potentially impacted early engagement with tech-savvy Chinese consumers who were quickly adopting mobile-first behaviours.
Starbucks Expansion Plan in China Didn’t Just Include Tier 1
Expansion was rapid, moving from major cities to second-tier ones. Starting with cities like Shanghai, Beijing, Guangzhou, and Shenzhen, they quickly moved into places like Chengdu, Hangzhou, Chongqing, and Nanjing. By 2020, they had over 4,700 stores and were aiming to open 600 new stores annually over the next five years. Of course the pandemic put the brakes on expansion for a while, but today’s count of over 7500 stores put China in 2nd place globally for the brand (behind the US, and ahead of Korea).
Localising Supply Chains is a Building Block of Starbucks’ Success Story in China
They also adapted their supply chain management for the Chinese market. This involved sourcing more ingredients locally to reduce costs and ensure freshness, including local coffee beans from Yunnan and other essential ingredients. Partnerships with local milk and tea producers were crucial for ensuring a consistent supply of high-quality ingredients tailored to local tastes.
Starbucks has certainly faced challenges, including competition from both local brands (like Li Shen and Zhen Gou Coffee initially, and more recently Luckin Coffee and Heytea) and international ones (Nescafe). The COVID-19 pandemic and associated lockdowns also significantly impacted sales temporarily. However, despite these pressures, analysts believe the underlying demand remains strong.
Financial Success
Financially, Starbucks’ China strategy has been very successful. By 2019, revenue grew by 18% year-over-year, driven by expansion and same-store sales growth. China accounted for approximately 10% of total revenue by 2020 and was expected to drive significant future growth. They have been able to charge higher profit margins in China due to premium pricing and efficient supply chain management.
However sales have stagnated in the last couple of years (between 2022 and 2024) with the rise of local players such as Luckin or Cotti Coffee. 2024 sales revenue was reported at $3bn – vs $36.19bn globally for the brand. More worryingly for the company, Starbucks’s market share in China has declined from 34% in 2019 to 14% in 2024, according to data from Euromonitor International. This is due to price pressures of a tougher economic environment combined with the rise of the local players.
However that shouldn’t distract from this case study of Starbucks’ success story in China.
You can’t disregard the cultural aspects
In essence, Starbucks’ market entry intp China is a case study in successful cultural adaptation and innovation. They didn’t just try to plop a US coffee shop into China; they listened, learned, adapted their products, store experience, and operations to resonate with the local culture and consumer preferences, all while maintaining the core elements of their premium brand.
Could they have done more faster? Maybe, but that’s easy to claim when you have the benefit of hindsight and less simple to actually do in the moment when you’re in the thick of things.
For other businesses looking at China, key lessons include:
- Conduct thorough market research to understand local preferences and the competitive landscape. (The Chinese consumers’ attitude towards Starbucks was shaped during the initial phase of this project)
- Embrace localisation, tailoring products, services, and the customer experience to fit the local culture.
- Leverage technology and integrate with dominant local digital platforms and payment systems.
- Build strong local partnerships to navigate the market and gain insights.
- Focus on quality and consistency to build a loyal customer base and maintain brand trust.
- Commit long-term and be patient.
Succeeding in China isn’t something that happened overnight for Starbucks, they’ve put in a lot of work but most importantly they listened to consumers. You can see from all the points I’ve listed above that the brand certainly encountered challenges, but chose to be flexible in their approach in order to overcome these.
A core part of their strategy was to create an aspirational brand and offer “The Third Place” experience, where stores were designed as comfortable social spaces, often larger than in the US, to accommodate groups gathering for extended periods, much like traditional tea houses. Being seen with a Starbucks cup quickly became a symbol of social status for the rising middle class and westernised young population. This allowed Starbucks to charge premium prices, associating high price with quality in the minds of consumers.
If they were to try & enter the market today with those approaches, I’m 100% sure they couldn’t succeed, but the skill of market entry is to firstly go into the right market at the right point in time, but most importantly to tailor your approach to what is needed to succeed at that time. As I mentioned at the very beginning of this post, I wanted to look at how the Starbucks market entry has been a success – the situation they find themselves in in 2025 is a more challenging one that promises to be less successful…
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Kathryn firmly believes that business is done between people, and therefore places her focus on building strong relationships that form a solid foundation for doing business.
When she's not travelling around the world, Kathryn enjoys playing clarinet in her town's wind orchestra or sharing her love of the outdoors with her Scout group.
