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By Adam Jourdan
SHANGHAI Oct 21 Starbucks Corp has
been charging customers in China higher prices than other
markets, helping the company realize thick profit margins, a
report by the official China Central Television (CCTV) said.
The world's largest coffee chain is the latest foreign
company to come under fire from official Chinese media, which
has targeted other prominent foreign names like Apple Inc
, and comes amid a pricing crackdown by regulators.
The report by CCTV aired on Sunday and said a medium-size
latte at the U.S. coffee house in Beijing costs 27 yuan ($4.43),
or one-third more than at a Chicago store in the United States.
"Starbucks has been able to enjoy high prices in China,
mainly because of the blind faith of local consumers in
Starbucks and other Western brands," Wang Zhendong, director of
the Coffee Association of Shanghai, told CCTV. The report echoed
a separate critique by the official China Daily newspaper
published last week.
Starbucks' pricing strategy in China, which the company
estimates will be its second-biggest market after the United
States by 2014, is tied to local business costs such as labour
and commodity costs, infrastructure investment, currency and
real estate, the company said in a statement emailed to Reuters.
"Each Starbucks market is unique and has different operating
costs, so it would be inaccurate to draw conclusions about one
market based on the prices in a different market," the company
Imported products often cost more in China because of high
import duties and tax rates. Roasted coffee beans, for example,
draw an import duty of 15 percent and a sales tax of an
additional 17 percent, according to DutyCalculator.com.
China has been cracking down on pricing in markets ranging
from milk powder to drugs, with the high premiums enjoyed by
imported goods attracting much of the ire from local watchdog
groups and media.
Apple has also come under fire in China for high prices,
while the U.S. firm was stung in a media expose last year which
said it treated Chinese consumers differently to those from
Retail sales of coffee in China grew more than 90 percent
between 2007 and 2012, hitting 7 billion yuan ($1.15 billion)
last year, according to data from Euromonitor.
The rise of China's cafe culture helped the China-Asia
Pacific region top the sales growth table for Starbucks in 2012,
and has prompted the company to consider opening 600 new outlets
in the region this year, targeting 1,500 stores in China alone
Starbucks had a profit margin of 32 percent in China-Asia
Pacific in its second quarter, compared to 21 percent in the
Americas and 2 percent in Europe, Middle East and Africa, said
the CCTV report.
Analysts said while Chinese consumers were becoming
increasingly price aware, the latest reports were unlikely to
dull demand for high street coffee in China anytime soon.
"Consumers are increasingly aware of these prices
differences...it's become a very hot (topic) and is really
common knowledge at this point," said James Button,
Shanghai-based senior manager at SmithStreetSolutions. "But
branded coffee is something people are treating as a luxury and
they are willing to pay for that luxury experience."
China's influential netizens seemed to support Starbucks.
"Those who are saying Starbucks is expensive are probably
those who don't drink much coffee," said user Wang Shuo on
China's Twitter-like microblog Sina Weibo. "The prices are
competitive and the quality makes people feel safe."
($1 = 6.0968 Chinese yuan)
(Additional reporting by Shanghai Newsroom; Editing by Kazunori
Takada and Matt Driskill)