September 4, 2007 / 7:54 AM / 13 years ago

Starbucks to source coffee from China

SHANGHAI (Reuters) - Starbucks Corp (SBUX.O), the world’s biggest coffee-shop chain, said it planned to source coffee from China for the first time as it expands in a country with more than 5,000 years of tea-drinking culture.

Starbucks China President Wang Jinlong poses for a photo during the Reuters China Summit at the Reuters headquarters in Shanghai September 4, 2007. REUTERS/Lucas Schifres

Starbucks has been working with coffee farmers in China’s southwestern Yunnan province to help them meet sourcing standards and has sent coffee shipments to the United States for testing, Starbucks China President Wang Jinlong said at the Reuters China Century Summit on Tuesday.

“China does produce some quality coffee,” Wang said at the summit, held at the Reuters office in Shanghai.

He added that sourcing coffee from China would start “very soon, maybe in a couple of years”.

Some analysts say import tariffs as high as 20 to 60 percent are the reason why companies such as Starbucks are considering sourcing coffee from China.

However, Starbucks’ Shanghai-based spokeswoman, Caren Li, said the aim was to add new flavors, not to avoid tariffs.

Although coffee consumption is still less than one-tenth of tea consumption in China, it is becoming increasingly popular among Chinese, especially young people, because of its association with a Western lifestyle.

Coffee consumption in China is increasing 20 to 25 percent each year, and Starbucks’ sales in the country are growing faster than that, Wang said.

That compares with Starbucks’ sales growth target of 18 percent globally.

“China’s growing middle class wants to enjoy life,” Wang said. “We don’t want to replace tea, we just want to add another choice, a new lifestyle.”

Chinese drinks 700,000 tonnes of tea per year.

EXPANSION

Starbucks also plans to build a roasting plant in China and accelerate its expansion in the world’s fourth biggest economy.

Wang reiterated that the Seattle-based company aimed to more than triple its global outlets to 40,000 and expected China to become its biggest overseas market.

Starbucks currently operates 540 outlets in China, Hong Kong and Taiwan, but the figure “should be in thousands in the near future”, Wang said.

In mainland China, where Starbucks has 246 outlets, the company is buying out its Chinese partners to gain more control of its brand.

Last October, Starbucks bought 90 percent of licensee Beijing Mei Da Coffee Co. and said it might exercise a right to increase its stake in its venture with Taiwan’s Uni-President Corp (1216.TW), which covers more than 100 outlets in Shanghai and surrounding cities.

Starbucks has no plans to raise the prices of its products in China, despite raising prices twice in the United States in the past 12 months to offset rising raw material costs and rents.

Instead, Starbucks China is trying to improve efficiency and restructure its supply chain to combat rising costs, Wang said.

China’s inflation in July hit a 10-year high of 5.6 percent, propelled by surging food prices.

Several restaurant chains, including Yum Brands Inc (YUM.N) and McDonald’s Corp (MCD.N), have raised product prices at their outlets in China.

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