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Coffee’s Next Frontier

By Caitlin Coyle, an intern from American University in Washington. Based on a story in the Monday Nov. 7 edition of the EO.

Starbucks is infamous for opening up next to independent cafes and taking their business, but its Chinese chain might lose at its own game.

Image via Flickr


 A morning cup of coffee back home was a daily ritual, but in a country that favors tea, sometimes finding the comfort of a cup of coffee is difficult. Trying to find a mocha or cappuccino is even harder. Two international coffee chains are quickly attempting to change that.

This week the Economic Observer looked at the expansion of Starbucks, an American coffee chain, and Costa Coffee, a British coffee chain, in China. Both companies are trying to capitalize on the Chinese market, attempting to overcome a tea drinking culture and a large lactose intolerant population. Regardless, the two coffee shops’ presence is becoming increasingly large in China’s capital.

If you go to Beijing’s Blue Harbour International District, you will see a Starbucks at the entrance of the intersection. Costa Coffee is further into the square, with a less ideal location, and slightly higher rent at around 10 kuai ($1.57) per square meter. Starbucks was established first in China, often located in the best possible locations with lower rent and high traffic. Normally, coffee shops would try and stay as far away from Starbucks as possible. Costa Coffee, instead, tries to open stores as close to Starbucks as they can.

Starbucks opened its first store in China in 1999. They have since opened 500 stores and plan to have 1,500 stores in China by 2015. Costa Coffee, though entering China later than Starbucks in 2006, has loftier goals in terms of expansion. The British chain currently has 100 stores in China and plans to have 2,500 by 2018. Both companies are looking to expand into the same markets, and often times, the same locations.

Beijing International Airport’s Terminal 3 (T3) is a location of strategic interest for international restaurants and companies due to its size and number of foreign consumers. Earlier this year, Starbucks was forced to close its store on the fourth floor; many speculate this was due to rent. However, on October 25 Starbucks opened its seventh store within the airport, its 500th store in China at the departure gate of T3. In June year, Costa Coffee opened its 100th store in China, also at T3.

When it comes to the Beijing International Airport, Starbucks definitely has the upper hand. The newly appointed President of Starbucks China, Belinda Wong, in an interview discussed the continued cooperation with the airport and how the departure gate, with the high amount of traffic, was an excellent location to open their 500th store.

Costa Coffee has its own way of competing with Starbucks and their accessibility to locations. They have managed to open most of their stores next to or in close proximity to Starbucks. The company is also trying to increase their rate of expansion. Costa Coffee plans to open 2 to 3 stores a week. The head of Costa Coffee said that the goal is to win a third of the Chinese coffee market.

Starbucks and Costa Coffee have two very different tactics in expanding into the rest of China, where a foreign consumer base is not necessarily available. Starbucks is taking more control in Southern China. This year they established greater independence from their business partner, Hong Kong’s Maxim Group. Maxim Group helped introduce Starbucks to Hong Kong and have been a part of the company’s expansion in Southern China. However, this year Starbucks struck a deal in which the American company now has 100% equity in the businesses in the provinces of Guandong, Hainan, Sichuan, Shaanxi, and Hubei, as well as the municipality of Chongqing.

While Starbucks has begun to independently control most of its dealings in China, Costa Coffee has continued to strengthen ties with its business venture partner, Beijing’s Hualian Group. Primarily in the North of China, Hualian Groups’s numerous supermarkets and department stores provide Costa Coffee with several locations to open stores, reducing the time it takes to find available space to set up shop.

As far as coffee chains in China go, Starbucks still reigns supreme. However, Costa Coffee is quickly catching up with the international brand. Both companies are looking to expand into the same provinces and districts, including more business in Central China. While foreigners can look forward to not having to struggle to find a Western-style caffeine fix, coffee shops are still finding their consumer base in China. Only time will tell if the rapid expansion is for better or worse.


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