Ask the typical Chinese consumer about their expectations regarding future income and 55% of those interviewed by McKinsey & Co. expressed confidence their income would increase significantly over the next five years—just two percentage points lower than in 2012.
Compare that to consumers answering the same question in the U.S. where just 32% agreed with the same statement or in the United Kingdom (2011) where only 30% believe the future looks bright. This is an important insight behind the decision by Starbucks to expand its premium tea brand in China.
“The Chinese consumer is evolving. Gone are the days of indiscriminate spending on products. The focus is shifting to prioritizing premium products and living a more balanced, healthy, and family-centric life,” according to McKinsey’s 2016 China Consumer Report, an analysis of 10,000 in-person interviews conducted in 44 cities.
During its annual shareholders meeting last week Starbucks COO Kevin Johnson pointed to a 34% increase in operating income from the 15 countries in the China/Asia Pacific region. Two thousand of the region’s 5,743 stores are in China.
“Teavana sold nearly $1 billion of handcrafted tea beverages in Starbucks stores throughout the U.S.,” he said. “Later in 2016 (by September), Starbucks will offer Teavana tea beverages in Starbucks stores in Europe and China/Asia Pacific,” he said. The tea market is estimated at $100 billion globally and China is the world’s largest consumer of tea.
Dance performance by Starbucks baristas in China
“We are playing the long game in China,” said CEO Howard Schultz. “We are building one of the most respected and iconic brands in the country,” he said, citing location in 100 cities with plans to open 500 stores per year for the next five years. “I believe China will be as large, or larger, than the U.S. business in the future,” he said, a point emphasized by the dance performance of 11 Starbucks baristas who journeyed from Chengdu, China.
After the meeting Bloomberg News spoke to Johnson who noted that Starbucks already sells green and iced-tea drinks in Asian countries. “It’s very complementary to our coffee business,” he said in an interview. “With Teavana — similar to what we’ve done with coffee — we’ve established a very premium brand.” Tea sales are up 17% following the introduction of the brand in American coffee shops, contributing a full percentage gain in same-store sales for two consecutive quarters last year.
Source: Bloomberg News, Starbucks Press Office