Starbucks' ambition when investing 'hugely' in China

US coffee giant Starbucks has invested more than $220 million in a new facility in China, a sign that Chinese consumers remain important to the global coffee chain despite the risk of a major economic downturn.

Starbucks says it is the largest investment it has ever made in a coffee production and distribution center outside the U.S. The site includes a large roasting facility and an area where visitors can watch how drinks are made.

The 7,400-square-meter “Innovation Park” in Kunshan, near Shanghai, opened on September 19 after a yearlong delay. The total investment is nearly 50% higher than the $150 million Starbucks had previously planned to allocate in 2020.

Starbucks previously expected the facility to be “operational by summer 2022,” although the timeline was first given in November 2020, as China grappled with Covid-19-related restrictions.

China has long been one of Starbucks’ most important growth drivers, serving as the company’s second-largest market worldwide and its top overseas market. However, Starbucks CEO Laxman Narasimhan said the company is “still in the early days of China,” suggesting that coffee consumption in the traditionally tea-drinking nation remains relatively low.

Starbucks New “Innovation Park” Opens in China

Laxman Narasimhan sees the new space as improving supply chain and sustainability goals, especially as the facility is set to become the company's most energy-efficient coffee factory in the world.

Notably, on September 18, Starbucks announced its decision to appoint Molly Liu - CEO of Starbucks China, as Executive Vice President and CEO of Starbucks China from October 2.

Since joining Starbucks in 2012, Molly Liu has laid the foundation for the company's digital sales in the Chinese market, especially the launch of digital ordering services "Starbucks Delivers" and "Starbucks Now", contributing 48% of sales in the country of a billion people in the third quarter of 2023.

Additionally, she created Starbucks Rewards, transforming it into the leading loyalty program with more than 20 million active members. She recently oversaw the company’s accelerated expansion into more store locations, while reinvigorating coffee beverage innovation with successful launches of new platforms.

A survey released by the American Chamber of Commerce in Shanghai on September 19 found that optimism among American businesses in China is at a “record low,” largely due to the sluggish economy and tensions between Washington and Beijing. However, recent developments suggest that the downturn is stabilizing.

The opening of the “Innovation Park” in China is considered a big step forward in Starbucks' ambition to conquer the Chinese market.

Previously, in 2017, Starbucks completely acquired its franchise partners in China for $1.3 billion, thereby turning 1,300 franchise branches into Starbucks facilities, in addition to 1,500 existing stores.

The company now has more than 6,500 cafes in more than 250 cities in China, with a new store opening every nine hours on average in the country. That reflects Starbucks' ambition to push China into becoming its top market, and even surpass the US to become its largest market in the world by 2025, as former CEO Howard Schultz has said in 2022.

(According to Erienewsnow)

Source