China’s state-run media accuses Starbucks of price-gouging
Starbucks has become the latest foreign firm to be roasted by China’s state-run media, with a series of accusations that the world’s largest coffee shop chain is overcharging Chinese consumers.
State broadcaster CCTV aired a seven-minute report criticising the firm’s pricing in China, arguing that a tall latte in Beijing is more expensive than in London, Chicago and Mumbai.
The report on Sunday gave the price of a Beijing latte as 27 yuan ($4.42), compared with 24.25 yuan ($3.97) in London, 19.98 yuan ($3.26) in Chicago and 14.6 yuan ($2.39) in Mumbai.
It came after a stream of print stories attacking the Seattle-based firm, with the state-run Economic Information Daily accusing it of “profiteering”.
The China Daily newspaper last week took aim at the chain in an article headlined: “Starbucks can’t justify high prices in China.”
The allegations come after US tech giant Apple was subjected to a barrage of attacks earlier this year over its warranty policy and customer service, which state media cited as examples of its “unparalleled arrogance” toward Chinese consumers.
The criticism stopped after Apple CEO Tim Cook apologised.
Foreign baby formula and pharmaceutical firms have also recently been targeted by authorities over allegations of price-fixing and corruption.
The clampdowns are partly an official response to public frustration over high prices for imported goods, analysts say, but by singling out largely overseas firms they have raised alarm in the foreign business community.
The media focus on Starbucks was because “most probably Starbucks is the biggest and most famous” coffee chain in China, said Kevin Yeong, managing director of the Benchmark Asia Research Group.
“For the past few months, I’ve been very concerned about…any foreign-owned company, because it looks like the local government is trying to do something to restrict foreign companies,” he added.
In a statement Starbucks said that its pricing in different cities is based on a variety of factors, including infrastructure investment, real estate, currency valuation and labour costs.
“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 said.
“We continue to be humbled by the support we have received from our customers and the relevant authorities within the Chinese government,” it added.
But on its verified account on China’s hugely popular microblogging site Sina Weibo, it posted a photo of a pencil with a toy horse on its end — a visual pun on a highly offensive Chinese obscenity.
Starbucks opened its doors in China in 1999 and now has more than 1,000 stores in the country and growing.
China is likely to overtake Canada as Starbucks’ second-largest market after the US next year, and it is aiming to reach 1,500 stores by 2015, according to a spokeswoman.
Analysts said price differences could be explained not only by Starbucks’ varied operating costs across the globe but also by the different role the coffee chain plays in the lives of Chinese consumers.
In the US, Starbucks gets much more of its revenue from takeaway sales. But in China most business comes from customers who take their time inside the store, noted James Roy, a senior analyst with the Shanghai-based China Market Research Group.
“In China, it’s a different positioning and a different value proposition,” he said. “They invest more in making these stores themselves more premium options and making more of the environments as well.”
One new location opened in Beijing last month is a glistening two-storey, 24-hour store featuring live music at the weekend.
Yeong noted that while Starbucks’ prices may be cheaper outside China, they are on a par with — and in some cases, cheaper than — those of its foreign competitors within China.
Some Internet users mocked the CCTV report.
“The price of housing, cars and gasoline, Internet service and taxes in China are all more expensive than in other countries,” argued one Sina Weibo user. “Why can’t Starbucks be more expensive, too?”