Starbucks brews up a new line for China

The coffee house giant has added teas to its offerings in the world's most populous market. What will this do to traditional tea houses?

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The names of a series of teas that went on sale in the world's most populous nation this month were unmistakably Chinese. There was Bi Luo Chun, a green tea described as having a "crisp, fresh flavour"; Mu Dan, a white tea said to offer "a fresh, mellow sweetness"; and Oriental Beauty, with its "intoxicating floral aroma".

But these drinks are not recent additions to the menu of one of Beijing's traditional tea houses. Instead, their arrival is being advertised by display boards in Starbucks. The all-conquering Seattle chain may have spread coffee house culture across the globe, but in China it is unashamedly tailoring its offerings more closely to local tea-drinking tastes. "I think Starbucks is kind of late in terms of localisation," says Natalie Zhu, a senior retail analyst at JLM Pacific Epoch in Shanghai.

Starbucks is especially late in relation to equally well-known western fast-food outlets such as KFC and McDonald's, which are old hands at plugging in to local preferences. "If you're looking at the menu of McDonald's and KFC, especially KFC, you can find they're selling congee [a rice porridge] for breakfast. That's a perfect example of them fitting the local market," Ms Zhu says. "If you travel to KFC in different parts of China, they're doing a very good job [of] fitting the local tastes of provinces.

"In Sichuan, they enjoy very spicy food and KFC provides that. They're doing a pretty good job of localisation." It is perhaps no surprise that the fast-food franchises know market tastes well, since they have plenty of experience in China. KFC arrived in mainland China in November 1987, while the golden arches of McDonald's appeared just 11 months later. Starbucks did not open in Beijing until November 1999.

KFC has had particularly spectacular growth, and now has more than 2,500 outlets in mainland China, twice as many as McDonald's. KFC's more Chinese-centric menu, including such delights as barbecued squid, has been credited with helping the brand become China's largest restaurant chain. Perhaps in part because it has tended not to focus as closely as some suggest it should on Chinese tea tastes, Starbucks has expanded at a more modest rate, even when its more recent arrival in the market is taken into account.

More than 360 stores now bear the Starbucks name in mainland China. Some were opened as joint ventures with local partners, and some were locally owned ventures operating under the Starbucks name. More recently, Starbucks has opened wholly owned stores in China. As it has expanded, the company has tended to take management control of the local partnerships by securing majority stakes in the ventures. Starbucks hopes China's rapid economic growth will mean more people will be prepared to pay several dollars for a cup of coffee - or Chinese tea - and is keen to accelerate its expansion.

This month, as the new tea ranges were launched, Wang Jinlong, who runs Starbucks's operation in mainland China, told local media that China was "absolutely very, very important" to the company. "This has really become our second home market," he has said. But is there a price to be paid for Starbucks's expansion in China? In particular, is the decline of traditional tea houses partly being caused by the expansion of coffee house culture? While the case for a link may appear strong at first, there are several counter-arguments.

Among them are international comparisons. The growth of coffee house culture in the UK, for example, may have paralleled the decline of the traditional pub, but the closure of old-style British drinking dens has been attributed more commonly to the easy availability of alcohol in supermarkets and nightclubs rather than to the popularity of Starbucks. Similarly, in China, Ms Zhu believes Starbucks is not at fault for the withering fortunes of traditional drinking establishments such as tea houses. The two attract such different clientele that they are not competing with one another.

"The target consumers for Starbucks and the target consumers for traditional [tea houses], they're totally different," Ms Zhu says. "Those who go to Starbucks are young Chinese consumers who've been educated abroad or who work in multinational companies, or foreigners," she says. "People who go to tea bars might not show up in Starbucks. The two markets have been existing for some time." Starbucks in China tends to attract "higher end" consumers, Ms Zhu says, while tea houses have been suffering because of the loss of "middle and lower end" customers. Indeed many of these appear to have migrated to the fast food chains.

"I think the lower end has been hit pretty hard by KFC and McDonald's," she says. Also, China has several successful home-grown coffee chains that may be more obvious competitors to the traditional tea house than the likes of Starbucks and Costa Coffee, which also has stores in China. Among the most successful of the local chains is Dio Coffee, which has fuelled its growth by taking over rivals. Dio has about 800 stores in China. Such local chains have been successful in introducing dining, creating environments in which customers are encouraged to linger - just as in the traditional tea houses.

"What Dio Coffee are offering, it's kind of the combination of the traditional tea house and coffee shop," Ms Zhu says. But will the introduction of the Chinese teas in Starbucks see the US brand join the fast-food outlets and local coffee chains in encroaching on tea house territory? Ms Zhu has her doubts. "It's not easy to change their branding or their existing brand image," she says. "They've set up this brand image, they're the multinational that introduced coffee culture from the US.

"I am not sure their [customers] will buy their new China tea products. I don't see Chinese businessmen going to Starbucks to have a cup of tea. These people will go to a traditional tea house to do that." @Email:dbardsley@thenational.ae