Starbucks Slammed By Chinese State Media For Higher Prices

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The world's largest coffee chain, Starbucks Corp, has come under fire from China’s official state broadcaster, China Central Television (CCTV), for charging locals up to 50 percent more for some of its products compared to what it charged in other markets such as the U.S. or India.

In a 20-minute broadcast called “Starbucks: Expensive in China,” CCTV accused the coffee giant of taking advantage of locals’ “blind faith”, questioning why a medium-size latte at a Beijing outlet would cost 27 yuan ($4.43), versus just $3.26 at a Starbucks in Chicago or $2.39 in Mumbai.

The reports also noted that a Starbucks coffee mug – which is made in China – sold for between $10-$14 in the U.S., compared to as much as $18 in China.

"Starbucks has been able to enjoy high prices in China, mainly because of the blind faith of local consumers in Starbucks and other Western brands," Wang Zhendong, director of the Coffee Association of Shanghai, told CCTV.

“What in Western countries is an average cup of coffee has in China become a coffee ‘luxury product,’” CCTV added.

Citing Starbuck’s financial results for the fiscal quarter ending June 30, CCTV also found that the coffee giant had far higher margins in the Asia Pacific region. Starbucks recorded a 36 percent operating margin in Asia for the quarter, compared with 22 percent in the Americas and 3 per cent in Europe, the Middle East and Africa.

Related: Infographic: When Did Coffee Become a Billion Dollar Business?

Related: Infographic: Why Are Foreign Brands So Costly in China?

In a statement to the Wall Street Journal, Starbucks however said that the figures did not accurately represent the company’s Chinese operations as they included financial results from other Asian-Pacific countries in addition to China.

The company "understands the concerns raised by recent Chinese media," Starbucks said. But, "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.”

"It is true that a Starbucks latte is more expensive in China than in the United States," John Culver, president of Starbucks' China and Asia Pacific region, told Reuters. But higher food costs, coupled with significant investments for items such as training employees and securing ample and safe locally sourced ingredients means that "our bottom line operating margin is not any higher than what it is in the United States," Culver said.

Interestingly, many Chinese on social media supported Starbucks rather than the state broadcaster. Most complained that CCTV should be reporting more on issues affecting their daily lives, including the high costs of necessities like housing, healthcare, gasoline, and telecommunications.

CCTV ought to focus on the actual problems of the people,” wrote one Weibo user. “If all of these problems didn’t exist, then CCTV could chat about Apple and Starbucks in the meantime!”

"Why doesn't CCTV question whether it's reasonable to delay when average people can begin to collect retirement benefits?" added Li Jinping, a verified Weibo user who claims to be an assistant professor at the People's Public Security University of China. "Why doesn't it report on whether it's illegal to force the demolition of people's homes everywhere and take their land? "

Related: Chinese Consumers Willing To Pay More For “Made in USA” Goods: BCG Study

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James Roy, a senior analyst with the Shanghai-based China Market Research Group, told AFP that the price difference in China was understandable, given the different market positioning of Starbucks in the Chinese market.

"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."