Coffee Case

By early 2002 the company was operating 25 stores in Beijing. Although many Chinese consumers

traditionally believed coffee to be foul tasting and bitter, many were now acquiring a taste for what

they considered a luxury beverage. Heartened by the success in Beijing, Starbucks entered a joint venture

with Shanghai President Coffee, the operator of Starbucks cafés in Taiwan, to enter the Shanghai

market. Starbucks added Maxim's Caterers as a partner at the same time, entering the Hong Kong

market.

It was widely believed that sales growth in Shanghai would outstrip Beijing in the near term. In

the two years that the company operated in Shanghai, it increased the number of outlets there to 21.

The company had adopted some novel ways of breaking down consumer resistance to coffee, including

educational activities focused on potential customers. Starbucks' Shanghai partner trained a staff of 300

people who aggressively went out into the market to introduce the public to the intricacies of coffee.

The successful launch of a Starbucks café directly across from one of the oldest tea houses in the country

in Yu Gardens, (one of Shanghai's premier historical sites) was testimony to its remarkable market entry

efforts.

Although many market experts predicted that Starbucks' consumers in China would be predominantly

Western expatriates, the first two years of operations saw a consumer base of roughly 70% local

Chinese. This was somewhat surprising to some as the ambience in the Chinese cafés, the menu offerings,

and the prices were extremely similar to outlets in the United States. A cup of coffee was priced

between $2.50 and $3.50, an exorbitant amount in a country where per capita monthly income was

only $84.