Starbucks under media fire in China for high prices

Mon Oct 21, 2013 8:23am EDT
 
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By Adam Jourdan

SHANGHAI (Reuters) - Starbucks Corp (SBUX.O: Quote) has been charging customers in China higher prices than other markets, helping the company realize thick profit margins, a report by the official China Central Television (CCTV) said.

The world's largest coffee chain is the latest foreign company to come under fire from official Chinese media, which has targeted other prominent foreign names like Apple Inc (AAPL.O: Quote), and comes amid a pricing crackdown by regulators.

The report by CCTV aired on Sunday and said a medium-size latte at the U.S. coffee house in Beijing costs 27 yuan ($4.43), or one-third more than at a Chicago store in the United States.

"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. The report echoed a separate critique by the official China Daily newspaper published last week.

Starbucks' pricing strategy in China, which the company estimates will be its second-biggest market after the United States by 2014, is tied to local business costs such as labor and commodity costs, infrastructure investment, currency and real estate, the company said in a statement emailed to Reuters.

"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.

Imported products often cost more in China because of high import duties and tax rates. Roasted coffee beans, for example, draw an import duty of 15 percent and a sales tax of an additional 17 percent, according to DutyCalculator.com.

China has been cracking down on pricing in markets ranging from milk powder to drugs, with the high premiums enjoyed by imported goods attracting much of the ire from local watchdog groups and media.   Continued...

 
A man carries a Starbucks logo sign after a corporate event at a hotel in Shanghai April 19, 2012. REUTERS/Carlos Barria