Starbucks under media fire in China for high prices

Mon Oct 21, 2013 7:33pm EDT
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By Adam Jourdan

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

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

CCTV, in a report that aired on Sunday, 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 Starbucks in Chicago.

"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 critique by the official China Daily newspaper published last week.

Starbucks said its prices reflect higher costs in China, for expenses ranging from coffee and milk to rent and supply chain operations.

"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.

He said Starbucks' pricing in China is competitive and that margins from its roughly 1,000 China cafes are not greater than margins on U.S. sales.

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.   Continued...

The Starbucks logo hangs on a window inside a newly designed Starbucks coffee shop in Fountain Valley, California August 22, 2013. REUTERS/Mike Blake