China: CCTV attack on Starbucks pricing backfiresBy Michele Penna Oct 25, 2013 3:56PM UTC
In China, Starbucks is finding itself in a spot of hot water. On Monday, national broadcaster CCTV aired a program in which it claimed that Starbucks’ medium-size latte (27 Yuan, or $4.43) is sold in Beijing for about one third more than in Chicago, implying that the company is treating its Chinese customers unfairly. As usual, China is the essential, fast growing market of the future – which means Starbucks cannot happily ignore the issue.
The company has defended itself saying food and logistical costs are higher in China than in other parts of the world. John Culver, president of Starbucks’ China and Asia Pacific region, admitted to Reuters that latte is in fact more expensive in China than in the United States, but he argued that their pricing is in line with competitors. He has a point: coffee in China is annoyingly pricy, usually between 20 to 30 Yuan for a cup. In Beijing city centre you can get a meal for less than half of that.
Why is coffee so pricy? Part of the reason may be in the higher costs of imported goods. But Wang Zhendong, director of the Coffee Association of Shanghai, pointed out another reason to CCTV during the program: “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.”
It is no mystery that China has become something of a golden boy for many foreign producers. Chinese customers often choose foreign brands out of faith in superior quality – even when not necessarily justified. In the countryside close to Nanjing, I once saw a construction site stretching for hundreds of meters. A high fence surrounded it, partially hiding a maze of cranes. On the outside, blue and white posters indicated that what was being built inside were “luxury French apartments”. From what one could see from afar, the French style must have been limited to the interiors, because the tall buildings seemed scarcely different from many others. Likely, to the constructor this does not matter much: the foreign touch confers to the apartments a different feeling – and possibly a higher price.
The concept of “face” plays a large role in the phenomenon. If foreign brands are better, that means that those who buy them are more international. The best example of this phenomenon, perhaps, are cars. In Beijing they are large, imposing and often stuck in narrow alleys: strolling in a hutong – one of those peaceful, old Beijing streets – chances are you will be confronted by a SUV, a large Volkswagen, a giant Mitsubishi with its headlamps on. And in those cases, as you stare at the tense driver struggling for every inch of space between a tree and a parked bike, you cannot help but wonder “why on earth has this guy bought a car like that to roam a street like this?” The larger the car, the more powerful must the owner be. Then, there’s China’s Tibetan Mastiff craze.
To many, coffee is cheaper surrogate of a large car. Most people drink it rarely, with friends, often with boyfriends and girlfriends. Many do not like it, but they are still willing to spend an unworthy price for a steaming cup: because coffee – especially if produced by famous foreign stores – is new, modern, globalized. It is what city people drink. In an interesting way, they are the mirror of those who, in the west, buy a statue of Buddha not because they are religious or because they actually appreciate the style, but just because it is exotic.
In other cases, Chinese customers have serious reasons to look to foreign products, especially when it comes to food. In 2008 it emerged that some local companies were selling tainted milk, sending thousands straight into medical care: foreign companies are still benefitting from that indirect advertisement. More recently, a scandal involved local shops accused of selling lamb kebabs prepared with rat meat.
Given such a background, it was not hard to predict that the CCTV program would receive more criticism than praise. Most comments on Weibo make a simple point: we do not care about Starbucks, if you do not want to pay the price, feel free to go somewhere else. Worse: some commentators seem to think that CCTV is willingly accusing Starbucks in order to distract people from real issues. A user nicknamed Gongzikuang states: “Why don’t you talk about the expensive housing and food safety, you are useless.” Another points out that in China basic services and commodities are all more expensive than in other places and wonders why doesn’t CCTV talk about that. The feeling is perfectly summarized by yet another user: “That’s crazy, you can choose not to drink Starbucks, but can you choose not to breathe? Not to drink? Not to buy a house?”