First Starbucks Opens In Taiyuan
ChinaFotoPress via Getty Images
By Adam Jourdan

SHANGHAI -- Starbucks 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 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 such as Apple (AAPL) and comes amid a pricing crackdown by regulators.

The report by CCTV aired 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' (SBUX) 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.

Apple has also come under fire in China for high prices, while the U.S. firm was stung in a media expose last year which said it treated Chinese consumers differently to those from other regions.

Coffee Culture

Retail sales of coffee in China grew more than 90 percent between 2007 and 2012, hitting 7 billion yuan ($1.15 billion) last year, according to data from Euromonitor.

The rise of China's cafe culture helped the China-Asia Pacific region top the sales growth table for Starbucks in 2012, and has prompted the company to consider opening 600 new outlets in the region this year, targeting 1,500 stores in China alone by 2015.

Starbucks had a profit margin of 32 percent in China-Asia Pacific in its second quarter, compared to 21 percent in the Americas and 2 percent in Europe, Middle East and Africa, said the CCTV report.

Analysts said while Chinese consumers were becoming increasingly price aware, the latest reports were unlikely to dull demand for high street coffee in China anytime soon.

"Consumers are increasingly aware of these prices differences ... it's become a very hot [topic] and is really common knowledge at this point," said James Button, Shanghai-based senior manager at SmithStreetSolutions. "But branded coffee is something people are treating as a luxury and they are willing to pay for that luxury experience."

China's influential netizens seemed to support Starbucks.

"Those who are saying Starbucks is expensive are probably those who don't drink much coffee," said user Wang Shuo on China's Twitter-like microblog Sina Weibo. "The prices are competitive and the quality makes people feel safe."

-Additional reporting by Shanghai newsroom.

Increase your money and finance knowledge from home

Investor’s Toolbox

Improve your investing savvy with the right financial toolset.

View Course »

Introduction to Value Investing

Are you the next Warren Buffett?

View Course »

Add a Comment

*0 / 3000 Character Maximum

8 Comments

Filter by:
Ken Kennemur

Stop buying from them their over priced and is owned by a libtard who wants to take you guns away . making them a non American company. Know who you do business with do not fund libtards.

October 21 2013 at 6:07 PM Report abuse rate up rate down Reply
Richie Evans

They are way too expensive here as well, I love their canned drinks and bottled drinks but the prices are obscene.

October 21 2013 at 4:40 PM Report abuse rate up rate down Reply
thomashollman19

The swill they try and pass off as coffee is the poorest excuse for coffee i've ever encountered weak and overpriced

October 21 2013 at 8:52 AM Report abuse +2 rate up rate down Reply
djohn96185

Prices are higher in China than here in the US because all the good middle class jobs have left here and gone to China. No one here has a job where they can earn money for pleasures like Starbucks

October 21 2013 at 8:51 AM Report abuse +1 rate up rate down Reply
smiles41

Another patriotic enterprise under attack from the left.... Starbucks in China charging more is simple. They are lowering the US debt to China ONE CUP AT A TIME....

October 21 2013 at 8:31 AM Report abuse +1 rate up rate down Reply
willypfistergash

When I saw state run media in the title, I thought they were talking about America.

October 21 2013 at 8:24 AM Report abuse +2 rate up rate down Reply
Robert E. Green

Chinese miss OLD capitalist trick. Starbucks charege so much because you Chinese will pay it. Standard American cure for greedy capitalists - don't buy their coffee!!

October 21 2013 at 8:18 AM Report abuse +1 rate up rate down Reply
Bruce

So, let me get this right, Chinese are paying $4.43 for a latte. I've stood behind some folks in Mid-state Indiana, watched them order their "Foo-Foo" Carmel latte, and watched the register ring up over $5.00 for their drink. Sounds like "Cheap Chinese" sour coffee beans to me. I don't drink the sugary sweet stuff, just a good old cup of Pike, Sumatra or Anniversary does me just fine @ about $2.

October 21 2013 at 7:33 AM Report abuse rate up rate down Reply