This post is by SmartBlog on Restaurants and Restaurant SmartBrief contributor Janet Forgrieve.
Starbucks announced ambitious plans last week to break into the coffee-growing business, signing a deal with the government in China’s Yunnan province to create a coffee-bean farm and work to recruit and train local growers in the rural area, helping the coffee giant secure a reliable source of quality beans at a time when competition is growing and supplies are less stable.
China’s growing middle class has discovered a love of coffee and, as more of them make the switch from tea, Starbucks is reaping the rewards, The Wall Street Journal reports. The company, whose brand was well known in the country even before the first of its 400 shops in China opened, now owns abut 70% of the market and expects China to soon jump past Canada, Japan and the U.K. to become its second-largest market.
Assuring a stable supply of quality beans now makes sense, for several reasons. First, competition for coffee customers by rival chains including McDonald’s is growing fiercer and, despite Starbucks’ significant lead, the majority of Chinese consumers haven’t formed strong brand loyalties yet. Second, growing international demand for quality coffees has resulted in overplanting in coffee producing companies, resulting in lower-quality crops.
Starbucks is far from the only U.S. restaurant chain making deeper inroads into China as more among the country’s 1.3 billion people become more prosperous. Almost all sizable quickserve chains and several casual restaurant companies see international expansion as the best way to offset slower growth in the mature North American market.
Much of that growth comes at potentially higher costs, though, as commodity prices continue to escalate. The price of sugar alone has doubled in China this year, and coffee prices aren’t that far behind. Government officials have announced steps in recent days to curb commodity costs, including boosting agricultural production and cutting power and transportation costs for commodity growers, but no country has control over factors such as natural disasters, including recent floods and cold snaps that have hurt production.
Starbucks won’t reap the rewards of its first planting in China until about 2013, and its first harvests will travel stateside for processing, but the plan calls for the eventual construction of a China processing plant, indicating that much of the coffee grown in China may one day travel no further than the cups of local customers.