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Starbucks Challenges in China

The Chinese University of Hong Kong - Principles of Management 2013 Group 3 - Mary, Rowena, Joyce, Justin and Chloe

Mary Law

on 10 April 2013

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Transcript of Starbucks Challenges in China

Starbucks Growing Competition Difficult market penetration into remote cities of China Rising Cost Conclusion Starbucks is currently facing rising competition in the China market with new entrants of strong competitors SWOT & PEST Analysis SWOT & PEST Analysis Challenges face in China Porter's Industry Five Forces Starbucks - Challenges in China Group 3 - Mary, Rowena, Chloe, Joyce and Justin Competitor Analysis Porter's Industry Five Forces & Competitor Analysis Coffee industry competitors Multinational Companies Coffee Industry Competitors Local coffee companies Dio Coffee Non-Coffee Industry Competitors Dio Coffee Menu offers a variety of traditional Chinese cuisine Strengths of Competitors over Starbucks Suppliers Substitutes New Entrants Customers Multiple small scale suppliers - Low bargaining power - Lower cost of coffee bean 1) Easy entrance to coffee market 2) Little differentiation among coffee companies - Lowering profitability - Lower pricing power Have wide range of coffee companies to choose from. High bargaining power Lower profitability High price sensitivity Tea Most Chinese still has stronger preference of tea over coffee Lower demand for coffee Lowering profitability Strong Industry Competition High intensity of rivalry among competing firms Better Quality Lower Pricing More market knowledge Costa Coffee & Nespresso - Able to offer premium coffee - Luxurious environment Dio Coffee & McCafe - Offering lower prices Local coffee companies - Localized products - Focus on small cities - Faster market penetration The Starbucks experience of coffee drinking remains a new concept towards the conservative local community in the remote cities of China Market Expansion to Remote cities in China According to Belinda Wong, President of Starbucks (China) Target Market - Tier 2 & 3 Cities PEST Analysis Economic Social Low income - Low GDP per Capita - Huge gap between Tier 1 &2 cities - Lower educational level - Strong habit of tea-drinking - Low acceptance to coffee China: Average 3 cups of coffee/year World: Average 240 cups of coffee/year SWOT Analysis Weaknesses Threats Intellectual property problems 1) Coffee itself is a western products for the middle class

2) High prices To buy a tall Starbucks caramel macchiato (12-ounce)
People in West & Central China needs to work for
1.6 ~ 1.9 hours Shanghai Starbucks
(38 stores) Seayahi Coffee Three Challenges:
1. Growing Competition
2. Difficult market penetration into remote cities of China
3. Rising Cost Business strategies would be in combat of such challenges Starbucks' costs of expansion & operations are increasing in the China market - rental & wage cost Rising Rental Cost Starbucks operates its shops in financial areas
in order to attract middle-class workers Shanghai average rent: RMB$57.83/sq. m/day
200 sq. m store: RMB$346,980/month -> Leading to relocation of Starbucks store in Beijing and Guangzhou (2007 - 2012) Rising labour cost Increasing wage level in China Dio
Coffee Better Price
Similar quality Slightly expensive
Better quality
Full transcript