A wooden sign in the lobby of Starbucks' China headquarters
lists the provinces where the company operates and the number of
cafes in each locale. But the coffee chain is growing so fast that
it's become impossible to maintain the tally.
"We can't update that board!" said Starbucks China Chief
Marketing Officer Marie Han Silloway,
bursting into laughter. "Forget it!"
Ms. Silloway, a vivacious Chinese-American raised in New York,
came to China a decade ago to lead Coca-Cola Co.'s Sprite in its
second-largest market. She joined Starbucks a year ago, eager to
return to her marketing roots after five years at
executive-recruiting firm Korn Ferry International.
Starbucks China Chief Marketing Officer Marie Han Silloway
But unlike Sprite, which was already a giant in China when Ms.
Silloway joined it, Starbucks is just now gaining its momentum. The
Seattle-based company has been in China for 13 years, with an
initial presence largely in major international hubs such as
Beijing, Shanghai and Guangzhou. There's huge potential for growth
as it expands into lesser-developed cities with newly robust
discretionary spending. But it also faces uniquely Chinese
challenges when it comes to customs and taste. Ms. Silloway's
marketing strategy focuses as much on educating the world's oldest
and largest tea-drinking culture as it does traditional branding
Starbucks expects China to become its second-largest market by
2014. The company has more than 600 stores in the country and aims
to reach 1,500 by 2015. It's a growth strategy that involves
opening roughly one store every day for three years.
"We've been very blessed. Starbucks has very high brand
awareness to a lot of people in China, so when we go to a new city
or existing city, a lot of customers know about the brand already,"
said Belinda Wong, president of Starbucks China.
Starbucks' greatest asset is that its target consumer in China
sees it as an aspirational global brand offering an international
'You've arrived as a town when'
"The way you know when you've arrived as a town or city is when
Starbucks arrives. It used to be McDonald's, and before that it was
KFC," said Paul French, chief China-market strategist at
market-research firm Mintel. "Now Starbucks is the place where you
go if you have cash and want to flash it. The new middle class can
sit there and look out the window and drink their Frappuccino and
say, "We've made it.'"
Ms. Silloway, who works with the China offices of BBDO, JWT and
Agenda on advertising and Edelman for PR, looks after the food and
beverage categories and new-product innovations as well as
marketing and branding. "It's a broad remit but it makes a lot of
sense because it allows us to have a complete picture of how the
brand shows up in total. We're always working in lockstep with
operations," she said.
That integration was on display on a sunny late-summer day in
the dusty city of Nanchang, as Starbucks opened its first location
in the traditionally agricultural province of Jiangxi and in its
49th city in China. Five hundred miles inland from Shanghai,
Nanchang is among hundreds of second-tier cities across China with
major untapped purchasing power. Retailers such as Uniqlo and
H&M recently opened outlets here. Starbucks is in a downtown
shopping mall, between an Omega watch store and a KFC.
The grand opening kicked off with coffee education for local
media. An ultra-perky barista named September told the packed room
that "latte" means milk in Italian, so a latte is a coffee with
milk. "American-style coffee is black coffee," she explained, "so
if you order one in the morning you'll be awake and alert all
By early afternoon the cafe was buzzing and packed with
customers. Some ordered with ease; others asked for suggestions.
Vanilla latte is a common recommendation, described by baristas as
"not too sweet."
One young man with a peach-fuzz mustache wearing a Bob Dylan
T-shirt ordered a coffee -- at room temperature. (It's common in
China to serve water, soda, beer and other beverages at room
temperature.) The barista paused, then suggested an iced coffee
with no ice. The Dylan fan seemed happy with that .
In China, Starbucks is a place to sit back and relax.
High-school student Yang Yang, 16, waiting for her vanilla
latte, came to Starbucks with a girlfriend. "I don't actually like
coffee, but my friend invited me. It's a good place to chat with
friends," she said.
At one table, water-utility employee Wan, 26, surfed social
media on his smartphone while killing time until an appointment.
His $5.20 vanilla latte was a bit pricey, "but it's OK because I
can sit here for a while," he said. And if Starbucks weren't here?
"Then I'd be sitting at KFC next door."
The customers inside Starbucks are already converts. One
challenge for Starbucks is to persuade those outside the store to
come in and try its -- by Nanchang standards -- exotic and
expensive offerings. One passer-by spotted the Starbucks sign and
asked: "What is this place? A Western restaurant?" and walked
Or take the government minder who was tailing this Ad Age
reporter in Nanchang. Fu Xiaobin frequently talks business in
teahouses where private rooms cost upwards of $200. This was his
first Starbucks experience and his opinions reflect how difficult
it can be to grow the target demographic beyond young
Who drinks coffee?
"I think coffee is more of a woman's drink, don't you?" Mr. Fu
asked. "If you were doing business with a woman then maybe you
could bring her to a coffeehouse. But if you were doing business
with a man ... you go to a restaurant and talk business over a meal
or you go to karaoke and make deals while you sing together. The
idea of men talking business in a place like Starbucks ... I think
that 's just ridiculous."
Local food reporter Fan Yuan, who was broadcasting live from the
store, pointed out another major challenge for Starbucks in China:
its takeout business is minuscule. The vast majority of people go
for the experience of hanging out at Starbucks.
"There's definitely some people in Nanchang who have a habit of
drinking coffee every day, but they're really a minority," she
said. "People want to sit here and relax. There will probably be
some takeout orders, but really, it doesn't work in this
Mr. French, the analyst, joked that Starbucks would make more
money if it gave away free coffee and charged customers by the hour
to sit in its stores.
Starbucks also has room to grow its food selections. Although
the company has created products tailored to Asian preferences,
such as its black sesame green-tea cake roll, local competitors are
more creative, offering hot meals such as curry and pasta. Others
sell dessert plates with six mini egg tarts or other sweets,
designed for the group dynamic.
"That's perfect for Chinese because they like to put a plate in
the middle to share. Westerners just want a big fat muffin each,"
Mr. French said.
Starbucks' image as a trendy and modern brand helps mask the
bigger question: whether Chinese will ever actually like coffee,
something often described as "too bitter" to enjoy. Starbucks'
R&D center in Shanghai has responded to that concern by
developing popular fruity drinks such as Strawberry Soy Frappuccino
and the Refresha line of juice beverages.
Jiang Shan, 28, is an aspiring restaurateur who spends eight
hours a day, every day, at the Nanchang Starbucks. He is actually a
coffee connoisseur from working in Western restaurants in bigger
"I look around," he said, cradling a venti Americano, "and
everyone in here is having some sort of icy concoction. I think I'm
the only person with an actual coffee."
HOW TO RUN A COFFEE SHOP
Consumer insights for Starbucks in
Starbucks is a place to socialize, and most Chinese visit in
pairs or groups. Seating is configured to reflect that , with large
community tables or living room-style setups of couches and
armchairs clustered around a coffee table.
In the U.S., many Starbucks are kiosks targeting the
grab-and-go segment. But in China, stores must be spacious enough
to accommodate consumers who linger for hours.
In China, Starbucks does the majority of its business after 2
p.m. "People like to come out for an afternoon coffee, a cake, meet
up with a friend," Ms. Silloway said. "Walk into any Starbucks at 4
p.m. ... it will be very hard to find a place to sit."
Many Chinese offices are drab and crowded, making Starbucks a
popular place for business meetings. A Starbucks meeting has the
added bonus of making the host seem international and
Consumer education is essential. Starbucks' target consumers
are urbanites interested in international experiences, and they're
curious enough about coffee to spend $5 on a drink when an average
office worker's salary is about $1,000 a month. Baristas are
trained to teach consumers about the products, and stores regularly
host coffee seminars.