Top Banner

Hospitality, Lifestyle, Trends
October 24, 2012 | 3 Comments

Starbucks China: Wake up and smell the pastry

Starbucks breakfast. App and running.

Starbucks breakfast. App and running.

China is the world’s largest grocery market and one of the top three markets for fast food. Over the past two decades, Western staples like ice cream, coffee, and hamburgers became integral parts of China’s urban diet. One slice of the local market has so far been impervious to foreign charms – the Chinese breakfast. Some pundits explain this by referring to culture and the sticky appeal of rice porridge. But a recent experiment by Starbucks might prove that China’s breakfast is there for the taking. 

Foreign brands have been doing well in China’s food and beverages market, peddling anything from ice cream and baby food to liquor and fried chicken. McDonalds has about 1,400 stores in the Middle Kingdom and KFC recently opened its 4,000th outlet and now holds about 40% of the local fast food market. But foreign brands are still struggling in specific segments. According to a recent article in the Economist, breakfast sales account for only 10% of McDonalds slaes in China, compared to 25% in the US . KFC is suffering from the same problem. In the same article, Paul French of Mintel China suggests that Chinese consumers are too settled in their ways and prefer local “zhou” (rice porridge) and “youtiao” (deep-fried dough) to McDonalds and KFC’s sandwiches, sausages, and ham. It is time, says French, for foreign operators to “zhou” with the flow and add local dishes to their breakfast menu.

Will China ever eat the West’s breakfast? We’re not sure. A new initiative from Starbucks suggests an alternative scenario. The group is not exactly a fast food Chain, but it has more than 700 stores in more than 50 Chinese cities, and it is opening new ones faster than McDonalds. The American giant sells coffee to China’s tea-loving masses by packaging its wares as a lifestyle choice and a symbol of status and sophistication. Starbucks is now planning to use its dominance in coffee to capture a piece of the breakfast market (here, in Chinese). Earlier this month, the company started to offer breakfast in its stores across the Middle Kingdom. The offering includes croissants, Pain-au-Chocolat, sausage and cheese piadini, and muffins with cheddar, turkey and/or ham.

The Starbucks breakfast is available between 7am-10am and costs between RMB 15-30 – double or more its fast food alternatives. But the group leaves an opening for price-conscious consumers: Users of Starbucks’ “Good Morning Smartphone App“ receive a 50% discount on all breakfast items. The app includes an alarm clock and counter; once a user wakes up, he or she has 60 minutes to reach a Starbucks branch and order breakfast. If they are late – no discount. The app allows Starbucks to sell breakfast at nominal prices that are in line with the brand’s original positioning while also competing on actual price with fast food chains like McDonalds, 85 Degrees, and East Dawning. The latter, by the way, is owned by Yum (KFC), which shows that western fast food chains have been paying attention to local tastes. 85 Degrees (85度C) is a “local” (Taiwanese) chain but its breakfast offering actually includes western or westernized dishes like cheese sandwiches, hot dogs, and baguettes, served with coffee or tea.

It remains to be seen whether Starbucks will manage to break into the local breakfast market. In theory, using a western lifestyle brand to promote western eating habits does seem like a fine idea. As for KFC and McDonalds, the evidence suggests that their relative lack of success in this segment has less to do with local tradition and more to do with the fact that they compete on price (as opposed to image or quality) with millions of street stalls and dozens of medium-sized chains. When it comes to fast food, foreign brands are already eating China’s lunch. With smarter marketing and positioning, breakfast can be theirs too.

Tags: , , , , ,

  1. Hi Dror,
    Greetings.
    It’s a very good article as the other articles, just one small mistake: 85 Degrees (86度C).
    I agree with all what you said and what I want to add is that the food safety issue now is very very important in imported food market. Both customers and government are focusing on this.
    Also wondering if we can exchange some links. My article about imported food market in China.
    http://marketingtochina.com/china-imported-food-product-market/
    Sincerely,
    Philip

  2. Hi Dror,
    Another correction. Paul French is Mintel’s Chief China Strategist, be great if you could title him as such.