SHANGHAI – This isn’t the kind of buzz Starbucks is looking for as it pushes into overseas markets.
China’s powerful state-run TV broadcaster slammed the Seattle-based coffee chain in a report that aired on Sunday, accusing it of price gouging consumers in that country.
The attack by China Central Television, which claimed Starbucks charges higher prices in China than in the US and other markets, comes amid a pricing crackdown by regulators.
The report by CCTV said a medium-size latte at the US coffee house in Beijing costs 27 yuan ($4.43), or one-third more than at a Chicago store in the US.
“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.
Starbucks’ pricing strategy in China, which the company estimates will be its second-biggest market after the US 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 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.
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.”