Starbucks is bringing the game to an unprecedent level in China.  Aggressive store openings, a new wave of store-renovations and the openng of some super stores will further distance itself from its competitors.

       China is a special market, which fostered Starbucks exceptional success in comparision with the other markets hindered by stronger local competition or state barrier. Despite of recent complains about China’s government’s new critical attitude toward foreign company, foreign companies are de facto protected by China’s strict bureaucratic policies, which set high entry barriers and limit the growth of the domestic competitors.

       In the past decade, Starbucks may single-handedly invent China's coffee house market. In the past 5 years, there are two fundamental changes in client structure and shopping habit acute in Starbucks types of coffee house business:

(1)    Regional market for coffee house business become mature. Vast majority of Starbucks/Costa concentrates on several office buildings districts/upper end shopping areas in the major metropolitans.

(2)    Changing of the shopping habit: Chinese used to seat in Starbucks for 2-3 hours, but not anymore. Take-away becomes common akin to Americans. Thus, it is a new dynamic clientele who come for coffee instead just for life style.

Higher rental price and increasing labor costs do not deter Starbucks from adding bigger stores and spend millions to renovate stores, which means high profit margin is there. Nevertheless, it also exposes the market irregularities. Although Starbucks is only about average coffee price in China, it still charges 4.5$ for a 16oz Americano, too expensive by any standards. When the coffee business gradually changes from life style into coffee, the high price is unsustainable, and Starbucks simply invites the competition to itself.

    Because of the shortcomings mentioned above, the domestic entrepreneurial challengers are unlikely put a competition with Starbucks. Thus, it is more likely to be another international company which can take advantage in China’s market irregularity and focus on the market fundamentals to challenge the current establishment. Until then, Starbucks will continue to enjoy its ride in China.