A sip of Starbucks takes foam out of the price furor

Foreign chains have boomed in China because they provide good coffee and a relaxed experience

Confession: I'm one of those Chinese consumers who have allegedly driven up Starbucks prices because I enjoy lingering in one of its stores.

Usually, on weekend afternoons when I have some time to unwind, I'll order a caffe latte and a chocolate brownie in the nearest Starbucks outlet, which is a 30-minute drive from my house in eastern Beijing. Then I'll check the news and exchange messages with friends on my smartphone or try to read a magazine. Or I'll just stretch my legs and watch people if I can get a window table.

I've always known that Starbucks isn't cheap, which partly explains why I stay as long as I want to during every visit to its outlets. So the findings of a recent investigation by the national television broadcaster - that my latte in Beijing costs more than in London, Chicago or Mumbai - have just corroborated my suspicion.

But I was taken aback when some people said that a shot of espresso should cost less than half the existing price, probably 10 yuan ($1.63, 1.22 euros) in China, and that Starbucks coffee costs so much mainly because of people's blind faith in foreign brands.

So are we Starbucks fans really so dumb that we pay premium prices just for the foreign name? Perhaps we may have become less price-sensitive because we've learned from our experience that it is not worth our time to search for better deals in a local store.

I've observed the birth and decline of two local cafes, one near my home and the other near my workplace. A Beijing bakery chain opened an outlet in my street to loud firecracker explosions two years ago. It never saw enough customers, although it was the only cafe in the neighborhood. I had coffee at slightly lower prices than Starbucks in the now-defunct cafe several times but stopped visiting it after I saw a bored waitress scolding customers for parking their cars in spaces reserved for the management.

The cafe near my workplace charges prices similar to those of Starbucks, and it also has difficulty in retaining customers. It is run by a young couple who keep dogs and cats that mingle with customers and sleep in cages in a front corner of the cafe. Many local cafes are invested in and run by budding entrepreneurs who pursue a leisurely working style that sometimes gets in the way of improving the quality of service.

China's coffee consumption market is reportedly expanding at an annual rate of 10 to 15 percent. Cafes are now ubiquitous in major cities thanks to the coffee culture spreading in the country. According to data provided by a foreign consultancy firm, the number of cafes doubled from 15,898 in 2007 to 31,783 in 2012, outpacing the growth of teahouses in this tea-drinking nation.

But most Chinese coffee shops are running at a loss or just breaking even because of management and service problems. In comparison, foreign coffee chains have boomed because they not only sell fine roasted coffee, but also provide a chic and relaxed experience. Starbucks' concept of a third place between work and home has expanded in China with larger stores to accommodate local consumer habits.

The accusations of profiteering based on the cost breakdown of coffee appear more ill-founded if we believe that some people are attracted more to the company's image and experience than to the coffee itself.

During the debate, many have urged the media and experts to learn basic economics in product pricing. Perhaps a more important takeaway is that they should make more efforts to help local brands to catch up.

The author is editor-at-large of China Daily. Contact the writer at dr.baiping@chinadaily.com.cn.

(China Daily Africa Weekly 11/08/2013 page13)