What's going on?
On Tuesday, Starbucks opened a massive 30,000-square-foot “Reserve Roastery” coffee store in Shanghai – twice the size of its Seattle hometown flagship! It’s a sign of how rising wages in China are attracting Western retailers to market more and more of their goods there.
What does this mean?
Not content with selling coffee on ski slopes and cruise ships, in recent years Starbucks has been busy expanding in the world’s second-largest economy. The company has 3,000 locations in China already, and ambitious expansion plans mean it’s opening a new one there every 15 hours (tweet this). Today, China is Starbucks’ second-largest and fastest-growing market, and its CEO has even said that he expects the Chinese business to be bigger than the US one day!
Why should I care?
For markets: Decades of industrial-driven growth are massively shifting wealth distribution in China.
By one measurement, around 40% of the Chinese population is currently classified as low-income. By 2030, that figure is expected to drop to 11%, and around 75% of the population will be considered middle-income. International companies with the most to gain are consumer-focused retail brands, ranging from electronics to apparel, who can sell more “middle-class” products (like cappuccinos) to the Chinese citizens that have newfound yuan burning a hole in their pockets.
The bigger picture: Western retailers are looking to China as their home turf comes under threat.
As independent coffee stores gain ground in the US and Europe and food retail struggles more generally, Starbucks has been closing some of its weaker US operations in malls. China, however, has helped keep Starbucks’ investors enthused, with sales growth more than four times greater than the rest of the world. Other western brands, including luxury firms such as Burberry and LVMH, are already highly dependent on China for their sales.