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Starbucks Acquires Control of China Joint Venture, Setting Stage for Expansion | ASHARQ AL-AWSAT English Archive 2005 -2017
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BEIJING (AFP) -US coffee giant Starbucks Corp has taken control of a Chinese joint venture partner in a move to facilitate expansion in one of the world’s fastest growing markets, the company has said.

The Seattle-based coffee chain acquired a 90-percent stake of Beijing Mei Da, which operates 60 Starbucks outlets under license in north China, as part of its plans to win yet more Chinese for the black bean, it said Wednesday.

“The coffee culture that we have created in China has caught on bigger than coffee itself,” Jinlong Wang, president of Starbucks Greater China, told AFP.

“There is huge potential in China, especially among China’s expanding middle class.”

China’s 660 urban centers, where up to 540 million people live, are the growth engine for the nation, yet Starbucks was only in 19 of those cities, operating a total of 190 stores, Wang said.

“So we will continue to accelerate growth in the cities where we are and when we are ready we will go to other places,” he said.

Intending to invest in infrastructure and train more staff, Starbucks was now poised to expand in China two years ahead of the 2008 Beijing Olympics, he added.

“This is the first step in their strategy,” said Ma Ruiguang, general manager of the Shenzhen-based Yima international consulting group.

“Next they will move from China’s top urban areas and expand into the second- and third-tier cities.”

Starbucks obtained its controlling stake in Beijing Mei Da via the acquisition of High Grown Investment Group (Hong Kong), Wang said. He declined to provide further financial details of the deal.

Starbucks bought High Grown Investment from H and Q Asia Pacific, a private equity firm that helped Starbucks open its first store in China in 1999.

“We believe China will eventually be the largest international market for Starbucks going forward,” the China Daily quoted Martin Coles, president of Starbucks Coffee International, as saying.

NASDAQ-listed Starbucks is planning to open 20,000 stores around the world in the coming years, with half expected to be in the Asia-Pacific region, Coles said.

“In China, the number will be in the thousands,” he added without revealing specific plans.

The Beijing Mei Da move was the second purchase by Starbucks to increase its stake in a China joint venture.

In 2003, Starbucks reportedly paid 21.3 million dollars to increase its holding from five percent to 50 percent in Shanghai Uni-President Starbucks Coffee Ltd, a joint venture with the Taiwan-based Uni-President Group.

Starbucks has more than 12,000 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim, the company said.

“In China, coffee drinkers are largely made up of the young, they are white collar workers or returned foreign students and college students,” said Zhong Lirong, vice head of the Beijing-based China Coffee Association.

“By creating a place to drink coffee outside of the home and office, Starbucks has not only brought coffee to China, but also the coffee culture.”

While coffee sales in China grew by 30 percent annually over the past several years, there still remains huge potential, Zhong said.

Unlike other global restaurant chains like McDonalds and Yum! Brands, which came into China with huge investment and strict control over their stores, Starbucks took the route of smaller investment, according to analysts.

It preferred initially to set up joint ventures to run the stores, said Ma of the Shenzhen consulting group.

“Starbucks found they had problems controlling their brand and that many of the Starbucks stores were not being run in accordance with their model,” Ma said. “So Starbucks had to strengthen this area and consolidate the stores.”