Starbucks (SBUX) has major growth ambitions and those ambitions are tied directly to its expansion in China.
The coffee chain has accelerated its growth plans in China in recent years and has said that it wants 6,000 stores in the country of 1.5 billion people by 2022. The company ended the fourth quarter with 5,360 stores in the country.
And while full-year comps in China were up 17% in 2021, stores in the country limped into the end of the year with fourth-quarter comparable-store sales falling 7% due to a 5% decline in average tickets and a 2% decline in transactions.
Still, revenue in the country was up 18% year over year to $964 million in the fourth quarter as the number of stores in China rose 14% from 2020.
But to be successful in China, Starbucks needs to do more than sling coffee beans. A friendly relationship with officials in China is essential to its plans.
Starbucks has experienced anything but smooth sailing in China over the past two months.
Starbucks 'Misunderstanding' With Chinese Police
The rumors on Weibo, China's version of Twitter, over the weekend were that Starbucks employees ejected four police officers from the dining room at one of its stores in the southwestern city of Chongqing.
By Monday, the state-run daily newspaper People's Daily published a commentary asking the company to "take back your arrogance."
Starbucks has responded to the controversy, saying that the four officers came into the store at around 5 p.m. local time on Sunday and the store arranged to have them eat their meals in the outdoor seating area.
Later, when other customers wished to dine in the area, the store manager and one of the police officers got into a spat after "the police officer involved misunderstood the communication due to inappropriate words when coordinating the seats."
The company denied ejecting the officer.
This is Starbucks' second high-profile blunder that made its way to social media in recent weeks.
In December, an investigation led by a state-back newspaper revealed that two of Starbucks stores had used expired ingredients.
That viral furor also forced Starbucks to apologize and promise to carry out inspections and staff training across all of its stores in the country.
Starbucks' Competition in China
Starbucks is not only facing internal pressure in China, but the company is also seeing increased competition from upstart coffee chains.
Beijing-based business data company Qimingpian identified 14 fundraising deals in China's tea and coffee market in just the first quarter of 2021. Those deals included investments in Hey Tea and Nayuki, tea-based beverage companies that have reportedly reached valuations of about $2 billion, CNBC reported.
And, of course, embattled, scandal-ridden one-time-serious competitor Luckin Coffee continues to exist and attempt to make a comeback.
Starbucks had a market share of about 36.4% in China in 2020, according to Euromonitor. Meanwhile Luckin Coffee, it's biggest competitor with an estimated 20% market share, secured $250 million in funding from investors in April last year, as it looks to expand in nearly 4,300 store footprint in the country.
With local competitors nipping at its heels, Starbucks has little room to make mistakes in the Chinese market. But the past eight weeks have been fraught with unforced errors for the company.
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