The price of Starbucks

by Chris Bertram on February 21, 2008

Martin O’Neill has “an interesting review”: of a new book about Starbucks.

bq. In the centre of Xi’an, the ancient Chinese capital, there is a gleaming concrete and glass Starbucks. Although a caramel macchiato costs more than a slap-up lunch for four in any of the city’s traditional cafes, this has not stopped it from doing brisk business.

Read the whole thing, as they say.

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Stephen Laniel’s Unspecified Bunker » Coffee and market risk
02.21.08 at 7:56 pm



robert the red 02.21.08 at 3:00 pm

In Xi’An, I went into the Starbucks, but decided I didn’t want to spend more for coffee there than I do in the USA. So I went to the McDonalds nearby, and had coffee for about a dollar.

Needed that caffeine for the jetlag pick-me-up.


SG 02.21.08 at 3:10 pm

xi’an apparently has a good coffee culture, so I went looking for it. Couldn’t find it, had starbucks instead. I was disappointed, the hints of turkish sweets in the street gave me hope that I could get a decent coffee.

The gay bar I went to was pretty entertaining though.


Great Zamfir 02.21.08 at 3:11 pm

I noticed the same. Everywhere you go in China, McDonalds and Pizza Hut are very busy. And easily several times more expensive than a ‘decent’ restaurant, not to mention the still very good cheap restaurants.

The people in there are mostly rich&hip teenagers, grown-ups appear to realize the stupidity of eating there. But Starbucks seems to attract even rich adults, and asks even more ridiculous prices.


Matt 02.21.08 at 3:36 pm

According to a documentery I once watched the majority of the Tiananmen Square protests were planned in a Kentucky Fried Chicken (the largest in the world at the time, I think) just off of the square, so I guess these places are not _all_ bad.


Ginger Yellow 02.21.08 at 3:47 pm

There’s also a Starbucks right on the edge of the inner sanctum of the Forbidden City, where only 100 years ago, only the Emperor and his closest household members were allowed. It rather neatly encapsulates China’s rapid and remarkable politico-economic transition.


Idaho Nick 02.21.08 at 5:25 pm

When MacDonald’s came to Serbia, it was overpriced and became the destination restaurant for the younger richer crowd, teens but also the tres cool and the gun-toting mafiosi wannabes.


John Emerson 02.21.08 at 5:25 pm

I think that the Xi’an leadin is weak. For one thing, Xi’an hasn’t been the Chinese capital for a thousand years. Like many, many Chinese cities, Xi’an is old and has a history. But it’s basically just another Chinese city. (China has about ten major ex-capitals, not counting the nomad capitals on the steppe.)

Second, the Far East has had a strong coffee culture for at least a couple decades. In Taiwan in 1983 I regularly went to a coffee shop better than any I’ve ever seen in the US. (Choice of 17 beans ground right in front of you and brewed one cup at a time). But it was tremendously expensive even by Maerican standards. You were paying for an elite experience in a place where coffee was not a staple, but a luxury.

So the story is “American franchising in China” not “Chinese are drinking coffee! Expensive coffee! In the ancient capital city.”


mds 02.21.08 at 5:34 pm

According to a documentery I once watched the majority of the Tiananmen Square protests were planned in a Kentucky Fried Chicken (the largest in the world at the time, I think)

I prefer Neal Stephenson’s “House of the Venerable and Inscrutable Colonel.” “Venerable” because of the respect due him for his obvious advanced years, and “Inscrutable” because he kept the secret of the Eleven Herbs and Spices.


robert the red 02.21.08 at 8:29 pm

There’s also a Starbucks right on the edge of the inner sanctum of the Forbidden City …

I was there last year and was told the same thing. I don’t think it is a Starbucks any more (if it ever was). The price was so high that it was empty, despite this inner garden being thronged with Westerners. About 25 meters away I could buy a Diet Coke (1/2 liter size) for about a dollar.


robert the red 02.21.08 at 9:10 pm

Oh, and here is a picture of the McDonalds in Xi’An.

And here is the inner sanctum of the Forbidden City (alas, the coffee place isn’t visible).


Matt 02.21.08 at 9:36 pm

Interesting that in the linked article (and maybe the cover of the book- I can’t tell) there is a starbucks in Russia. Starbucks has only recently managed to open there and I’m slighly skeptical that it will do very well. The premium for “foreign” brands has gone down greatly there and there are both several good local chains in Moscow and Petersburg and some good independent stores. All of these serve coffee that’s as good, better, more interesting, and more locally attuned foods and drinks, and some are cheaper. I’d suspect that if Starbucks is going to be popular in Russia it will primarily be with ex-pats and tourists and secondarily in cities beyond Petersburg and Moscow that do not have an already established coffee culture. (Since most of those cities are much poorer the market will be smaller, of course.)


John Quiggin 02.21.08 at 10:18 pm

Starbucks has failed in Australia, while downmarket chains like Gloria Jean’s, locating in food courts, have done quite well. As Matt suggests, unless you’re offering something totally new (not the case for espresso in Australia) it’s hard to combine “mass market chain” with “hip, elite image”. Starbucks’ problems in the US may reflect this kind of contradiction, emerging with a lag due to the absence of any pre-existing competition in most parts of the US.


John Quiggin 02.21.08 at 10:25 pm

Reading the review, with its repeated references to “overpriced coffee drinks”, and the suggestion that Starbucks simply took the good old American 25 cent cuppa and marked the price up, I get the impression that Martin O’Neill has never seen an espresso machine.


david 02.21.08 at 11:29 pm

In my one visit to a third-world country (Bolivia), I was stunned by how much the well-off were willing to spend for anything American. A burger, fries and a coke at Burger King cost somewhere around 25 bolivianos, where a boliviano had roughly the same local buying power that an American dollar does here. Electronics were also insanely expensive, and were priced in American dollars–I think as some kind of status thing.


Martin O'Neill 02.21.08 at 11:56 pm

John Quiggin — your impression is very much mistaken. Of course, it’s not as if the espresso, as such, is the product on which the success of Starbucks has been built. Rather, they have created a market for drinks that involve a double espresso lost somewhere in a vat of warm (and often flavoured) milk, thereby giving us such “coffee drinks” (hence my use of the term) as the mocha, vanilla latte, etc., etc.

Even what passes for a ‘cappuccino’ in places like Starbucks is fairly unrecognizable when compared with, for example, what Howard Schultz would have been served on his visit to Milan in 1983. (Not least because it’s about four times the size, and correspondingly diluted.)

Moreover, I don’t suggest that Starbucks is selling the *very same thing* as the old 25 cent cup of diner coffee. All I said was that Starbucks is selling a cheap commodity at a massive mark-up. And I assume that you don’t mean to disagree with that claim.


Martin O'Neill 02.22.08 at 12:03 am

Furthermore, Dr Quiggin, I’m not too sure where you find “repeated” references to “overpriced coffee drinks” in my review. The phrase appears precisely once.

Seems like you could perhaps do with a cup of coffee yourself. :)


Crystal 02.22.08 at 12:25 am

Starbucks, in the US, seems to have rushed into a market dominated by Folger’s and Sanka. As I remember it, unless you were lucky enough to live in or near a large city or college town, much of your coffee came from a can or jar. Fresh-ground and brewed coffee was a luxury. Starbucks made it not so much a luxury – you can go to any airport and get coffee, or a froofy coffee drink, and you used to take your chances in that regard. Starbucks is by no means the best coffee in the world but it’s a damn sight better than that abomination known as “freeze-dried coffee crystals.”


Naadir Jeewa 02.22.08 at 12:29 am

The Starbucks in the Forbidden City did exist when I was there in 2004, but wasn’t quite in the inner sanctum. Our guide told us that most people wanted it closed down, and probably has been with the renovations. The Macdonalds and Starbucks in Xi’an are obviously new.

Also saw 50-person long queues of teenagers in Chengdu.


John Quiggin 02.22.08 at 12:49 am

Martin, I concede that I misread you, but I think the point at #17 is relevant. Starbucks was successful in the US primarily because it was offering something actually new to (the great bulk of) the US market, even if radically vulgarised to meet mass market tastes.

The advantages of the first move have been parlayed into an “upscale” image and a corresponding capacity to inflate margins that is only now being eroded in the US, and remains strong in countries where a US brand image is a big asset.

BTW, although they don’t exactly advertise it (in fact I think they used to keep it secret) Starbucks will sell you an adequate double espresso at a reasonably competitive price, and will sometimes even give it to you in an actual cup.


K H 02.22.08 at 12:55 am

It’s not about paying for things “western” or American. You can also get overpriced tea in China. Some of the same places that serve coffee have figured out ways to charge the same redonkulous prices (or even more) for green tea, mainly by using large quantities of high-grade tea in the glass.

The comparison between luxury goods and a square meal is also misleading. Compared to wealthier countries, food in poorer countries is usually very inexpensive relative to luxury goods, such as a premium setting, exotic ingredients (e.g. coffee), or an exclusive brand (of any sort).


blah 02.22.08 at 1:54 am

There is also a humble little Starbucks right next door to the St. Paul’s Cathedral.

I think what many people miss about Starbucks is that it is also selling convenience: you can run in an get a huge cup of coffee to go in a few minutes. You can also get that at a McDonalds, but Starbucks are actually easier to find than McDonalds.


cw 02.22.08 at 2:35 am

The most interesting part of this story is Howard Schultz. I worked briefly at Starbucks headquaters in the 90’s and can tell you that from my experience Howard Shultz is a total dick. Plus he screwed up the sonics and then sold them to the Okies. That his company is so successful tests my faith in a just and loving god. The success of Howard Schultz, cancer in children, the firebombing of tokyo: big faith testers.


SG 02.22.08 at 3:36 am

I’m surprised that with so many regular travellers posting here, more commenters haven’t bothered to point out the obvious, that in many countries Starbucks is the only place one can easily find a decent espresso. In London in 1994, I would have hacked my way through 15 dodgy geezers with a comb to get to a decent coffee, but sadly there was no Starbucks at that time. I know Australians who have become converts to Starbucks after a month in London.

Far Eastern coffee culture there may be, but at least here in Japan the “coffee culture” is overpriced and overrated. The standard “Japanese” coffee is a “Blend coffee” for 500 yen; starbucks double espresso (or the vastly superior local chain Tullys) is 350. And much better, and espresso. At least in the Japanese starbucks the service is at typical high Japanese standards, so you don’t lose out on much. And they’re open before 11am!

I think the starbucks/non-starbucks debate is like the PC vs. Apple debate, only important. And the answer is obvious: when the local coffee is shit, starbucks are a saviour.


Scott Hughes 02.22.08 at 4:18 am

At least when Starbucks owns the world we will have good coffee.


nick s 02.22.08 at 5:52 am

I know Australians who have become converts to Starbucks after a month in London.

Except that Antipodeans now open coffee shops in London.


Otto Pohl 02.22.08 at 7:33 am

We have no Starbucks in Bishkek, but there are a few places that have decent coffee.


john b 02.22.08 at 11:15 am

There’s also a Starbucks right on the edge of the inner sanctum of the Forbidden City, where only 100 years ago, only the Emperor and his closest household members were allowed.

…and I didn’t even realise Starbucks /existed/ 100 years ago, never mind that it used to have such a restrictive admissions policy.

In London in 1994, I would have hacked my way through 15 dodgy geezers with a comb to get to a decent coffee, but sadly there was no Starbucks at that time.

Err, did you not spot the hundreds of cafés run by slightly disshevelled Italians and Turks? Even in the days before a Starbucks, Nero or Costa on every corner, London was not a bad place to get an espresso…


Praisegod Barebones 02.22.08 at 12:13 pm

John B

If that had anything to do with the Turks then, as a resident of Ankara, I’m astonished.

Traditional Turkish coffee is nothing like an espresso, and nowadays Nescafe seems to be the national drink.


Alex 02.22.08 at 12:30 pm

Come on, Starbucks in China (!!) is just a thinly reworked version of “Woo! KFC in the Forbidden City!” stories from 1994.


Martin O'Neill 02.22.08 at 1:13 pm

Thanks, John. I don’t think we disagree, not least on the point that you *can* get a decent espresso (without flavoured milk) at Starbucks.


Martin O'Neill 02.22.08 at 1:14 pm

cw: that was certainly more or less the impression I had of Howard Schultz from reading about him. Any good stories about how his character manifested itself?


Great Zamfir 02.22.08 at 1:17 pm

Alex, the amazing thing is not that there are Starbucks’s in China. What is strange is that they sell their products at similar or even higher prices than in the West, and still do good business. At Chinese labor costs, Starbucks must be able to offer their products at a fraction of their western prices, but apparently they don’t have to. Going to a Starbucks is pretty much a show of wealth on the order of driving a Mercedes.


Tom T. 02.22.08 at 2:03 pm

Isn’t this an old story? Levi’s created “vulgarized” but serviceable clothing, which took on a cachet such that many people in foreign countries bought them, probably in some instances even at higher prices than local garb. Disney and Jerry Bruckheimer packaged “vulgarized” entertainment that has found success in world markets.

And just as Starbuck’s coffee is not what one might find in Milan, American (and Japanese) pizza is not what one would find in Naples, and American bagels are not what one would have found on the Lower East Side in 1920. It suits us.


stet 02.22.08 at 3:15 pm

@5, @10, @11

There was indeed a small and iconoclastic Starbucks inside the Imperial Palace in Beijing, but was closed last year because of it was undermining solemnity:


mds 02.22.08 at 3:40 pm

but was closed last year because of it was undermining solemnity

That’s a weird coincidence; I once got thrown out of a Starbucks for the same reason.


John Emerson 02.22.08 at 5:22 pm

SG: In 1983 there were many coffeehouses in Taipei serving coffee much better than Starbucks’. For a variety of reasons I had assumed that these coffeehouses were Japanese in inspiration, but based on what you say, maybe not.

My brother runs a non-Starbucks coffeehouse now (Bipartisan Cafe, 79th and SE Stark, Portland, OR, USA, a Stumptown affiliate, be sure to go there!) but spent ten years at Starbucks. He believes that Starbucks coffee is superior to a lot of the independent-coffeehouse coffee because a lot of the independents aren’t really coffee buffs and put out an inconsistent product. (But Stumptown is best of all.)

Starbucks management is superefficient in ways that are both good and bad. Management training sessions are cultish and creepy, and Starbucks basically has an “up or out” philosophy for managers, but they treat the low-level employees better than almost anyone does. It’s been a long time since their money was made mostly on coffee and pastries; I think that most of their profit comes from coffeemakers and other merchandise.


Katherine 02.22.08 at 7:07 pm

In London in 1994, I would have hacked my way through 15 dodgy geezers with a comb to get to a decent coffee, but sadly there was no Starbucks at that time. I know Australians who have become converts to Starbucks after a month in London.

In a similar vein to John B, I suggest you weren’t looking closely enough. Apart from Costa and Caffe Nero, there have always been numerous coffee/lunchtime sandwich places doing decent coffee (I’m told – not a coffee drinker myself).

But here’s something no one has touched on yet – the tea in Starbucks is disgusting . I have to deal with it weekly on Tuesdays because their comfty sofas and friendly mother-and-baby-group atmosphere. For gawdsake though, I wish they’d just buy some bog standard tea bags instead of pushing that Tazo crap.


cure 02.22.08 at 7:07 pm

There’s an academic article from the mid-1990s on McDonalds in China, the title of which I’ve long forgotten. In any case, while McDonalds popularity there is partly driven by it being a bit of a status symbol (you still see dates in there from time to time), I think its more that McD has a much higher standard of food safety than local restaurants (and they play this up incessantly), and it offers a style of food that’s otherwise unknown in China. Imagine if the only Asian food in the US was Panda Express – we’d still go there, much to the surprise of Asian visitors, right?

To be honest, though, KFC has always been much, much more popular in China than McDonalds. A taste for fried chicken is universal.

(I’ll also note that McD is China isn’t expensive by Western standards – it was $2.50 US for a value meal last time I was there. The portions are also a bit smaller than in the US, the workers almost all have some college and get paid twice what a local restaurant worker would make, and the menu is filled with non-American items like the “triangle wrap”.)


Andrew Brown 02.23.08 at 9:04 am

Starbucks has had the effect of improving the competition. You can get better coffee more easily elsewhere because it exists. But at least here in North Essex, their expresso is undrinkable: thin and sour; and I have rather grown out of milk shake. The best chain in Britain in Cafe Ner[od] but there is plenty of good Italian made coffee available in London, even in the tourist parts. There is for instance a very good Italian expresso/sandwich bar right behind Tower records off Picadilly Circus.


abb1 02.23.08 at 3:02 pm

I don’t understand why wouldn’t every friggin pizzeria in the US (and every friggin restaurant in Beijing, for that matter) buy a friggin coffee machine for $500 and make some friggin coffee. It’s so easy. I see absolutely no need for special companies specializing in coffee retailing. Though I like their tchai.


dan k 02.25.08 at 12:45 am

Martin: can you please explain how coffee growers “diversify” into producing cocaine?

Coca (but not cocaine) has been grown and used in the Andes for a looooooong time. Hard to see too many coffee growers getting into the cocaine production side of things and a pretty insensitive juxtaposition…

[/posted from Starbucks in Lima, Peru. Definitely an aspirational brand here. Definitely a better cup of coffee than nescafe (Crystal’s point). Starbucks in Peru also has free wireless — a distinct improvement on the American version.]


Martin O'Neill 02.25.08 at 4:40 pm

Dan: I fail to see the source of your confusion. Coca leaves are, of course, a traditional crop in the Andes, but they’re also used to make cocaine.

As the possibility of making a good living from growing coffee beans recedes, many farmers have increased their production of coca leaves instead. These leaves are then used to make cocaine.

Of course, the farmers don’t themselves produce the end-product (no more than they produce your Starbucks venti mocha), but they do produce the raw material from which the end product is made.


dan k 02.25.08 at 11:59 pm

Not confused, just wondering why we can’t have a bit more culturally sensitivy when spreading negative stereotypes about farmers in the developing world (99.9% of whom will never be involved in the production of illicit materials).


Martin O'Neill 02.26.08 at 10:20 pm

Dan: it’s not spreading any kind of stereotype, negative or otherwise, and nor is it ‘culturally insensitive’, to suggest that impoverished coffee growers will seek other sources of income when they cannot make a viable living from growing coffee.

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