Why Starbucks Succeeds in China and Others Haven't

Why Starbucks succeeds in China and others haven't

By Shaun Rein, CNBC.com Contributor

Updated 2/10/2012 3:03 PM

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About 14 years ago, I met an entrepreneur who wanted to open up coffee shops around China. I never thought the coffee business would work there. The Chinese would not easily give up their tea-drinking culture for a bitter, overpriced drink, I told him.

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By Greg Baker, AP

A worker cleans the sign outside one of the many Starbucks outlets in Beijing.

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By Greg Baker, AP

A worker cleans the sign outside one of the many Starbucks outlets in Beijing.

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Starbucks has proven me wrong. Howard Schultz, the CEO of Starbucks (SBUX), announced that China will soon become its largest market outside the United States. It has opened over 500 outlets in the country, which are more profitable per outlet than in the U.S. even though sales per outlet lags its U.S. counterparts considerably, according to the chain's chief financial officer, Troy Alstead.

What did Starbucks do to succeed in a market where so many other Western food and beverage brands such asDunkin Donuts, Krispy Kreme, and Burger King have failed to live up to their own expectations? What Starbucks did right in China is a textbook case study in how food brands can succeed despite rising labor and real estate costs and increased competition on the Mainland.

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Instead of trying to force onto the market the same products that work in the U.S., such as whip cream-covered frozen coffee concoctions, Starbucks developed flavors, such as green tea-flavored coffee drinks, that appeal to local tastes. Rather than pushing take-out orders, which account for the majority of American sales, Starbucks adapted to local consumer wants and...