Caixin
May 16, 2018 06:04 PM
BUSINESS & TECH

Starbucks Vows to Step Up Expansion After Strong-Arm Allegations

A Starbucks coffeeshop is seen in Xiamen, Fujian province, on April 19. Photo: VCG
A Starbucks coffeeshop is seen in Xiamen, Fujian province, on April 19. Photo: VCG

* Starbucks says it will quicken pace of store openings in China from 580 to 600 a year

* Announcement follows accusations that it has signed exclusivity agreements with property managers to keep out competitors

Starbucks Corp. vowed on Wednesday to accelerate its expansion in China, a day after a rapidly growing Chinese coffee startup charged it with acting like a monopoly.

At its first investor conference in China on Wednesday, the U.S.-based brew behemoth announced that it will open 600 new stores in China a year until the end of the 2022 fiscal year, up from its current pace of 580 new openings a year.

Starbucks made the announcement the same day that emerging coffee-on-demand chain Luckin Coffee sued it for what it called monopolistic practices. Luckin, which started selling coffee in January, currently operates out of nearly 500 locations.

In an open letter on Tuesday, Luckin accused Starbucks of signing exclusivity agreements with some property management companies to prevent other coffeehouses from moving into nearby locations. It also claimed that some coffeehouse vendors had told it that Starbucks has threatened to pull its business if they were to supply Luckin.

Luckin declined to provide any evidence for its accusations or give the names of any vendors or property management companies involved.

In an email response, Starbucks told Caixin that it didn’t want to “engage in other brands’ marketing hype,” and that it welcomed “orderly competition.”

Zhu Danpeng, a food-and-beverage industry analyst with the China Brand Research Institute, said that Luckin’s accusations looks like a marketing ploy to build its brand on the back of the Starbucks name, but such tactics might end up damaging its own brand.

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A Luckin coffeeshop is seen in Beijing’s Sanlitun area on Wednesday. Photo: Wu Gang / Caixin

Luckin is a new-concept coffeehouse that offers online ordering and delivery. The company has engaged in an enormous marketing push by offering a free cup of coffee to new customers. It has also hired actor Chang Chen and actress Tang Wei to do endorsements.

It’s not the first time Starbucks has been accused of similar strong-arm retail tactics. According to a 2012 Bloomberg Businessweek report, an executive from coffeehouse chain Pacific Coffee Co. accused Starbucks of making exclusive deals before 2007 with property managers in second- and third-tier cities.

According to Luckin’s open letter, Starbucks’ exclusivity agreements don’t allow certain property managers to rent retail space to any competing cafe chains, including Costa Coffee, Pacific Coffee and Maan Coffee. None of the companies had returned Caixin’s requests for comment as of publication time on Wednesday.

According to China’s anti-monopoly law, “monopolistic practices” include abusing one’s market dominant position, which requires at least a 50% share of the “relevant market.”

Citing data from Euromonitor, Li Zhongsheng, a partner at the law firm King & Wood Mallesons, which represents Luckin, said that Starbucks meets the criteria for having a market dominant position because it held 58.6% of the country’s cafe market and 80.7% of its coffee chain market in 2017.

However, lawyer Zhu Bao from the Beijing-based law firm Dentons said that the law itself doesn’t stipulate how to measure a company’s market share in terms of sales, store numbers or visits. The law also doesn’t specify what “the relevant market” means.

Contact reporter Coco Feng (renkefeng@caixin.com)

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