Starbucks Crop has reportedly been charging customers in China higher prices than other markets, in order to help the company see thick profits margins, a report by the China Central Television said.
CCTV reported that the world's largest coffee chain is under fire for hacking up their prices. In the report that aired Sunday, the media outlet said a medium-size latte at a U.S. coffee house in Beijing cost 27 yuan, approximately $4.43. This is reportedly one-third more than at a Chicago store in the United States.
"Starbucks has been able to enjoy high prices in China, mainly because of the blind faith of local consumers in Starbucks and other Western brands," Wang Zhendong, director of the Coffee Association of Shanghai, told CCTV.
Starbucks' pricing strategy in China is said to be tied to local business costs such as labor and commodity costs, infrastructure investment, currency and real estate, the company said in a statement emailed to Reuters.
"Each Starbucks market is unique and has different operating costs, so it would be inaccurate to draw conclusions about one market based on the prices in a different market," the company said.
According to DutyCalculator.com, imported products often cost more in China because of high import duties and tax rates. China is scheduled to become the company's second-biggest market after the U.S. by 2014
Retail sales of coffee in China grew more than 90 percent between 2007 and 2012, hitting 7 billion yuan ($1.15 billion) last year, according to data from Euromonitor.Starbucks had a profit margin of 32 percent in China-Asia Pacific in its second quarter, compared to 21 percent in the Americas and 2 percent in Europe, Middle East and Africa, reported the CCTV report.
"Consumers are increasingly aware of these prices differences...it's become a very hot (topic) and is really common knowledge at this point," said James Button, Shanghai-based senior manager at SmithStreetSolutions. "But branded coffee is something people are treating as a luxury and they are willing to pay for that luxury experience."
The coffee chain is the latest foreign company to come under fire from official Chinese media, which has targeted other prominent foreign names like Apple, and comes amid a pricing crackdown by regulators.
Apple was in the spotlight in China for high prices, while the U.S. firm was stung in a media expose last year which said it treated Chinese consumers differently to those from other regions.
