MCLC: Starbucks criticized for high prices

[Denton, Kirk]

MCLC LIST
From: Li, Minggang <mli5 at albany.edu>
Subject: Starbucks criticized for high prices
***********************************************************

Source: WSJ (10/21/13):
http://online.wsj.com/news/articles/SB1000142405270230390240457914887147121
2170

Starbucks Is Criticized by Chinese State Media for Higher Prices
ByLaurie Burkitt

BEIJING—China's government-controlled television broadcaster criticized
Starbucks Corp. for its prices in China, the latest attack by state media
on a foreign company.

China Central Television, in a 20-minute broadcast called "Starbucks:
Expensive in China," said the company charges as much as 50% more for some
of its products in China than in the U.S., the U.K. and India. The report
said the company's profit margin in China was excessive, as high as 32% in
China and the Pacific region, compared with 21.1% in the U.S. and 1.9% in
Europe, the Middle East and Africa.

Starbucks said the figures didn't accurately represent the company's
Chinese operations because they included financial results from other
Asian-Pacific countries in addition to China. The Seattle-based company
doesn't break out its financial information by country. The company
"understands the concerns raised by recent Chinese media," Starbucks said.

Starbucks said its prices vary by market because of different costs, such
as for labor, commodities, real estate and infrastructure investment.

In addition to citing domestic media and China-based experts, CCTV
referred to a Wall Street Journal blog post
<http://blogs.wsj.com/chinarealtime/2013/09/04/chart-the-price-of-a-grande-
latte-in-china/> in September that referred to consumer complaints about
Starbucks's prices in China. The item attributed the higher cost of a
Starbucks coffee in China to such factors as labor and ingredients. The
post also noted that Chinese consumers' preferences for larger stores
raised the company's real-estate costs.

Pricing has been a sensitive topic in China. Rapid economic growth over
the last decade has fueled inflation that has led to protests and social
instability. Regulators in recent months have cracked down on what they
see as unfair pricing in industries such as dairy, pharmaceuticals and
automobiles. Many foreign infant-formula makers lowered their prices in
China after the government in July began an investigation of their
competitive practices.

Consumer pushback on higher prices in China is growing. With the growing
number of people traveling, many people are delaying purchases until they
make trips abroad, where products can be had for less, experts say.

CCTV frequently criticizes the practices of foreign companies operating in
China. In March the broadcaster accused Apple Inc. of skirting warranty
periods and adopting customer-service policies for Chinese customers that
differ from the company's practices in other countries. Apple Chief
Executive Tim Cook apologized, and the company said it would amend its
warranty and customer-feedback practices.

The broadcaster also accused Volkswagen AG of selling cars in China with
substandard transmissions, causing acceleration problems and car
accidents. Volkswagen said it would "spare no effort to make improvement."

The CCTV broadcast on Starbucks was criticized by domestic media and
Chinese citizens, with some saying the report didn't account for the
reasons that Starbucks charges more in China.

A user on Chinese microblogging site Sina Weibo said Chinese consumers
"buy the world's most expensive houses, drive the world's most expensive
cars, fill up with gasoline with the fastest-increasing prices, eat the
world's most unsafe food, enjoy the largest number of illness-related
bankruptcies caused by the medical system, use expensive, slow and
disgusting Internet connections…and you ignore all this to tell me not to
drink the world's most expensive cup of coffee that I won't drink even
five times a year."

—Yang Jie contributed to this article.

Write to Laurie Burkitt at laurie.burkitt at wsj.com