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Starbucks goes local in Yunnan
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Sipping a cup of premium coffee in the morning is an imported habit in China, a country with a long tea-drinking tradition. But well-off urban Chinese coffee lovers will soon taste locally produced high-quality coffee at Starbucks.

The world's largest coffee-shop chain is launching its first local coffee brand in China by sourcing coffee beans from Yunnan province, the country's largest coffee producing region.

A Starbucks employee serves at a shop in Chongqing, southwestern China. [China Daily]
A Starbucks employee serves at a shop in Chongqing, southwestern China. [China Daily]

The company said it is still in discussion with the province and could not say when the brand will be available.

Starbucks has worked with Yunnan coffee farmers since 2007 to help them meet sourcing standards.

Its move to localize coffee in China may be a strategy to cope with the current global financial crisis by reducing costs.

The current import tariff on coffee beans is as high as 20 percent, making Yunnan coffee beans 30 to 50 percent less expensive than imported beans.

But the company said the Yunnan coffee is not about saving yuan.

"It obviously does not mean that we are going to replace all of our coffee beans with Yunnan coffee to reduce costs," said Li Jing, Starbucks' spokesperson in Greater China.

"We are simply adding a domestic coffee brand to our menu and we think Yunnan coffee could meet our quality standards," Li said. "It will be promoted in other international markets too."

The Seattle-based coffee giant has been hit hard by the ongoing global financial crisis as demand for its premium-priced coffee drops in the US.

The company said it will close 600 underperforming stores in the US and eliminate 12,000 full and part-time jobs to reduce costs and cope with the global economic downturn.

Starbucks also said that it expects sales at established stores to decline in 2009 and is trying to trim some US$200 million in costs.

Despite slowing its expansion in the US, the coffee giant still holds high hopes for the potential of the Chinese market and expects it to become its largest overseas market.

"So far the financial crisis hasn't affected much of our business in China and we are going to stick to our planned strategy," Li said.

Li said the company will add outlets in second and third-tier cities in 2009.

Starbucks has opened more than 300 stores in China since it entered the market in 1999.

China's coffee market is growing quickly although it is still small on a per capita basis. Coffee consumption in China increases 20 to 25 percent each year and Starbucks' sales in the country are growing even faster.

Starbucks has maintained an annual sales growth of more than 30 percent in big cities such as Beijing and Shanghai in recent years where new affluent middle-class consumers are emerging rapidly, according to Wang Jinlong, president of Starbucks Greater China.

The company currently operates more than 620 outlets in China, but the figure "should be in thousands in the near future", Wang said.

(China Daily January 5, 2009)

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