Starbucks and Illycaffé: different strategies to successfully enter the Chinese coffee market

Abstract

In the last two decades, we have been witnessing the rapid economic development of China, which is ranked today as the second power in the world. This country very quickly undertook a process that led the 2000s’ emerging country to become a very dynamic developed nation. For this reason, China can be a very attractive nation for multinational corporations or aspiring companies that want to internationalize. Anyway, despite the strong modernization which has taken place in recent years, China is still strongly influenced by the footprint of its cultural heritage: the modernity-tradition dualism defines the unicity of this country and thus requires foreign companies to deeply understand the national history and society if they really want to enter successfully the Chinese environment. I have decided to analyze this phenomenon by taking into consideration the coffee market: as an Italian student, coffee has always been an everyday commodity in my life, furthermore, Italy boasts a very strong tie with coffee. For this reason, it could be interesting to analyze how this typically Western product entered the Chinese consumers’ minds: since China is a tea-nation par excellent, how did companies succeeded in spreading this new bitter drink? And in addition to that, what is the extent to which today’s population accepts this beverage? In order to get a wider comprehension of this huge industry, I have decided to analyze the experience of two foreign coffee brands that successfully entered the Chinese market, that are Starbucks and Illycaffé. Starbucks is a Seattle-based multinational chain of coffee houses that enjoys a global reputation and a worldwide presence. The company opened its first store in Beijing in 1999, and, already in that time, it had access to a large financial availability: for the company getting the trust of local consumers and companies was quite easy also at the very beginning thanks to its already well-known reputation. Now Starbucks is the most profitable chain of coffee houses in China. The vision and mission of the company are focused on the customer journey, and all its choices had mostly the aim to provide a premium experience that makes the consumer feel unique and special. Starbucks has positioned itself as a luxury and aspirational brand, which leverages the desire of some Chinese citizens to adopt a Western lifestyle which is considered a high-quality reference. The company has of course worked a lot in creating high-quality products directly suitable for the Chinese tastes, but it has been mainly committed to value the company-consumer relationships and engage consumers through its high-quality services. The second case deals with the entry strategy of Illycaffé, an Italy-based multinational company boasting a presence of 15 years in China. In 2019 it was ranked as the second most profitable coffee brand in China, immediately after the industry leader Nestlé. The two cases’ stories may look very similar, but actually, they are two very different realities: Illycaffé has a history that dates back to 1933 when it was founded, and the company is very expertise in coffee production and brewing. Besides the global brand, Illycaffè is a family business that has Italian tradition and coffee quality close to its heart. Furthermore, the company is very committed to spreading coffee knowledge around the world and enforce consumer engagement with the core product, which is coffee. Not by chance, the first move of Illycaffé into China was the inauguration of the University of Coffee of Trieste in Shanghai in 2006. The aim of this thesis is to collect evidence on how these two companies wrote down the entry mode strategy and which are the successful choices that drove the two brands to enjoy today’s popularity in China. It may be a good guide for every coffee brand that wants to gain a position in the modern Chinese coffee market.