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Originally published June 4, 2014 at 7:03 PM | Page modified June 5, 2014 at 6:44 PM

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In courting China’s employees, Starbucks leans on the family

Starbucks’ top brass held a pep rally for staffers in Southern China that honored the prominent role played by the family in Chinese culture. The coffee giant is adapting to customs in what will soon be its second-largest market after the U.S.


Seattle Times business reporter

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In China, Starbucks’ most promising overseas market, the coffee giant is redefining what it means to be family-friendly.

This week CEO Howard Schultz and other top executives pitched the potential of a Starbucks career to a crowd of 1,200 in the southern Chinese city of Guangzhou — in an event that included not only staffers, but children, parents and even grandparents.

In China, families play a tremendous role in life and career choices. If Starbucks is to successfully broaden its reach there, it needs to bring them on board.

“It’s important that we include those family members in the conversation of who we are as a company,” John Culver, head of Starbucks’ China and Asia Pacific operations, said in a telephone interview.

Culver noted that a majority of its so-called “partners” are college graduates — and therefore have many career opportunities.

“You should see the pride our partners have when they brought their family into the hall of our grand journey,” said Belinda Wong, Starbucks China president, referring to an exhibit that highlighted the milestones of the company’s presence in China.

The Partner Family Forum held Tuesday is the Seattle company’s third such event since 2012.

Previous ones were in Beijing and Shanghai; the latest incarnation 1,300 miles to the south in Guangzhou underscores Starbucks’ territorial ambitions to be everywhere in that country.

It also shows how a company with its own strong flavor of corporate culture is tweaking it to fit China’s worklife customs, which incorporate the family.

New Year’s parties in China, for instance, can be tightly organized performances where the CEO acts as a master of ceremonies and families are key, said Xiao-Ping Chen, head of the department of management and organization at the University of Washington’s Foster School of Business.

The fact that a big chunk of Starbucks’ top brass was there also marks China’s growing prominence in the future growth of Starbucks.

Starbucks has been in mainland China since 1999, but recently its expansion has reached a rapid clip. Store count has expanded fourfold in as many years.

Now, in nearly 1,200 stores in some 70 Chinese cities, the company has more than 20,000 employees, about a tenth of Starbucks’ global workforce.

China will overtake Canada as Starbucks’ second-largest international market this year, Culver said, and the company aims to have 1,500 stores there by 2015.

“We have a long runway for growth here,” he said.

With the prospect of 300 to 400 new stores a year and eventually operating thousands of stores, China “does give them a long-term unit growth story,” said Jefferies analyst Andy Barish.

China is also one of the company’s most profitable markets. The company’s China and Asia Pacific segment in fiscal 2013 posted operating margins of about 35 percent, versus 5.5 percent for Europe, the Middle East and Africa, and 21.5 percent for the Americas.

Sales in existing stores in the China and Asia Pacific region grew 7 percent in the quarter ended in March, versus the same period a year ago, and China grew “even faster than the region overall,” Chief Operating Officer Troy Alstead said in an earnings call last April.

China is also one of the countries where Starbucks deploys its loyalty- and gift- card programs, a key strategy to add new customers and keep old ones returning.

Gift cards were introduced in January, in time for the Lunar New Year. The rewards program, launched two years ago, has more than 4 million participating customers, representing 40 percent of the company’s business in China.

To be sure, there are challenges, cultural and political, in operating in the world’s second-largest economy. China remains in the grip of the Chinese Communist Party, which often uses its power over state media to bully foreign companies.

Starbucks had a taste of that dynamic last October when state-controlled China Central Television ran a piece lambasting the company for the high price of its coffee and its soaring profit margins in Asia compared with other regions.

Culver said Starbucks works in a way that is “very transparent and honest” with customers and other key stakeholders, and that has helped it grow in China.

In the end, foreign companies in China have to roll with the government’s punches, said David Reid, a Seattle University professor of global business strategy. “That’s part of the nature of the game,” he said.

Other challenges include adapting to local tastes and customs. While in the U.S. many costumers order coffee and goodies to go, customers in China tend to linger; therefore, stores are larger, analysts say.

Unlike in the U.S., where Starbucks cafes are busiest in the morning, most of the business in Chinese stores occurs in the afternoon and the evening, Culver said.

Starbucks has invested in localizing its management team, the executive added. It has done the same thing with store design; while a few years ago the look of new China stores was conceived in Seattle, now it’s drawn up in a studio in Shanghai, Culver said.

For those who adapt, the rewards are rich. Chains like Pizza Hut and KFC, owned by Kentucky-based Yum Brands, are extremely profitable in China, says Jefferies’ Barish.

Starbucks faces increasing competition in China from domestic and other foreign coffee chains. U.K. -based Costa Coffee, owned by Whitbread, has made China the focus of its global expansion. It said in April it had 326 stores there and plans to open 400 more by 2018.

Securing top management talent is another challenge. Lots of foreign companies seeking a piece of the Chinese pie are expanding aggressively — making personnel scarce and driving up salaries, said the UW’s Chen.

That makes morale boosters like Starbucks’ Partner Family Forum important, even though Starbucks’ global recognition brings it a lot of prestige with potential recruits, Chen said.

Another lure: Starbucks’ ambitions in China may help bring employees closer to their families.

Traditionally, young graduates flock to places in coastal China such as Guangzhou to “pursue their dreams,” said Starbucks’ Wong. As the coffee company opens thousands of stores throughout the country, it’ll provide a good way for Starbucks employees to “return to their hometown” and apply what they have learned, she said.

Starbucks China’s embrace of workers’ families is being replicated in the U.S. on a smaller scale. Starbucks announced late Wednesday plans for three similar meetings this month, including one June 20 in Seattle. The others will be in New York and Washington D.C.

Ángel González: 206-464-2250 or agonzalez@seattletimes.com. On Twitter: @gonzalezseattle



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