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Shaun Rein
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Shaun Rein is the Founder and Managing Director of the China Market Research Group (CMR), the world's leading strategic market intelligence firm focused on China. He works with Fortune 500 and leading Chinese companies, private equity firms, SMEs, and hedge funds. Clients include Apple, Yum!... More
My company:
China Market Research Group (CMR)
My blog:
My book:
The End of Cheap China: Economic and Cultural Trends that will Disrupt the World
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  • Why Starbucks Succeeds In China

    This column originally appeared in CNBC

    www.cnbc.com/id/46186635

    About 14 years ago, I met an entrepreneur who wanted to open up coffee shops around China. I never thought the coffee business would work in the country. The Chinese would not easily give up their tea drinking culture for a bitter, overpriced drink, I told him.

    Starbucks has proven me wrong. Howard Schultz, the CEO of Starbucks, announced that China will soon become its largest market outside the United States. It has opened over 500 outlets in the country, which are more profitable per outlet than in the US according to the chain's Chief Financial Officer Troy Alstead.

    What did Starbucks do to succeed in a market where so many other western food and beverage brands like Dunkin Donuts , Krispy Kreme and Burger King have failed to live up to expectations? What Starbucks did right in China is a great case study how food brands can succeed despite rising labor and real estate costs and increased competition on the mainland.

    Instead of trying to force onto the market the same products that worked in the U.S. like regular coffee, Starbucks developed flavors, such as green tea flavored coffee drinks, that appeal to local tastes. Rather than pushing take-out orders, which account for the majority of American sales, Starbucks adapted to local consumer wants and promoted dine-in service.

    By offering comfortable environments in a market where few restaurants had air conditioning in the late 1990s, Starbucks become a defacto meeting place for executives as well as gatherings of friends. In other words, Starbucks adapted its business model specifically for the Chinese, rather than obstinately trying to transplant everything that worked in America into China, as so many brands like Best Buy and Home Depot have done. (see my article Why Global Brands Fail in China.)

    The challenge with pushing dine-in service in large comfortable outlets rather than take out is that revenue per square meter is less than in the U.S. The average revenue per outlet in China is one-third to two-thirds that in the US, according to the CFO Alstead.

    To counteract this, Starbucks positioned itself as an aspiration buy. The average coffee sold in China is more expensive than in the U.S. Carrying a cup is now seen as a status symbol, a way to demonstrate sophistication, a little personal luxury for middle class Chinese.

    Starbuck's high pricing strategy of specialty drinks allows it to have its Chinese outlets to be more profitable per store in China despite the lower volume. Overall in Asia, its operating margins were 34.6 percent in 2011 versus 21.8 percent in the U.S. Too many brands push for market share by cutting prices but in reality they should be aiming for margins.

    Not only does Starbuck's premium pricing strategy fit market demands but it also allows it to regularly roll out higher margin specialty products like gift sets that offset rising commodity costs. As China's urbanization rate nears 52 percent, companies need to put into place strategies to handle rising commodity costs.

    Starbucks has also done an amazing job at recruiting, retaining, and training employees. 30 percent annual turnover is common in China according to data compiled by my firm. Yet, Starbucks has far lower turnover than the industry average by good compensation packages, work environments, and career paths. One barista who has been working at Starbucks for five years told me, "I feel taken care of by management. I enjoy my job and I enjoy working here so I expect to stay longer." That is a rare comment in a country where job hopping is the norm among younger workers.

    Starbucks' service is on par if not higher than many 5-star hotels. In consumer interviews with several hundred consumers in Shanghai, the majority told my firm they actually preferred the taste of products from competitors but continued to go to Starbucks because of the service.

    Far too many multinational companies treat their Chinese employees as second-class citizens with little career development. Their senior management ranks are full of foreigners, Taiwanese or Hong Kongers without any mainland Chinese representation.

    Starbucks understood that the value proposition it was offering Chinese was different than in the U.S. They were able to adapt their business model to fit China while keeping their core values.

    Truly great global brands adapt to different markets as Starbucks has done.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: SBUX, KKD, BBY, HD, china, food
    Jan 31 2:00 AM | Link | Comment!
  • Suggestions on How to Promote a Book?
    Hi all,

    Any suggestions how best market book without annoying everyone? As you might know I'm promoting my upcoming book "The End of Cheap China". www.amazon.com/End-Cheap-China-Economic-Cultural/dp/111817206X

    During this process, I've learned authors are supposed to market themselves. I did not realize the full extent of this as I always assumed the publisher would do most of the marketing. But that does not seem to be the case unless you are already a famous author and a lock to make money. From a #s sense it makes sense -- why push a specific book because it costs a lot and most books don't sell more than 500 copies?

    I have also learned that pre-orders are critical because if pre-orders are strong, then retailers will give it good shelf space, book reviewers will review it, and you have a shot at making best seller lists and then a snowball effect occurs.  

    If pre-orders are weak, then frankly no one cares about your book and you'll be out of book stores within a month or two. So far I have been lucky w pre-orders, and for the last month the book has hovered around #3 on Amazon's best seller list for new releases in international economics books, but I am trying to keep up the momentum.

    I am looking for suggestions on how to market without annoying everyone, wasting money (I have an extremely limited budget to market... think shoe string, start-up budget working out of the garage like budget). I only make about a buck a book, so I will make virtually no money from writing this.  I probably spent more money holing up in hotels while writing but am doing this for fun, for the outside shot at hitting a dream goal of mine of getting on a WSJ or NYT best seller list, and to help get exposure for my firm where I make my real living.

    Here is what I have done so far:

    1) email friends directly. I emailed 15,000 friends individually( took me over 3 1/2 weeks) , asking for help in spreading the word. Some people went above and beyond in helping me ,and I really appreciate their help. By far, this has been the most useful initiative so far, but I cannot keep going back to people to ask for help.

    2) put blurb at the bottom of all my columns in CNBC.  Hard for me to know if this works but whenever a column goes out I do see a spike in sales on Amazon.com.

    3) book reviews will be out in Feb. Am still interested in more book reviews, so if you are interested, please let me know and I will arrange.

    4) give speeches for free if organizer buys bulk orders. For instance, I usually charge $15,000-$18,000 USD for a speech but I am waiving my fees for this group i2live.blogspot.com/2011/02/webcast-shaun-rein-on-rise-of-china-and.html because they have pre-ordered a significant amount of books. I will give a webinar for free, attendees will get a free copy of my book. I just sold 1000 copies to another firm, and will give a series of interviews/ workships for them.

    Arguably the most successful IT entrepreneurs (cannot mention his name yet) kindly has offered to host a book party launch for me in Silicon Valley in May so I will do that and he will pass out copies of the book to invited guests and I will give a speech.

    If you are interested in having me give a speech in return for you buying bulk orders of the book, I am willing to do so at far better terms for you than normal as my goal is promoting the book.

    5) Lined up CNBC, radio other interviews though I am not convinced this will directly translate to sales. How often to you hear/see a book mentioned on TV/radio and then go out to buy? This is actually a significant time initiative to arrange media hits and then get to studios so I am wondering if this is useful.

    Since I am in China and there are so many media restrictsions here, I frankly barely watch TV, listen to radio so I am not sure what most people are like. 

    6) Blogger interviews. I have done some interviews with people like David Jackson, founder of Seeking Alpha, and this seems to work very well. This is part 1 of interview with David as an example seekingalpha.com/article/310964-stocks-to-own-and-stocks-to-avoid-to-profit-from-china-s-growth-an-interview-with-china-expert-shaun-rein-part-1

    I am very interested in doing more 1-1 interviews with bloggers, media folks, so if you are interested in doing one, please contact me and I would gladly chat about China in general and the book in parts.  

    So far, I have found that help from friends have been the absolute biggest help. They have pre-ordered the book far more than I expected and posting on social media sites.  I am so appreciative and inspired by the help people have given me.  I want to make sure, however, that I don't annoy everyone by posting constantly about the book, or new endorsement or new initiatives, or whatever. It is a fine line. 

    Since I live in China but the book is coming out in the US first, I am a little hampered by what I can do. The second most successful initiative has been the free speech for bulk ordering.

    Do you have suggestions on what I can do? I would appreciate you letting me know.  

    Some questions/ initiatives I am thinking about....

    1) does a book website really help? I am not an author, I am run a company, so I worry people will see me self-promoting a book and equate me with that rather than my firm. Again, writing makes virtually no money but my firm does.

    2) book signings/ free speeches/ parties seem like a lot of time and travel costs without a guaranteed return if books are not bought in bulk by organizers.

    Thanks for any help and suggestions! Shaun 


    Dec 11 5:07 PM | Link | 2 Comments
  • Legendary Investor Anthony Bolton Endorses My Book, End of Cheap China
    In a good mood ... legendary investor Anthony Bolton, en.wikipedia.org/wiki/Anthony_BoltonPresident of Fidelity, who runs the China special situations fund has endorsed my book.  "The End of Cheap China" www.amazon.com/End-Cheap-China-Economic-Cultural/dp/111817206X/ref=pd_sim_b_74
    Dec 08 4:52 PM | Link | Comment!
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