China to become No. 2 market for Starbucks

Bruce Horovitz | USA TODAY

Americans who like to joke about having a Starbucks on every street corner soon may have an unlikely partner in on the joke: the Chinese.

Early next year, China will replace Canada as the global coffee giant's second-largest market, where Starbucks plans to open its 1,000th store sometime before the end of 2013. As it expands in China – where Starbucks announced the opening of two iconic, flagship stores on Monday – Starbucks is experimenting both with the interior and exterior designs of its new stores in a bid to appeal to Chinese customers.

And yes, there's even a new, 24-hour location in Beijing.

"China is our 'second home' market outside of the U.S.," says John Culver, Starbucks Group President of China and Asia Pacific, in a phone interview.

Never mind that China is a tea-centric culture.

For Starbucks, it's all about tapping into growth markets with room to run. The chain, which has more than 12,000 U.S. locations, now views China as its biggest growth market, which can help it taper the pace of domestic growth. By the end of this year, Starbucks will have 4,000 locations across China and Asia Pacific, says Culver.

The two new flagship stores in Beijing are not just aimed at luring-in the curious, but at keeping them coming back.

One, located at one of Beijing's busiest intersections, is a 4,000 square-foot, two-story affair, with a giant, Starbucks siren icon on the exterior of the building that illuminates at night and can be seen from blocks away. The store takes great pains to celebrate the coffee culture through its design and to offer hand-crafted tastings to customers.

The other store, located in a younger, hipper area of Beijing, features ceiling-to-floor glass windows. It is open 24 hours and targets Millennials with a special club on the second floor that features live music on weekends.

Unlike U.S. locations, which do about 70% of their business before 10 a.m., the stores in China do just the opposite -- with more than 70% of their business in the afternoon and evening, says Culver.

"It's a lifestyle to the Chinese," says Culver. "It's much more of a gathering place for social occasions."

The two flagship stores represent Starbucks putting a stake in the ground, says Jack Russo, an analyst at Edward Jones. With these two stores, he says, "they are trying to prove to the consumer that they take the market seriously."

Starbucks has reason to. With more than 1.2 billion people, the pure size size of China's market is more than three times larger than the U.S. market, he says. "The challenge is to get a tea-drinking culture to drink more coffee."