Can the wine sector learn from Starbucks?

The urbanisation of China has led to one of the largest surges in consumption the world has ever recorded.

Mainland China is home to more than one hundred cities and has a population of more than one billion people. Although most people around the world can name Shanghai and Beijing, even a local resident might struggle to name all of the cities larger than Adelaide.

To help understand the opportunity for Australian wine in these cities, this week’s Market Bulletin looks at data from the multi-national chain Starbucks, which has 2 800 coffee stores spread across 130 Chinese cities and plans to open a further 2 200 in the next four years.

The logic in looking at Starbucks is that it has the capability to research the Chinese cities that are the most conducive to coffee, a relatively expensive consumption. Coffee is a complementary good to wine, as it shares consumers and attributes. Therefore, where Starbucks operates, wine consumers should also be present.

What impacts expected consumption?

Figure 1 illustrates the number of Starbucks coffee stores by city. As expected, Shanghai and Beijing are home to the most Starbucks stores. The other Tier One cities of Guangzhou and Tianjin also are in the mix. Interestingly, Chongqing (a city of 37 million people) does not appear in the top 10 (it is ranked 14^th). This city is the most westerly, geographically, and least wealthy of China’s Tier 1 cities.

Figure 1: Number of Starbucks by city in China

Although this data is interesting on its own, the number of stores is highly correlated with population and wealth – information that can be easily gathered elsewhere. If the population and wealth impact can be explained through regression analysis, what cannot be explained is external influencing factors such as culture and tourism. Where the largest external impact is may indicate where other, less obvious factors may lead to higher wine consumption than could be expected.

The city of Sanya has the most Starbucks stores that aren’t explained by economics – excluding Shanghai. The city hosts eight stores, but population and wealth alone should only support only one. Sanya is colloquially dubbed the ‘oriental Hawaii’ as it has the most beautiful beaches and coastal scenery in Hainan province. Tourism is one of the most significant contributors to the city’s service sector.

Many of the cities that host more Starbucks than expected are domestic tourist destinations. These cities may be an ideal opportunity to introduce more Chinese consumers to Australian wine.

Figure 2: Number of Starbucks by expected and actual stores per capita

The other city to feature in the Starbucks data is Hangzhou. As the home city of Alibaba, China's largest business to business (B2B) online portal, Hangzhou was granted the title of ‘Capital of E-commerce in China’. Furthermore, due to its beautiful scenery and rich cultural heritage, Hangzhou attracted 3.4 million foreign tourists in 2015.

Although Shanghai and Beijing remain the epicentres of wine consumption in China, as incomes increase, these cities will become more important into the future. Furthermore, tourist-centric cities may have an additional role to play in introducing Chinese people to wine.