Starbucks is under criticism in China because its drinks cost more in China than elsewhere.
As Barney Jopson writes in The Financial Times (paywall),
Asked if Starbucks was willing to reduce its prices, he (John Culver, a Starbucks group President) did not give a direct answer, but said Starbucks felt it had “the right economic model” and had won the loyalty of customers, while stressing that it would respect “local laws and customs”.
He said that in the past year Starbucks had invested $100m in the country.Seeking to scotch a “misnomer” that China was a relatively low-cost place to do business for Starbucks, Mr Culver said that at store level its investment and labour costs, including staff training, “approach the levels of what we see in the US”.
“The bottom line operating margin in China is in fact not any higher than what we see in the US,” he said.
So, though Starbucks is trying to push back, it is reasonable to expect that there will be some kind of “give” or conciliatory gesture soon enough, given the size of China’s market.
But this brings up some critical questions.
Companies price their wares differently in different countries all the time. In fact, prices vary across states and across regions all the time. They might do this because
- their costs (labor, raw materials, taxes, duties) are higher, or
- they might do this because consumers’ willingness to pay is higher, or
- they might just be responding to competition, or
- because they want to be viewed as a luxury brand.
Since coffee purchases are completely discretionary and voluntary (unlike, say, baby formula or cancer drugs) – shouldn’t companies have the right to price at whatever level they want?
How can governments dictate this?