People rest with other drinks in the yard of a Starbucks coffee store at Qianmen Commercial Street in central Beijing, April 19, 2012. [Photo / Agencies]

 

Hurdles to growth

But even with that big silver lining, there are big impediments to growth including low incomes, rising costs and the fact that most Chinese don't have a coffee habit.

The market is still small, with specialist coffee shops such as Starbucks booking sales of $358 million from mainland China in 2010. That was up from $104 million in 2005, according to Euromonitor International. By comparison, the United States accounts for $8 billion in revenue for Starbucks.

Consumers in China drink an average of just three cups of coffee per year, according to an industry study, and for many Starbucks prices are simply out of reach.

Based on average wages in China, it would take 1.3 hours of work in the more affluent east of China to buy a Starbucks tall (12-ounce) caramel macchiato. That goes up to 1.6 hours in the west and 1.9 hours in central China, says Bernstein Research analyst Sara Senatore.

Affordability remains a top concern for analysts, who worry that as Starbucks' expansion progresses beyond the country's biggest cities, it will be less able raise prices to protect margins.

But CEO Schultz said income levels had not been a barrier to growth, adding that Starbucks' shops in non-core markets perform "as well or better" than stores in cities like Beijing and Shanghai, helped by pent-up demand.

Attracting quality employees when competition for skilled workers is intensifying as other chains also expand, is difficult, says Paul French, chief China analyst for market research firm, Mintel.

To that end, Starbucks announced plans to launch a training program called Starbucks China University next year. It also unveiled a 1 million yuan ($158,700) fund that will provide emergency financial assistance for Starbucks employees.