Bloomberg News

China TV Draws Backlash for Probing Starbucks, Not Social Issues

October 22, 2013

Starbucks store in Shanghai

Customers sit inside a Starbucks Corp. outlet in Shanghai. Photographer: Tomohiro Ohsumi/Bloomberg

Chinese Internet users lashed out at China Central Television for accusing Starbucks Corp. of price gouging, criticizing the state broadcaster for deflecting attention from more pressing social issues.

The U.S. coffee chain charges higher prices locally than in cities such as Chicago and London, CCTV said in a 20-minute report on Oct. 20. A CCTV posting on Starbucks on China’s Twitter-like Weibo service drew more than 29,000 comments, most of which lambasted the station for ignoring problems such as high housing prices and corruption.

The CCTV report follows a trend of state media targeting foreign companies for unfair treatment of Chinese consumers, with Apple Inc (AAPL:US) to Yum! Brands (YUM:US) Inc. among companies that have made public apologies. China’s citizens face rising pollution, food safety issues and soaring house prices even as incomes have risen.

“Initially CCTV had anticipated the villain would be Starbucks (SBUX:US),” Mary Bergstrom, founder of Shanghai-based consultancy Bergstrom Group. “What people are saying now is that the villain is the state media. It’s putting them in a difficult position to report news.”

Home Prices

Social media sites have become platforms for Chinese citizens to expose corruption and wrongdoing in a country where all domestic newspapers and television stations are state owned.

China’s Gini coefficient, a measure of income differences, was 0.474 last year, according to the government, higher than the 0.4 level that analysts say signals a potential for social unrest. New home prices rose year over year in September in 69 out of 70 cities, led by 20 percent increases in the southern business hubs of Shenzhen and Guangzhou, China’s statistics bureau said today.

“CCTV, can we talk about China’s housing and gas prices and other basic living costs before we discuss expensive coffee?” one Chinese Internet user named Anderson Ye posted on Weibo.

Starbucks’s pricing is based on local market costs such as labor and real estate, the world’s largest coffee chain, said in an e-mailed statement yesterday.

Rising Inequality

CCTV said its survey found a medium-sized cup of Starbucks latte was priced at 27 yuan ($4.40) in China, versus $3.26 in Chicago and 2.5 pounds ($4) for a similar-sized beverage in London.

Every market is “unique and has different operating costs, so it would be inaccurate to draw conclusions about one market based on the prices in a different market,” Starbucks said in an e-mail. “Our costs are variable over time, reflecting the changing economic environment in which we operate.”

Starbucks is earning fatter margins (SBUX:US) in its China/Asia-Pacific region than in other areas, CCTV reported, citing the company’s second-quarter financial data. The coffee chain said the profit margins for the China/Asia-Pacific region reflect 14 markets and not just China.

Apple Chief Executive Officer Tim Cook apologized in April for the company’s iPhone warranty and repair policies in the country after criticism from government-backed news outlets.

In July, several baby-formula makers reduced prices of key products in China, with reductions of as much as 20 percent by Danone and Nestle SA. (NESN) The cuts followed a report by the official People’s Daily newspaper saying regulators had evidence that these companies tried to fix resale prices of their products.

Yum! Brands, owner of the KFC food chain, apologized in January after CCTV reported a supplier provided chicken meat with above-standard levels of antibiotics.

China, home to more than 591 million Web users by the end of June, censors the Internet by blocking access to websites with pornography, gambling and content critical of the Communist Party’s rule.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net


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