Starbucks bets on China with new $220 million ‘innovation park’ in Kunshan

Editor’s note: Subscribe to CNN Meanwhile in China newsletter that explores what you need to know about the country’s rise and its impact on the world.

Hong Kong
CNN
—

Starbucks says it has invested more than $200 million in a new campus in China, a sign that the Chinese consumer remains crucial to the global coffee chain despite a major economic downturn.

The beverage giant on Tuesday opened a massive facility in eastern China that will serve as its main production and distribution center nationwide, supplying fresh coffee to thousands of Chinese stores, it said in a press release. The site houses a large coffee roasting facility and an area for visitors to see how the drinks are prepared.

Starbucks (SBUX) says it has committed a whopping 1.5 billion yuan, or about $220 million, to the project, the largest investment ever for a coffee manufacturing and distribution center outside the United States. United.

That’s nearly 50% more than the $150 million it previously allocated in 2020, which was already more than the $130 million announced earlier that year.

When asked why the amount was increased twice, a company spokesperson told CNN that “additional capital investments were made to further elevate the advanced technologies and equipment used” .

The opening of the 80,000 square foot (7,400 square meter) “innovation park” in Kunshan city, about an hour from Shanghai, comes after a year’s delay.

Starbucks previously said the facility would be “operational in summer 2022,” although the timeline was given in November 2020, when China was grappling with disruptive pandemic-related restrictions. The company did not immediately respond to a request for comment Tuesday about the reasons for the delay.

China has long been one of the most important growth engines for Starbucks, constituting its second largest global market and its largest overseas market.

But CEO Laxman Narasimhan says the company is “still in its early stages in China,” noting that coffee consumption in the historically tea-drinking country remains relatively low.

During an earnings conference call last month, he highlighted how revenue in China had rebounded earlier this year after the company’s sales in the country were affected by Covid-19 restrictions, which were lifted at the end of last year.

China’s economic growth is expected to slow this year as the country continues to recover from the effects of a crisis-hit real estate sector and shaken consumer confidence. But new data released Friday suggests the slowdown is stabilizing.

“As one of the world’s largest consumer markets, China presents enormous opportunities for Starbucks,” Narasimhan said in the release.

He said the new space would improve its supply chain and sustainability goals, especially as the facility is on track to become the company’s most energy-efficient coffee manufacturing plant in the world .

“I couldn’t be more proud of the Chinese team’s visionary thinking,” Narasimhan added. “As Starbucks’ largest and fastest-growing international market, we will continue to deepen our investments and strengthen our steadfast, long-term commitment to the Chinese market. »