Author Topic: What if that latte was $27?  (Read 9614 times)

galliver

  • Handlebar Stache
  • *****
  • Posts: 1872
What if that latte was $27?
« on: September 06, 2013, 08:32:23 PM »
http://www.theatlantic.com/china/archive/2013/09/why-is-starbucks-so-expensive-in-china/279394/

Now, I'll admit to being a semi-regular latte consumer...but it's probably an average of once a week, definitely not daily. And I try to make that on "Latte Wednesday" when they're $2.25 any size. Paying $4 kind of hurts.  But paying (the equivalent) even $10 for a coffee would just be unacceptable!

mm31

  • Stubble
  • **
  • Posts: 169
Re: What if that latte was $27?
« Reply #1 on: September 07, 2013, 12:10:31 AM »
I don't think China has a coffee-drinking and coffee-producing culture. Places like Colombia are great for coffee lovers because the country has a huge local market for consumption.

Ironically, the lack of local production might be the thing that enables Starbucks to be established in China.

jdoolin

  • Stubble
  • **
  • Posts: 155
  • Location: Eastern Ohio
    • Just My Blog
Re: What if that latte was $27?
« Reply #2 on: September 07, 2013, 07:35:48 AM »
Well, technically there's hardly any coffee production in the United States either, and we're a huge coffee drinking culture.  Aside from really expensive and mostly overrated coffees from Hawaii and Jamaica, everything comes in from South America, Central America, Africa and Indonesia.

desk_jockey

  • Bristles
  • ***
  • Posts: 307
Re: What if that latte was $27?
« Reply #3 on: September 07, 2013, 07:49:21 AM »
Colombia has developed a good coffee culture, but for many years the best coffee was designated for export leaving the locals consuming lesser beans or Nescafe.

The Atlantic article was about the cost of that latte relative to the consumer’s income.   While maybe not as extreme as the China example, I would venture a guess that the kids one sees drinking a 8,000COP latte in an Oma or Juan Valdez coffee shop in Colombia are spending an equivalent  of over 15USD if made relevant to the adjusted median income for their age group in the US.

Last month Starbucks announced it was entering the Colombian market.   Maybe the increase competition will help to lower the relative price of a latte there :-)))
 

Albert

  • Handlebar Stache
  • *****
  • Posts: 1251
  • Location: Switzerland
Re: What if that latte was $27?
« Reply #4 on: September 07, 2013, 08:12:09 AM »
That's a silly comparison. It's not the average Chinese who is drinking these latte's but middle and upper class people in Beijing and Shanghai. The average income of those people could well be higher than the total US average.

By the way in my town Starbucks latte cost about 6.5 $...

galliver

  • Handlebar Stache
  • *****
  • Posts: 1872
Re: What if that latte was $27?
« Reply #5 on: September 07, 2013, 10:20:43 AM »
I think what struck me more than the iffy price comparison was this passage:
Quote
A person's social standing was defined by the objects they own." Far from acting as a deterrent, high prices actually enticed customers who wanted to show off their new affluence; put another way, purchasing a good like a cup of coffee at a premium was a good way to obtain "face" in business or personal relationships.

Also it does mention that there *are* other coffee places in China that have cheaper rates. And they might be tastier than Starbucks, too. ;)

Albert

  • Handlebar Stache
  • *****
  • Posts: 1251
  • Location: Switzerland
Re: What if that latte was $27?
« Reply #6 on: September 07, 2013, 10:58:13 AM »
My impression is that the new Chinese middle and upper class is even more money and status conscious than we in the West so the passage above surprise me not at all.

chesebert

  • Pencil Stache
  • ****
  • Posts: 794
Re: What if that latte was $27?
« Reply #7 on: September 07, 2013, 11:24:21 AM »
That's a silly comparison. It's not the average Chinese who is drinking these latte's but middle and upper class people in Beijing and Shanghai. The average income of those people could well be higher than the total US average.

By the way in my town Starbucks latte cost about 6.5 $...
I can assure you that the average middle class income in Shanghai/Beijing is not higher (in fact lower) than the total US average. The people local middle class are crazy in their spending; they make low income (compared to US) and all think they are sitting on US$1M property (inflated as hell), all want a BMW/Audi/Mercedes and spend their money like they are rich.

limeandpepper

  • Magnum Stache
  • ******
  • Posts: 4549
  • Location: Australasia
Re: What if that latte was $27?
« Reply #8 on: September 07, 2013, 07:22:49 PM »
The article is missing one major reason why people go to Starbucks: the environment and amenities.

From what I've read, it sounds like in America, people go to Starbucks because they actually like the coffee there, but from my observations in other countries (including China), the bigger appeal often comprises the other things that come along with the food and beverage. Clean, temperature-controlled environment, comfy couches, free wi-fi - a package deal that isn't always easily available in all parts of the world. People like to go there to hang out with friends. Or they might go alone with a book or a laptop. They tend to stay there for a while, so while the coffee is not cheap, there is some additional relaxation or entertainment value that they're gaining out of it. Not saying that it's frugal, just pointing out the culture there is different, and the scenario of the office worker who grabs a takeaway Starbucks coffee everyday is probably more prevalent in America, while in China it's possibly more often used as a place to chill out, which may be why some people would rather go to Starbucks instead of getting a cheaper/better coffee somewhere else.

avonlea

  • Guest
Re: What if that latte was $27?
« Reply #9 on: September 07, 2013, 07:47:30 PM »
I can assure you that the average middle class income in Shanghai/Beijing is not higher (in fact lower) than the total US average. The people local middle class are crazy in their spending; they make low income (compared to US) and all think they are sitting on US$1M property (inflated as hell), all want a BMW/Audi/Mercedes and spend their money like they are rich.

I thought that the average household savings rate in China was 40%.  Are Shanghai and Beijing the exceptions?

chesebert

  • Pencil Stache
  • ****
  • Posts: 794
Re: What if that latte was $27?
« Reply #10 on: September 07, 2013, 08:46:04 PM »
who knows what the numbers really are. But primary goal for saving is to acquire more stuff based on my observation (cars, houses, luxury items, luxury services). I have no idea where these people get their money from (I was equally amazed at the purchasing power of seeming average families during the housing bubble; not suggesting there is any correlation between the two :)

chesebert

  • Pencil Stache
  • ****
  • Posts: 794
Re: What if that latte was $27?
« Reply #11 on: September 08, 2013, 11:12:09 AM »
"Far from acting as a deterrent, high prices actually enticed customers who wanted to show off their new affluence; put another way, purchasing a good like a cup of coffee at a premium was a good way to obtain "face" in business or personal relationships."

These "showing off" are rampant in Shanghai, it's almost as bad as and maybe even worse on margin than Hong Kong. While the "theoretical" savings rate is high in China, I believe almost all of that saving is wasted on cars, dining and shopping experiences, houses, trips, trinkets.

If $27 (equivalent) for Starbucks is expensive, how would you like to spend an average of over $100 (equivalent) per person at an absolutely average clean restaurant for average food? The better restaurants have the balls to charge $400 (equivalent) per person. A family of three could easily reach $500 (equivalent) per meal at a semi-decent restaurants. Now, you can add 3 movie tickets (3D) at $150 for each person, and you are looking at almost $1000 for a family night out! I think the average middle-class income in Shanghai is like $5000 - $8000 (equivalent).

I am really at a loss at how so many people can afford to buy so much while the COL is so high.

Albert

  • Handlebar Stache
  • *****
  • Posts: 1251
  • Location: Switzerland
Re: What if that latte was $27?
« Reply #12 on: September 08, 2013, 11:37:21 AM »
What do you mean with "equivalent"?

avonlea

  • Guest
Re: What if that latte was $27?
« Reply #13 on: September 08, 2013, 11:39:00 AM »
I found this article last night after reading the thread.  Not surprisingly, personal spending habits in China depend on one's generation and whether or not one has a family to support. http://www.washingtonpost.com/world/asia_pacific/getting-chinese-to-stop-saving-and-start-spending-is-a-hard-sell/2012/07/04/gJQAc7P6OW_story.html

Quote
But the exception to the savings-first rule appears to be the 20-something generation, veritable spendthrifts compared with older Chinese, with “an effective savings rate of zero,” Rein said. These Chinese were born after their country’s opening to the world in 1978, grew up with relative affluence and want the latest iPad and iPhone.

The reasons Chinese save more and spend less are complex, stemming in part from tradition and in part from government policies that discourage consumption. People older than 50, who save more than 60 percent of their income, remember a period of economic hardship and political chaos: the “bitter years” of the Great Famine, from 1958 to 1961, and the violence of the Cultural Revolution, from 1966 to 1976.]



"I am really at a loss at how so many people can afford to buy so much while the COL is so high.

You're right, Chesebert, especially when considering the info in this article.  http://english.people.com.cn/90778/8040481.html

Quote
"So let me illustrate just how expensive an apartment has become. I’m standing on an area of one square meter. This square meter in an Beijing apartment would cost 30 thousand yuan. But the average monthly salary here in the city is less than 5 thousand (4672 yuan)... which means, that after working for a whole month, with no spending at all, you can only buy less than one sixth of this area."

ETA: Chesebert, I know you were talking about Shanghai and this article is about Beijing.  I think the situation is similar, though.  If i'm wrong, definitely feel free to correct me.
« Last Edit: September 08, 2013, 12:06:10 PM by avonlea »

chesebert

  • Pencil Stache
  • ****
  • Posts: 794
Re: What if that latte was $27?
« Reply #14 on: September 08, 2013, 12:00:29 PM »
What do you mean with "equivalent"?
As in a person making 1RMB in China is like a person making 1USD in the states. This is to compare relative COL compared to income.

Albert

  • Handlebar Stache
  • *****
  • Posts: 1251
  • Location: Switzerland
Re: What if that latte was $27?
« Reply #15 on: September 08, 2013, 12:30:15 PM »
What would be the absolute numbers in your post then? The average income of middle/upper class Shanghai inhabitants is not so easily deduced. I don't think you can trust their statistics to the same extent as those in the West. They might be having more money than you think they do.

Coastal China is a boom area where people are rapidly becoming wealthier and expect this trend to continue forever. Perhaps one could compare it with US in the 50'ties and 60'ties or Britain before the first world war. Difficult to predict without a benefit of hindsight how this will turn out.

chesebert

  • Pencil Stache
  • ****
  • Posts: 794
Re: What if that latte was $27?
« Reply #16 on: September 08, 2013, 01:07:50 PM »
What would be the absolute numbers in your post then? The average income of middle/upper class Shanghai inhabitants is not so easily deduced. I don't think you can trust their statistics to the same extent as those in the West. They might be having more money than you think they do.

Coastal China is a boom area where people are rapidly becoming wealthier and expect this trend to continue forever. Perhaps one could compare it with US in the 50'ties and 60'ties or Britain before the first world war. Difficult to predict without a benefit of hindsight how this will turn out.
Average college grads in Shanghai starts out at about 3K RMB ($500) per month, so I think 8kRMB is reasonably middle class. Middle management at a foreign company can probably hit 15kRMB ($2500) per month. Yes, compared to the US, people in China make crap in terms of income.

"Coastal China is a boom area where people believe they are rapidly becoming wealthier" just like how many ppl in the US believed they were rich back in they days.

Albert

  • Handlebar Stache
  • *****
  • Posts: 1251
  • Location: Switzerland
Re: What if that latte was $27?
« Reply #17 on: September 08, 2013, 01:23:13 PM »
Aren't those numbers double and triple what they were 20 years ago? Most consumer good are produced in China now and they are rapidly moving into higher added value goods so there is a good reason to think that in another decade or two at least the coastal parts will rival US and Western Europe in terms of income and wealth. That's what happened in Japan and South Korea, so why not China too? They seem to have the right type of government and culture for it.

chesebert

  • Pencil Stache
  • ****
  • Posts: 794
Re: What if that latte was $27?
« Reply #18 on: September 08, 2013, 01:51:40 PM »
Aren't those numbers double and triple what they were 20 years ago? Most consumer good are produced in China now and they are rapidly moving into higher added value goods so there is a good reason to think that in another decade or two at least the coastal parts will rival US and Western Europe in terms of income and wealth. That's what happened in Japan and South Korea, so why not China too? They seem to have the right type of government and culture for it.
I sure hope so. I bet most of us won't be in China if it ain't for the money and perks. Why would anyone subject themselves to toxic air, food, water, rude locals and high COL (how would you like to spend US$10/gal for imported milk?).

Albert

  • Handlebar Stache
  • *****
  • Posts: 1251
  • Location: Switzerland
Re: What if that latte was $27?
« Reply #19 on: September 08, 2013, 02:17:53 PM »
I sure hope so. I bet most of us won't be in China if it ain't for the money and perks. Why would anyone subject themselves to toxic air, food, water, rude locals and high COL (how would you like to spend US$10/gal for imported milk?).

Pollution is the main reason why I wouldn't agree to live in China. In addition learning Chinese would be incredibly difficult and I wouldn't want to live in some kind English speaking expatriate bubble. As for food the key I imagine is to eat what they eat instead of imported stuff.

Abe

  • Handlebar Stache
  • *****
  • Posts: 1717
Re: What if that latte was $27?
« Reply #20 on: September 08, 2013, 10:23:04 PM »
I know people who returned to China temporarily after 20 years of living in the US. They found that consumerism is far more entrenched than when they left China the first time.  Those with money who don't spend it on status symbols (how many Audis and $100+/meal restaurants can there be in one city?) invest in real estate. This has resulted in "ghost cities" of giant condo tower blocks that aren't inhabited. It makes our real estate bubble look like a fizz bubble in a glass of soda. The government is now trying to limit the bubble with spending restrictions, we will see if it works! This generation has forgotten the hardships of prior generations, and are ill-prepared for any economic downturn. Keep in mind this represents a small fraction of all Chinese, most are still quite poor by our standards of living.

Article on this-
http://online.wsj.com/article/SB10001424127887324412604578515382905495900.html


Albert

  • Handlebar Stache
  • *****
  • Posts: 1251
  • Location: Switzerland
Re: What if that latte was $27?
« Reply #21 on: September 09, 2013, 04:08:03 PM »
Mainland Chinese 20-somethings have lived in a boom land their entire lives, the ones in Malaysia have not. That's all the difference, no other magic explanations needed.

MgoSam

  • Magnum Stache
  • ******
  • Posts: 3649
  • Location: Minnesota
Re: What if that latte was $27?
« Reply #22 on: September 09, 2013, 05:35:23 PM »
Actually, I think lattes cost $27. I remember hearing something about Warren Buffett when I was in middle school that stuck with me. He thought spending money today would cost him far worse because he knew that in 50 years he could turn that into a lot more. So for him a $4 drink would cost $20 in his mind.

Has anyone else heard this? For me, that was the best example of the power of compound interest.

Kazimieras

  • Stubble
  • **
  • Posts: 167
  • Location: Ontario, Canada
Re: What if that latte was $27?
« Reply #23 on: September 10, 2013, 02:07:08 PM »
Actually, I think lattes cost $27. I remember hearing something about Warren Buffett when I was in middle school that stuck with me. He thought spending money today would cost him far worse because he knew that in 50 years he could turn that into a lot more. So for him a $4 drink would cost $20 in his mind.

Has anyone else heard this? For me, that was the best example of the power of compound interest.

Look up "net present value", since that is what Buffet was going on about. It is the value of what that money could earn, in today's dollars. Compound interest is nice, but if it is below inflation (as it is now in a savings account) you can see it as compound loss of potential.

MgoSam

  • Magnum Stache
  • ******
  • Posts: 3649
  • Location: Minnesota
Re: What if that latte was $27?
« Reply #24 on: September 10, 2013, 04:01:37 PM »
That's it! Thank you!