The remarkable rise of Starbucks in China

56 alan hepburnOur man in Shanghai, Alan Hepburn FIH, provides an analysis of Starbucks’ expansion in China, a country with no tradition of coffee-drinking. What lessons are there for other western businesses looking to break into this vast market?

Last week I was sat in the 30,000 sq ft Starbucks Shanghai Roastery, about five minutes walk from my apartment in Shanghai. I was there for a business meeting, trying to decide between Sumatran, Ethiopian or Nicaraguan, when I realised I was next to a couple of friends. After a quick chat, it occured to me that even in a city of 35 million people with change being constant and exponential, it’s a small world.

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Howard Schultz at the opening of Starbuck’s Shanghai Roastery in December 2017

I arrived here in 2000 as manager of the Portman Ritz Carlton and remember chatting with Howard Schultz when he came to open the first Starbucks in the city (Beijing opened the first one in China in 1999). I somewhat naively asked if he was planning on opening many? He looked somewhat incredulous at my ill-judged question. “We expect 100 in the first year,” he said. They now have 3,000 stores in China and are opening one every 15 hours – projecting 5,000 by 2020.

I was new to China and frankly had not observed much coffee-drinking going on. But what I had missed was … well, pretty much everything.

What Starbucks saw in China was four things: firstly the growth potential in the middle/upper middle class who want to buy an upscale Western experience.

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The floor space of a Starbucks in China is substantially bigger than in the West. People have business meetings, social gatherings, go on dates and get interviewed for jobs in China’s Starbucks. The saying here is: “The first two thirds of your cup is for enjoying, the last third is for staying.” Three quarters of all coffee drunk in China is consumed by 25-35 year olds and 99% of retail coffee sales is instant, but that will change.

Secondly, Starbucks’ growth in China shows the importance of not removing the essence of what makes you successful elsewhere, but shows how this needs to be adapted. As Roy T Bennet once said: “The past is a place of reference, not a place of residence.”

The Macha Frappuccino (220 – 440 calories depending on size) is a huge seller here. Green tea powder, loads of cream, milk and vanilla syrup and not a hint of coffee in sight. I have struggled in the past to get a simple espresso, as very few people are drinking them in China. But that will change.

The Roastery here is a modern-day F&B masterpiece with all the theatre of coffee roasting, artisan bread-making and stunning retail. But take a look at what people are consuming and it’s a lot less coffee than you might expect. But, as I say, that will change.

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The Chinese are not big coffee drinkers, but that has not been a barrier to Starbucks’ success

Thirdly, brands which understand progression from entry-level to premium do very well here. There are famous dumpling shops where you pay four different prices according to where you consume the same dumpling.

The last thing Starbucks understood was marketing. Their social media presence was well-established and generally ahead of most Western brands in China during its first decade here. The rest tried catch-up and some succeeded but most failed. Telling your brand story here needs content and context and it better be entertaining and fun. I spoke with the head of marketing for one of the world’s biggest and coolest sports fashion brands two years ago and he was telling me they had just moved into mobile platform selling. That’s like arriving today in Scotland and telling them you just invented whisky.

Sadly, many Western brands can’t grasp the speed of change and that the Chinese consumer is dynamic, developing and learning quickly. By the time many companies work out their ‘China strategy’ the market may have moved or changed.

I’ve lost count of the number of UK companies (including the famous ones) I speak to and meet with who bring a rigid ‘what made us successful in the past will determine all our action for the future’ attitude and end up closing shop, heading home and blaming China.

Don’t get mad, get prepared. Starbucks’ next Roastery opens in Milan, the home of great coffee and design.  But before we mention coals and Newcastle, I’m betting Starbucks have that well-covered too.

Alan Hepburn FIH has spent more than 30 years in Asia in the hospitality and lifestyle sector. Having run some of the world’s best hotels , he then developed, opened and operated China’s first luxury lifestyle company: the multi-award winning Three On The Bund in Shanghai. The Hepburn Group is a Shanghai/Singapore-based boutique consultancy that works with hospitality and F&B companies from the West, helping them navigate the challenges of market-entry and growth in China and Asia.

 

 

 

 

 

 

 

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HQ explores the talent pipeline

001_HQ_SPRING_2018_SPINE.pdfYour latest issue of HQ (second quarter 2018 issue 48) is landing on UK doormats this week. It explores the talent pipeline from a number of perspectives.

Where is our next generation of leaders and senior managers coming from? It is a question often asked  in hospitality management and education circles. Your latest issue of HQ Magazine is packed with answers and opinions on the matter.

Our chief executive Peter Ducker FIH is impressed with the talented and enthusiastic young hospitality management students coming out of universities and colleges. It is up to all of us to ensure they find ways to achieve their full potential within our sector and that we do not lose them to other industries, he says.

Still just 32-years-old, Adam Rowledge FIH is a rising leader on the UK hotel management scene and a superb role-model for new entrants. Our in-depth interview showcases the importance of creating the right culture within the workplace that allows talent to grow and shine.

A UK government review into higher education is now underway, concerned about choice and value for money within a system where almost all institutions are charging the same price for courses. The review may mean some tourism and hospitality courses will either need to change their approaches radically or risk becoming obsolete, says John Swarbrooke of Plymouth University

Of course, a university degree is by no means the only route into a successful hospitality management career. Sue Williams FIH MI, current Hotelier of the Year, is just one of hundreds of professionals who started their careers with the Concord hotel management programme.  Celebrating its 50th anniversary, Glen Harrison MIH reveals all about this unique on-the-job training scheme which specifically targets youngsters coming out of FE colleges who do not want to go to university.

Other contents in this HQ Magazine

  • Peter Jones MBE FIH – Why has the government dropped the T level in hospitality?
  • Passion4Hospitality 2018 – re-live the excitement of our largest ever student and industry networking event
  • The end of business as usual – Angela Roper FIH on vertical disintegration in the corporate hotel industry
  • A winning partnership – how Sheffield Hallam University and Hilton are working closely together
  • Cybercrime and GDPR – what businesses need to do to protect themselves
  • Tableware trends – creativity is all the rage but weird, wacky (and unhygienic) are definitely out

 

 

Gender balanced management teams make for safer and more engaged employees, Sodexo study finds

Sodexo GenderBalanceStudyInfographic

Study of 50,000 Sodexo employees finds teams with gender diversity achieve better results across the board

International services company Sodexo has found teams managed by a balanced mix of men and women are more successful across a range of measurements including employee engagement and health and safety.

The five-year study of 70 Sodexo entities across different functions represents 50,000 managers worldwide and tested the performance implications of gender-inclusive work culture. The study examined women across all levels of management – not just upper-level leadership positions – in order to investigate the “pipeline” that will ultimately affect gender balance at the top tier of businesses.

Sodexo’s study found that non-financial factors can also significantly benefit from a more equally structured leadership, with benefits including;

Gender-balanced management reported an employee engagement rate that was 14 percentage points higher than other entities

Gender-balanced entities saw the number of accidents decrease by 12 percentage points more than other entities.

Gender-balanced entities had an average client retention rate that was 9 percentage points higher than other entities.

Gender-balanced entities had an average employee retention rate that was 8 percentage points higher than other entities

Operating margins significantly increased among more gender-balanced teams than other teams.

The pattern of results indicated that a near-equal balance of men and women in management was critical to observing gains in financial and non-financial KPIs. Once the proportion of women in management exceeded 60%, the benefits plateaued, confirming that a mix between 40% and 60% is necessary for optimal performance.

Analysts also found a direct correlation between the percentage of women in the total workforce and those in management, indicating gender-balanced workforces and leadership create an environment supportive of career growth for women. This lends support to the idea that gender parity in top leadership is closely related to the pipeline of women in the workforce.

Sodexo, already a leader in diversity & inclusion, is breaking new ground in gender parity. Today, women represent 50% of its board. Thirty-two percent of senior leadership positions are held by women globally – a 6% increase at the very top levels since 2013.

Middle management and site management positions are balanced at 46%. Currently, 59% of the total workforce works within gender-balanced management.

The Sodexo Gender Balance Study originated in 2014 with Sodexo’s desire to improve its gender parity in leadership throughout the management of its 425,000 global workforce and to expand previous outside research on gender parity in the workplace.

The full report can be accessed here: http://bit.ly/2tmBIbm

 

 

35 of UK’s Top 100 restaurant groups now loss-making – up 75% in just a year

  • Oversaturated market, minimum wage hike put pressure on restaurants
  • Another minimum wage rise just weeks away

35 of the UK’s Top 100 restaurant groups are now loss-making, up 75% from just 20 last year, shows research by UHY Hacker Young, the national accountancy group.
UHY Hacker Young says that trading conditions have become increasingly difficult for restaurant chains dealing with oversaturation in the market as well as rising costs.
The firm adds that this research comes on the back of the high-profile struggles of several major restaurant chains in recent weeks, including:

  • Jamie’s Italian, started by Jamie Oliver, which has closed 12 branches as part of a Company Voluntary Arrangement (CVA) to restructure its £71.5m debt
  • Byron, the burger chain, which may close up to 20 of its 67 branches following a period of paying reduced rent
  • Prezzo, the Italian chain, which is expected to close some of its 300 branches as part of a restructuring
  • Strada, another Italian chain, which closed 11 branches over the festive period
  • Barbecoa, another Jamie Oliver chain, which entered administration in mid-February
  • EAT, the sandwich chain, which was rumoured in early February to be considering closing some of its 100 branches

UHY Hacker Young says that pressures of competing with numerous similar ‘fast casual’ restaurants in an overcrowded high street are a major driver of many large restaurant groups registering losses over the past year.

It adds that the National Minimum wage, which has risen by an above-inflation 19% to £7.50 per hour over the last five years, has added a substantial cost burden to large restaurant chains. From April 2018, the minimum wage will rise even further to £7.83.

Peter Kubik, Partner at UHY Hacker Young, comments: “More than a third of the biggest companies in the restaurant sector are losing money, and there is little respite on the horizon.”

“Pressures on the restaurant sector have been building for years, and the last year has pushed a number of major groups to breaking point.”

“With Brexit hanging over consumers like a dark cloud, restaurants can’t expect a bailout from a surge in discretionary spending.”

“Consumers only have a finite amount of spending power when it comes to eating out, and the oversaturation of the market means that groups that fall foul of changing trends can very easily fail.”

“The Government has ratcheted up costs with a series of above-inflation rises in the minimum wage, and we are just weeks away from another 4.4% rise in April. That will be tough for a lot of restaurants to absorb.”

About UHY Hacker Young:

 The UHY Hacker Young Group is one of the UK’s Top 15 accountancy networks with 110 partners and more than 620 professional staff working from 22 locations around the country. The offices within the Group provide a wide range of accounting, tax and business advisory services, with a reputation for integrity and reliability within the financial community, and particularly with London’s Stock Markets. UHY Hacker Young are also ranked 15th in the ARL Corporate Advisers Rankings Guide amongst other UK audit firms for advising London Stock Exchange listed companies.

UHY Hacker Young is a founder member of the UHY International network with offices in every major financial centre in the world. Further information can be found at www.uhy-uk.com

 

Quotas for female managers?

On International Women’s Day (8 March), Serena von der Heyde FIH MI makes the case for affirmative action to achieve greater diversity in the boardrooms of the hospitality industry19 Serena von der Hyde FIH

Like a lot of people, I don’t like quotas – I don’t think they are fair – but recently I have started to think again. Nearly 60% of the UK workforce in our industry are women yet only just over 20% of our managers are women, and these figures have been almost static for more than 20 years.  We know that businesses with more women leaders are more successful and more profitable, so why aren’t companies rushing to develop and promote them?  The benefits of diversity are proven, but still progress in achieving diversity is glacially slow.

We want a fair workplace for our young women and men, and optimum performance for our businesses, and yet a compelling business case has failed to bring about change; then should we consider quotas?

Quotas have been shown to get results, and fast.  They have been used across Europe to promote women in politics and business since Norway started in 2003.  Many countries including Iceland, France, Spain and now Germany have followed suit, and the numbers of board-level women have risen in those countries. What’s more, there is some evidence that where quotas have been in use for some time, diversity becomes self-fulfilling. The culture and infrastructure has changed to the extent that women and men are coming through to leadership levels in equal numbers. In Belgium, the quota system states that both sexes must be represented for applications for roles in politics, and recently it is male applicants that have been hard to recruit. For quotas to work, they need to come with strict repercussions. In France, businesses were threatened with de-regulation if they failed to meet quotas. In Spain there were no sanctions for not meeting quotas, and as a result Spain has been far less successful. Quotas without teeth are ineffective.

One of the main arguments against quotas is that they prevent promotion on merit. We want the best leaders for our businesses regardless of gender. But I challenge the notion that our meritocracy is working. If it was, wouldn’t we already have more women leaders? The truth is that our societal and cultural background is failing to provide a level playing field for our aspiring women leaders.  More women than men are graduating from our universities, and, on average, women have better grade degrees, but still we overlook their talents.  It is becoming clear that we have to learn diversity – it takes time for a culture to genuinely believe in the value of diversity, and then to implement processes that nurture it.

There is a difference between quotas and targets, in terms of delivering change; quotas enforce where targets incentivise. Personally, I believe that people learn better and change more when they can set their own agenda. Every business will have different issues affecting diversity, and real change is most effective when a strategy is developed specifically by the team for that business.  When regulations are imposed, teams spend half their efforts working on strategies to sidestep the new rules, and quotas can result in alienating the team.

For my own business, where we need to develop male leaders to ensure diversity, I will be:

  • Ensuring full and ongoing commitment to diversity from the leadership
  • Leading the development of our diversity strategy and targets
  • Publishing gender pay differences, and recording gender balance across the team and our leadership team

This type of approach gives businesses time to develop a pipeline of talented women (or in our case men), so that they can make quality appointments and showcase successful women within the business. I believe that hospitality businesses should be recording gender balance, monitoring gender pay gaps and publishing their own targets and strategy for diversity.  However, if these initiatives prove inadequate, then it is time to consider resorting to the faster, but blunter tool of quotas.

Serena von der Heyde FIH MI is the owner of The Georgian House Hotel, London

Sign up to the Diversity in Hospitality, Travel and Leisure Charter here.

Why is the casual dining sector in trouble?

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Byron is one of a number of casual dining chains that are shrinking their estates

Five years ago, the casual dining sector was booming. Private equity houses were investing large amounts of money into new chains of restaurants which quickly expanded their outlets, for example Byron, the burger chain, was bought for £100m.

Today, the sector is, to say the least, struggling. EAT is the latest brand to announce closures. Byron is going through a restructuring, Jamie’s Italian has entered into a company voluntary arrangement, and Strada is implementing a closure programme.

What has happened to bring about this sudden reversal of fortunes? Roger Gregory, partner at Pitmans Law, has the answers. Read on

Roger Gregory
Partner, Pitmans
D +44 (0)207 634 4634
M +44 (0)774 760 3864
E rgregory@pitmans.com

Pitmans Law is a Business Partner of the Institute of Hospitality.

Institute of Hospitality Showcases Student Research in New Digest

Digest coverThe Institute of Hospitality has published its inaugural Annual Digest of research by students from universities and colleges that are members of its Education Membership Scheme.

The subjects explored in the research papers include sophisticated menu engineering; the impact of the airbnb on the UK hotel industry; revenue management in ski resorts; and waffleshop franchises.

Alistair Sandall FIH, the Institute’s head of professional development, says: “We thank the students for their submissions to this inaugural Annual Digest. Thanks too must be passed to their lecturers for encouraging them to submit their research. ”

“If through this publication we can bring new insights and ideas into the bright lights and away from university shelves,  hopefully we can help to create closer links and ties between educators and practitioners.”

The following students’ research is showcased in the Digest;

Rosie Magurie, BA Professional Culinary Arts, University of Derby

Haroon Khan Afridi, MSc International Hotel Management, University of Surrey

Mara Leidi, BSc International Hospitality Management, Ecole Hoteliere de Lausanne

Ida Davidsen, UG studies BSc (Hons) Hospitality Leadership and Management, Leeds Beckett University.

The Institute has 75 universities and colleges on its Education Membership Scheme, adding up to more than 3,000 student members across the world.

Download the 2017 Digest Here

Submissions for the 2018 Digest will be open from September with a deadline of 31st October. Full information can be found by downloading the Institute of Hospitality Digest Submission Guidelines.

If you have any queries, please email digest@instituteofhospitality.org

If you would like your college or university to get involved but are not yet members of the Institute, contact the Membership Department on 020 8661 4900 or membership@instituteofhospitality.org