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Starbucks Draws Criticism From China State TV for High Pricing

Starbucks Corp. (SBUX), the world’s largest coffee chain, drew criticism from China Central Television for pricing products in the country above other markets, the latest international brand to draw scrutiny from state-run media.

The company is among foreign brands whose pricing is unfair and discriminatory in China, CCTV reported yesterday, saying local offerings are more expensive than in cities such as Chicago, London and Mumbai. Starbucks’s pricing is based on local market costs, including labor and real estate, the Seattle-based company said in an e-mailed statement today.

Consumer companies from baby-food maker Danone to Apple Inc. (AAPL) have been targeted by state media or regulators in China on pricing and local practices this year. Chinese Premier Li Keqiang, who took office in 2013, has pledged to protect consumers and crack down on food safety in the nation.

A survey conducted by CCTV found a medium-sized cup of latte was priced at 27 yuan ($4.40) in China, versus $3.26 in Chicago, and almost double the price in Mumbai, according to the 20-minute report. A similar-sized beverage cost 2.5 pounds ($4) in London, it said.

Starbucks is also earning fatter margins in its China/Asia-Pacific region than in other areas, CCTV reported, citing the company’s second-quarter financial data.

The coffee chain’s ability to charge higher prices in China is mostly because of domestic consumers’ “blind faith” in foreign brands, CCTV reported, citing Wang Zhendong, head of Shanghai’s coffee association.

Unique Markets

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 its e-mail. “Our costs are variable over time, reflecting the changing economic environment in which we operate.”

The coffee chain also 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 cut prices of key products in China, with reductions of as much as 20 percent by Danone and Nestle. 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 Inc. (YUM), owner of the KFC food chain, apologized in January after CCTV reported a supplier provided chicken meat with above-standard levels of antibiotics.

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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