In New York, Shanghai, Tokyo, and London, We Found Four Faces of Starbucks | Top 15 Annual Report

A cross-border review

Over the past year, we saw four very different faces of Starbucks.

Start with China, where the pace of new openings climbed from roughly one store a day in 2014 to at least one a day. Just before the National Day holiday, Starbucks rolled out a new drink across the country: the Flat White, an espresso-based style that began in Australia. Unlike its seasonal specials, the Flat White joined the core menu alongside the latte and the cappuccino, giving many Chinese drinkers an impromptu lesson in coffee. In November, Starbucks also opened an official Tmall flagship store, selling mostly membership cards and gift cards in various series.

So expansion is still the main event here — but Starbucks has started to loosen up on products and marketing.

In the United States, its home market, Starbucks has 12,000 stores, more than half the global total. The company is pushing more food to lift per-store revenue and using the market as a testing ground for new ideas.

That is why about 60 percent of all Starbucks news starts here: a "Seahawks-flavored" Frappuccino for the Super Bowl; a partnership with a streaming company, The New York Times, and the documentary firm founded by former Washington Post reporter Rajiv Chandrasekaran to open a takeaway-style store called Espresso Shot on Wall Street; a delivery service called Green Apron Delivery at the Empire State Building in New York. Most important of all, after a year of work, the company finally rolled out its order-and-pay-ahead app feature to every U.S. store.

The Espresso Shot store on Wall Street

Any multinational that enters Japan triggers a strong "local reaction," and Starbucks is no exception. That is not a bad thing: this is a country with real taste. So Starbucks went local. It launched its annual fukubukuro (lucky bag) and worked with street-culture figure Hiroshi Fujiwara and fashion designer Jun Takahashi on merchandise sold only in Japan. It ran a few marketing plays too, including a fashion show to promote a new Frappuccino called the Fruits-on-top-yogurt-Frappuccino, and it turned a store in Tokyo's Shinjuku into a winter "white-themed" pop-up.

Squeezed between local coffee chains such as COSTA and Pret A Manger on one side and the scrutiny of local specialty-coffee culture on the other, Starbucks has had a hard time in the United Kingdom. After London became the new EMEA (Europe, Middle East and Africa) headquarters in December 2014, UK Starbucks took on a bigger role: the launchpad for Starbucks' push into Europe.

So the company brought its American idea "Starbucks Evenings" — which had struggled to catch on at home — to London, to see whether this after-4 p.m. menu of roasted vegetables, Brie with apricot jam, and hummus with flatbread could find an audience here, and perhaps spread to other European countries.

Starbucks is a multinational with 22,000 stores worldwide. It unites the world around a single red cup at Christmas, but more often it tailors its strategy to each market — which is exactly what we mean by the four faces above.

The 2015 financial data shows Starbucks doing well overall: revenue growth held steady at around 15 percent in all four quarters, and profit growth came in at 13 percent, 21 percent, 22 percent, and 13 percent. On same-store sales growth, the Asia Pacific region — led by China and Japan — topped the list, at 8 percent, 12 percent, 11 percent, and 6 percent across the four quarters; North America, home to headquarters, posted 5 percent, 7 percent, 8 percent, and 8 percent. Europe was weaker but still grew. The markets differ, but not wildly.

Perhaps regional markets feel too abstract. So we visited four stores ourselves: the Spring Street location in New York's East Village, the EMPARK store in Shanghai, the Kingsway store in London (WC2B 6LH), and the Southern Terrace (サザンテラス) store at the south exit of Shinjuku Station in Tokyo.

From the specific differences in drinks and service at these stores, we could read the differences in the markets behind them — and how those differences played out in 2015.

New York Starbucks: widen the product line, test new ideas, build a national brand

At the Spring Street store in New York, you can find far more than the coffee on the menu board: bananas, sushi, nut energy bars, chocolate, at least 20 kinds of bread and bagels, Starbucks Refreshers (a 2012 pick-me-up drink with caffeine plus vitamins B and C), and Evolution Fresh juices, which Starbucks bought in 2011 for $70 million. They are scattered across open refrigerators and beside the register, ready to trigger an impulse buy.

Of all its markets, Starbucks in America is the most mature and the furthest ahead. With its frenzied store-opening phase behind it, the priority here is to raise per-store revenue — all that food is there to make you spend more. So while North America does not have the highest same-store sales growth, it is the market where the average customer spends the most.

But chasing easy money is only one side of the story. The other is Starbucks' future — and that means testing new products.

When Starbucks' new drink, the Latte Macchiato, arrived two weeks earlier, the Spring Street store gave it a full wall of advertising. As the sixth drink to join the permanent coffee menu — after the Flat White in 2015 — it made its market debut in North America, just as the Flat White had.

In the U.S., Starbucks can gather and commit more resources and time to its "live-fire exercises," something its other markets cannot match.

Starbucks has long led most food-and-beverage chains by several lengths on mobile. Its record here even beats Apple Pay, so much so that when Starbucks said it would accept Apple Pay in stores in early 2016, the move looked more like Starbucks giving Apple a leg up.

In January 2015, Starbucks named Kevin Johnson — former CEO of Juniper Networks, the world's second-largest router company — as chief operating officer. Nine months later it brought in Gerri Martin-Flickinger, a former Adobe executive, to run technology.

On mobile, which the company treats as its top priority, the American market has already finished the first round of testing. In July, after eight months of piloting, the "order and pay on the app, pick up at a nearby store" feature finally reached every U.S. store. So order on the app once you reach the East Village, and your drink will be waiting when you walk into the Spring Street store.

Competition in the American coffee market is heating up. Peet's Coffee & Tea — which once supplied beans for the opening of Starbucks' first Pike Place store — has, with backing from the German investment group JAB, been buying up specialty coffee brands. In October, with annual revenue equal to just 2.3 percent of Starbucks', Peet's snapped up the specialty brands Intelligentsia and Stumptown Coffee in quick succession. On coffee quality alone, Starbucks is no match for Peet's. Dunkin' Donuts, second only to Starbucks in U.S. coffee revenue, also uses the strength of its food line to drive coffee sales.

And yet Starbucks still wants to be America's national brand — so it has to keep trying new things.

Shanghai Starbucks: shore up the brand, stay wary of "innovation"

Like many Starbucks stores in this city, the EMPARK location sits on the ground floor of an office building. Some 30 tables and chairs stretch out in a long, narrow row, with few empty seats. When you hesitate, a staff member will often suggest the Flat White.

In an earlier article we explained why only a company with as many stores as Starbucks could introduce and promote the Flat White in China and set off a coffee craze — and how that turns it into a benchmark of craft for many people who had barely touched coffee before (even as more and more start to question that claim).

To be fair, Starbucks is utterly ordinary in Shanghai — a fixture in every big shopping mall, and on the street every few blocks. In 2014, Shanghai had 256 stores, third in the world behind only Seoul and New York.

When Starbucks decided to speed up expansion in 2012, Beijing, Shanghai, Guangzhou, and the wealthy coastal regions were the first targets. But 17 years into the China market, those cities are nearing saturation, and the company's relentless expansion has naturally moved on to second- and third-tier cities.

So after opening its landmark Chengdu Taikoo Li store in 2014, Starbucks spent the next year entering Luoyang, Xining, Mianyang, Lijiang, and other cities. Over three years, the store count in this zone quadrupled, and 300 stores now serve more than 30 million customers a year. The 100th city it reached — timed for just before the Lunar New Year — was Xiangyang in Hubei Province. Given local tastes, Starbucks usually opens in these cities with only the basics: lattes, cappuccinos, and the like.

The latest Starbucks results, for fiscal Q1 2016, showed China adding another 150 net new stores in the quarter.

The Luoyang store, which opened in May 2015

Still, for all the impressive same-store sales growth in Asia Pacific — led by China — there is one structural weakness: 100 percent of that growth comes from more traffic. In other words, more people are walking in, but each one spends the same as before. Even after the menu board got a new typeface and a "classic pairing" of one coffee with one slice of cheesecake (or a muffin) appeared at Starbucks China's first coffee festival on September 29, the upselling did little.

If you want Chinese consumers to spend on something different, brand prestige is what works in China. As the Western fast-food chains that arrived in the 1980s lose their shine, Starbucks has cast itself as a rich, distinctly middle-class brand.

Beyond that, branded merchandise carrying the Starbucks logo matters enormously. In earlier years such collaborations stayed mostly in the U.S. market; this year Starbucks gave China far more attention.

Early in the year it launched a co-designed set with the designer Alice+Olivia across the Asia Pacific market. In February it released a specially designed China Cities Series Starbucks Card. In March it brought hang-drip coffee bags — a format that began in Japan — to 57 stores in China. Its line of co-branded tumblers grew from Thermos to include Tiger. Halloween, Christmas, and the New Year season that followed all greatly widened the gift selection. On the Tmall store that opened in November, plenty of limited and collectible Starbucks Cards and gift cards also appeared under the banner of holiday gifting. This merchandise both spends down the Starbucks brand and enriches it.

That said, in a market where mobile payment is highly advanced, Starbucks has not yet copied its American playbook here. So far its mobile presence amounts to selling e-coupons through the Tmall store and having customers scan QR codes in-store. Nor is Starbucks in food delivery — a field almost every food-and-beverage brand is pouring money into — but with a clear lead in China, it seems in no hurry.

Tokyo Starbucks: deeply local, with high standards of taste

Japan — once ranked the world's third-largest coffee-drinking market — has a distinctly local character. Steve Jobs and David Bowie publicly admired it, and after World War II the sociologist Ruth Benedict wrote her classic The Chrysanthemum and the Sword on commission from the U.S. government, to study the national character and govern the country more effectively. The fact is, any brand entering this market must localize hard — and Starbucks is no exception.

In 1995, Starbucks set up a joint venture with the local company Sazaby League, taking a 39.5 percent stake, and announced its entry into Japan. In September 2014, Starbucks said it would buy back the remaining 60.5 percent; after nearly a year of buybacks, Starbucks Japan finally became a wholly owned subsidiary, and Sazaby League, having shared in the market's profits, completed its mission of helping Starbucks settle into local culture.

Starbucks already knows the rules. It launches its fukubukuro (lucky bag) every January, as local custom dictates. The 2015 edition held four coffee vouchers, one insulated tumbler, three packets of VIA instant coffee, and one bag of House Blend beans. In August, a canned black coffee developed with Suntory also reached convenience-store shelves. In Japan, convenience stores are a prime channel no brand can afford to miss.

Starbucks Japan's 2015 fukubukuro (lucky bag)

Starbucks in Japan also runs pop-ups and brand collaborations more often, and — thanks to the country's lively culture and high design standards — those efforts are usually worth a look. Earlier this year, for instance, the Southern Terrace store in Shinjuku became a winter "white-themed" pop-up. The store was designed by Makoto Tanijiri and Ai Yoshida of the Japanese architecture studio Suppose Design Office, and the printed graphics inside showed real taste.

In-store posters from the "white-themed" pop-up

Street-culture icon Hiroshi Fujiwara and fashion designer Jun Takahashi also team up with Starbucks regularly on limited merchandise. One earlier Christmas giant coffee cup, priced at 80,000 yen, became a hot item in markets well beyond Japan — and you can probably still find a proxy-bought version on Taobao at several times the original price.

London Starbucks: surviving the squeeze, Europe's launchpad gearing up

The Kingsway store is a favorite among many students at the London School of Economics (LSE), a short walk from campus. It is hardly their only option: directly across the street are a COSTA and a Caffè Nero; a ten-minute walk turns up a McDonald's; fifteen minutes away are another Caffè Nero, another COSTA, and a Pret A Manger; supermarkets like Waitrose also give away free coffee, and the nearest is just five minutes from the Starbucks.

In December 2014, Starbucks said it would move its EMEA (Europe, Middle East and Africa) headquarters from Amsterdam to London. Even though the UK is arguably the strongest market in the region, it ranks only fifth in the world. Coffee competition here is fierce.

For one thing, this is COSTA's home turf: COSTA runs more than 1,930 stores across the UK, while Starbucks has barely 800.

So when Starbucks finally brought the Flat White to Britain, COSTA had already gotten there first — and seen a 9.5 percent revenue lift from the drink. Starbucks also faces the heritage of a great coffee nation head-on. To many ordinary Britons, Caffè Nero — founded in Italy in 1997 — carries more credibility than Starbucks. Then there is Pret A Manger, which only recently reached Shanghai: this organic food brand, also born in London, has already won an irreplaceable place in young Londoners' minds. Go in for a sandwich, and you naturally grab a coffee too. And finally, London has a mature, high-quality independent coffee culture.

Starbucks is struggling in London — and London is nearly a microcosm of the wider EMEA challenge: Italy, which Starbucks has never entered, and a war-torn Middle East. These are lasting problems for the company.

Its significance, then, lies elsewhere. In 2015, Starbucks struck deals with France's Casino Restauration and Monoprix, South Africa's Taste Holdings, Germany's REWE, and Azerbaijan's Alshaya, after which it will gradually use their supermarkets and hypermarkets to enter those markets — whatever it takes, get the stores in first and claim the ground.

And if the U.S. is too far away for testing, London is a reasonable alternative. So the Kingsway store has wireless charging — a feature Starbucks first installed for its Silicon Valley stores. Starbucks Evenings, the food service pushed for years with little to show for it, has also reached London, carrying Starbucks' hope of feeling out local tastes.

So if Starbucks plans to do a great deal in EMEA in the years ahead, London will lay the groundwork first.

In 1985, the economist Theodore Levitt coined the term "globalization," which then meant the internationalization of economic activity. Multinational brands joined the tide afterward, entering local markets wearing different faces. Starbucks, like every other multinational, has to accept that variety.

Regional imbalance is a problem every multinational meets; Starbucks is just one of them. But the commercial logic is shared: raise operating efficiency in mature markets and use the room to build the future; seize share aggressively in key overseas markets, test carefully, and shore up the brand; follow the rules in markets with strong local cultures; find a foothold in markets that have proven hard to crack.

Four faces — for now, all of them are roles Starbucks has to play.

(Infographics: Xu Bingqing. Reporters Li Yan, Xu Jing'ai, Wen Xinyu, and Dong Zhifei; Ke Ming, Cao Mengwen, and Fu Shiye also contributed to this article.)

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Cover images via gamme, telegraph, notionscapital, fastcodesign