Starbucks Opened a Big Store in an Old Shanghai Mansion. Does That Make It Feel Upscale?

Bigger, more refined stores fitted out with higher-end equipment have become one of the ways Starbucks tries to win consumers over. But this market is too complicated for one or two stores to fix.

On May 9, Starbucks held an opening ceremony for its Sinan Mansions store in Shanghai. It arrived late.

Several cafés in this commercial complex already serve coffee and afternoon tea. Costa, its most direct competitor, has been open here for years.

Sinan Mansions sits across the road from Fuxing Park, which is more than 100 years old. Like many property projects built in the former French Concession, it keeps the nostalgic exterior of the old houses but erases most of the details time left behind — for a long stretch after it opened, the red brick still gleamed as if new, and every bit of wind and rain since the 1930s lay neatly covered in plaster.

You don't need much explaining to see that this place is pitched against Xintiandi, Shanghai's famous attraction 10 minutes' walk away. Restaurants and brands that sell an upscale way of living are the main tenants. Along the street are the craft-beer bar Boxing Cat and the Spanish restaurant Las Taps; at Sinan Jiangyan, which serves refined Huaiyang cuisine, the average check reaches 496 yuan a person.

Its biggest problem is that there are not enough office buildings nearby to feed it. Unlike the mixed crowd at Xintiandi, this place stresses "cultural atmosphere." Sinan Road, where the Starbucks sits, took its name from Rue Massenet, the street's French-Concession name, after the French composer Jules Massenet. Not far away is a municipal heritage site, the former Shanghai office of the Chinese Communist Party delegation, which dates to 1946. In the half-century and more before it was developed into commercial property, Liu Yazi, Mei Lanfang, and the warlord Yang Sen and his family all lived here.

Except on weekends, the people strolling around are mostly tourists with cameras who came for the Shanghai-style architecture, not office workers used to picking up a coffee after lunch.

At 1:30 pm on the Friday of opening week, three to five people stood ordering at the Starbucks counter. Traffic picked up later, but it was still well short of what you see around office towers. For this 400-square-meter space, sales per square meter is a business metric that will have to be set aside for now.

From 2014 on, Starbucks expanded in China at close to one new store a day. The local design team, formed in 2011, grew from 47 people to 60, among them experienced architects, interior designers, and furniture designers. They work project by project, a few people to a store — much like an independent design firm — which is the only way to keep up with that rate of expansion.

In 2014, Shanghai also became one of the cities with the most Starbucks stores in the world, behind only Seoul and New York. If you live in central Shanghai, it is easy to feel you hit a Starbucks every few steps.

A Starbucks store usually takes a little over two months from site selection to opening; the Sinan Mansions store took more than three. On opening day the company gathered China senior design director John Boline, China concept design director Shen Chuanxiang, and Ye Guanling, who actually designed this store, to take questions from the press.

To an ordinary customer, this is just a bigger Starbucks. Inside the company it counts as one of 54 Starbucks Reserve stores in the country. Think of it as Starbucks's high-end line, though nothing in the store says so. Apart from the single Starbucks logo on the outside wall, you can barely find the brand's signature green here; in its place are the black, coffee, and brown of industrial-style design.

The biggest difference is probably the "Coffee Lab" on the second floor. The lab is really one long, open marble counter holding a Black Eagle espresso machine, two siphon brewers, and two pour-over drippers, while the dessert case sells four MOF cakes made only for the Sinan Mansions store. On the shelves opposite the counter, black mugs and Reserve beans sold only at Reserve stores are arranged artfully for sale, along with grinders, pour-over kettles, and cloud cups from the Japanese brand HARIO — the pose, more or less, of a coffee insider.

The Sinan Mansions store has two Black Eagles in all. The other, a three-group Black Eagle VA388 (Victoria Arduino Black Eagle VA388) beside the ground-floor register, is the official machine of the World Barista Championship from 2015 to 2017. Until now the same model was in only two stores in Chengdu — one of them next to the St. Regis, where CEO Howard Schultz stayed on his visit.

With the same number of staff, the Black Eagle turns out noticeably fewer cups than usual. In most stores a barista only has to pour beans into the fully automatic Thermoplan machine. The Black Eagle takes grinding, dosing, tamping, extraction, and knocking out the spent puck, and for a milk drink the barista also has to adjust the temperature of the steamed milk by hand.

Beyond the upgraded setting, the defining feature of a Reserve store is that it displays single-origin beans traceable to a particular estate, each one labeled with its flavor. In January 2016 some Reserve stores also began selling Jamaica Wallenford Blue Mountain coffee at 388 yuan for 250 grams — "Blue Mountain" may be an overused word, but it really is the top tier of coffee beans.

The more elaborate process decides the quality of the coffee, and it also creates a sense of ritual. That explains why all seven or eight people working a normal day at the Sinan Mansions store wear "black aprons": they have generally studied for more than six months and passed an assessment, and inside Starbucks they are called "coffee masters."

"Coffee is changing very fast in China. Four or five years ago almost nobody knew to drink coffee the way people do now. How people use milk and sugar has changed a great deal too," John Boline told QDaily. He also thinks Chinese people are unusually group-minded: "Sometimes four or five friends or family members come out together and need a space. Then the setting they are in matters a lot, so we also choose more comfortable, bigger sofas and chairs."

Refined, understated stores are one of the most effective ways to court a market, as several international chains have already shown. In Japan, Uniqlo and Muji are ordinary, everyday consumer brands; in China, huge flagship stores laid the ground for consumer trust. Zara has been the steadiest practitioner of the upscale-store strategy: its stores worldwide keep a high standard of fit-out and window display, and it sites them right beside luxury brands.

At the end of 2014, the world's largest coffee flagship store, the Starbucks Roastery, opened in Seattle. Customers can watch the roasting equipment up close while trying all sorts of new coffees in a heavily industrial space — a high-end experience that breaks out of standardization. Not long ago the company said it would take the format to New York and build a store of about 2,000 square meters, its largest anywhere.

Starbucks is copying that strategy here, and in a sense China is its biggest bet.

"Even with a lot of 'noise' — in some cases the public talk about all sorts of problems in China, economic problems, market resistance — China is clearly going through remarkable development in the sense of a country in transition. But I come to China every year, and I believe what I see. China's middle class will grow to 600 million people over the next 10 years, and we have made a long-term commitment here." Schultz said this in January 2016, in a phone interview from Chengdu with David Brancaccio, a host at American Public Media (APM), the second-largest radio network in the US.

In fiscal 2015, the Asia-Pacific region, which holds the China market, mattered a great deal to Starbucks. Same-store revenue growth there in the first three quarters was 8%, 12%, and 11%, beating both North America and Europe each time. To lift Wall Street's expectations, Starbucks cannot ignore how the China market performs.

Asked what impression the China market had made on him, Boline, an American, said: "Chinese consumers are very particular."

Unlike mature markets, where Starbucks is taken for granted, consumers in China are more of a mixture: some buy a Starbucks only because it is convenient at work, others approach it carefully, as something to try out. Some already know several coffee brands — in the words of Tracy Allen, chair of the Specialty Coffee Association of America (SCAA), describing the fussiest of them: "Consumers aged 18 to 35 want coffee with transparent origin information, from a single estate, lightly roasted in micro-batches, with a distinct flavor, not the traditional, bland, standardized blend."

Those people are only looking for a sense of safety inside an international chain — a familiar, standardized taste, found outside train stations, unfamiliar street markets, and no-name cafés of doubtful quality. But plenty of others are still working out how to tell one coffee flavor from another, and what different equipment and ingredients have to do with it. Never mind the potential customers who know almost nothing about coffee.

This is a miniature of the market many retailers in China face. Consumers are spread extremely wide and differ enormously by region, and at the same time, in Beijing and Shanghai, where the market has been more educated, the competition is every bit as fierce as in European and American cities. Starbucks has to spread the most basic information and meet the demands of the fussiest customers at once.

In 2002, Uni-President brought the Starbucks brand to the Chinese mainland, with all operations run by a joint venture set up by Uni-President Group and Starbucks. Close to half of the stores in the country are now in the Yangtze River Delta, and Shanghai is the fastest-growing city in that front-running market.

In October 2014, Starbucks opened its first Reserve store in the Shanghai World Financial Center, but the official list planned only four such stores for Shanghai in all, against seven each for Beijing and Chengdu. In the past, Reserve stores were converted from ordinary stores with strong individual sales, renovated and upgraded. This time Sinan Mansions opened as a Reserve store outright, and a large part of the reason is that Shanghai was getting anxious about being left behind.

In recent years, lifestyle magazines like Kinfolk had a run of popularity in Shanghai, and the pour-over kettles and Chemex brewers pictured inside them spread with it, becoming an ideal choice for people in pursuit of a quality life. Plenty of lifestyle official accounts have not only compiled a Specialty Coffee Map of Shanghai but also explain categories such as cold-drip coffee (Cold Brew) in detail at regular intervals, sometimes with instructions for making it at home.

In sheer numbers, too, Starbucks is increasingly hemmed in by direct competitors. Shanghai has 5,296 cafés, according to a count in February this year by Yicai's "New First-Tier Cities Institute", and the number of Starbucks stores here is far below the total of all the other independent cafés — which also have a freshness Starbucks lacks. We have reported before that Nanyang Road, just over 400 meters long, has seven independent cafés in seven different styles, among them the seatless, cheap Manner Coffee and Bonne Cafe Restaurant, which trades on lane-house atmosphere; Yuyuan East Road, only 200-odd meters, has five.

But between what Starbucks wants and what it achieves there are still too many unknowns.

The Dianping page for the Sinan Mansions store has 64 reviews so far. Most people came for the atmosphere, and they also complain that even with the air purifiers running, the smell of the renovation is still too strong. As for the Black Eagle machines and the kinds of beans, few people mention them — which stands to reason: anyone who can already hold forth on details like that probably has a better outlet for it than Dianping.

Cover image from Starbucks China and inlandcoffee