Starbucks, Tingyi agree coffee-drink deal

Partnership seeks to exploit massive ready-to-drink market in China

Starbucks and Chinese food and beverage producer Tingyi Holding Corp jointly announced a cooperation deal on Thursday in which Tingyi will produce and sell Starbucks' ready-to-drink (RTD) products in the Chinese mainland market.

Starbucks will provide coffee expertise, brand development and product innovation while Tingyi will be responsible for RTD production and sales in the mainland, which is the coffee company's fastest-growing market outside the US, according to a statement Starbucks e-mailed to the Global Times on Thursday.

Partnership with Tingyi, a leading RTD beverage maker and more commonly known as Master Kong in China, will "unlock" the massive RTD market and increase local demand for Starbucks, John Culver, group president of Starbucks China and Asia Pacific, was quoted as saying in the statement. Tingyi is headerquartered in Tianjin in North China.

The two companies see a promising future for the RTD coffee market, said Liu Xiaofeng, an industry analyst with China Minzu Securities, noting there is a rising demand for functional beverages including coffee and herbal tea.

Starbucks predicted that the RTD coffee and energy category, a $6 billion business, will grow by 20 percent over the next three years, read the statement.

The tie-up leverages the respective strengths of Starbucks and Tingyi to bring the Starbucks RTD products to Chinese customers, Starbucks said.

The Chinese RTD market has huge potential, said James Wei Chun-hsien, CEO of Tingyi, who was quoted in the report though he did not elaborate.

As a leading food and beverage producer that has been in the mainland for more than 20 years, Tingyi has an extensive distribution network in the retailing sector, which Starbucks as a coffee chain store operator does not have, Yan Qiang, general manager of Beijing-based consulting firm China-USA Benchmark Group, told the Global Times on Thursday.

With its strength in production and distribution, Tingyi will increase the market share of Starbucks' RTD products in the mainland, Wei was quoted as saying in the statement.

Starbucks' bottled Frappuccino are sold in stores but not as widely as other RTD coffee such as Nestlé, Li Xin, a 28-year-old Beijing resident who is a loyal customer of Starbucks, told the Global Times on Thursday.

"It will be great if Tingyi can make Starbucks' RTD coffee more available in stores, but I hope the taste will remain the same," she said.

Starbucks' bottled Frappuccino is sold in nearly 6,000 locations in the mainland, including some Starbucks stores, groceries and convenience stores, the statement said.

The bottled Frappuccino lags behind the market leader Nestlé, which dominates the RTD coffee sector in the Chinese market fueled by its well-established coffee brand reputation and distribution penetration strategy, according to a research report on RTD coffee market in China released by market researcher Euromonitor in 2014.

Through the cooperation, Starbucks and Tingyi plan to bring new bottled Frappuccino to the market in 2016 and make it accessible in more locations, the statement said.

Tingyi's Wei said that the cooperation with Starbucks will also further expand Tingyi's beverage product portfolio, according to the report.

Unlike competitors in the beverage sector such as Nestlé, Tingyi does not have an image as a coffee maker, so a tie-up with a well-known coffee brand like Starbucks is helpful for Tingyi in the RTD coffee market, according to Liu.

However, the effectiveness of the cooperation depends on whether the two companies can achieve effective cooperation, Liu said, noting that Starbucks and Tingyi have very different corporate cultures and will need to adapt to each other in the tie-up.