TIME China

Next Up, Microsoft. McDonald’s, Apple, Starbucks, Already Know China’s Wrath

A visitor walks past a Microsoft booth at a computer software expo in Beijing
A visitor walks past a Microsoft booth at a computer software expo in Beijing, June 2, 2010. China Daily—Reuters

Beijing appears to be reciprocating Washington's mistrust of Chinese firms

Is no famous foreign brand safe in China? On July 28, four Microsoft offices across China received an alarming set of unscheduled visitors: Chinese government investigators who appeared to be looking into whether the American software firm had violated Beijing’s controversial anti-trust laws, according to Chinese media. A few days before, it was McDonald’s and KFC’s turn in the spotlight. The U.S. fast-food companies’ supply chains were roiled when one of their major meat suppliers in China was accused of using expired meat. In May, the Western pharmaceutical industry came under scrutiny when GlaxoSmithKline was charged with running an extensive network of corruption in China to push their drugs into the market.

Foreign coffee and cars have also been targeted, with Chinese state media launching shaming campaigns against Starbucks and Jaguar for setting higher prices in China than in much of the West. Official Chinese press have even accused U.S. tech firms like Cisco of possibly being coopted by U.S. intelligence agencies intent on tracking Chinese customers.

Not even Apple — which assembles most of its gadgets in China through subcontractors and counts on voracious Chinese demand for its high-end products — is safe from the mud-slinging. On July 28, China’s official Xinhua news agency referred to “Apple’s immorality” in selling devices through which consumers’ personal data could potentially be mined. Earlier this month, state broadcaster CCTV had deemed the iPhone a conceivable “national security concern” for China.

Nor is this the first time this year that Microsoft has been fingered in China. In May, Beijing began forbidding central-government purchases of the company’s newest Windows 8 computer software because of potential security concerns. As for the Monday surprise visits by officials from the State Administration for Industry and Commerce, Microsoft isn’t saying much. Beyond a standard issuance from a company spokesperson — “We aim to build products that deliver the features, security and reliability customers expect, and we will address any concerns the government may have” — the American software giant declined to comment further to TIME, citing the “ongoing and sensitive nature of this situation.”

The pace does feel like it has quickened in terms of foreign firms being accused by Chinese officialdom of a slew of misdeeds: monopolistic behavior such as price-fixing, cavalier treatment of Chinese consumers and general financial misconduct. Still, some Chinese analysts contend that plenty of domestic firms are being pursued by local regulators, too. Certainly, Chinese consumer confidence has waned recently, with a steady supply of exposés of shoddy, unsafe or fake products. One local survey found that 80% of more than 3,000 people polled considered China’s food safety wanting.

Mao Qiying, an IT analyst with a large following on Chinese social media, also contends that Chinese tech firms like Huawei and ZTE have a tough time entering the U.S. market because of Washington’s concerns that these Chinese firms could be coerced into doing Beijing’s bidding. “The Chinese government,” Mao says, “is more lenient towards Western tech giants compared with the American government’s attitude toward Chinese tech companies.” In May, the U.S. charged five Chinese military officers with hacking into American computer networks from across the Pacific Ocean.

Chinese officials have accused the U.S. of national-security hypocrisy in the post-Edward Snowden era. As for the Chinese consumers themselves, even Xinhua, which on Monday linked tech companies like Apple to a “U.S. surveillance addiction,” conceded that commonly used anti-virus software employs similar technology to the tracking systems in Apple devices. Fears over an American invasion of Chinese privacy haven’t dampened iPhone sales in China either. Last quarter, Apple enjoyed a 28% hike in greater China revenues.

Meanwhile, on Chinese social media, some users were scathing of Beijing’s attempts to censure foreigners for potential antitrust violations. On July 28, China announced that by the end of 2013, the nation boasted 155,000 state-owned enterprises with total assets amounting to $17 trillion. “Will anyone investigate the government’s monopoly on the water, power or petroleum industry?” wrote one microblog wag.

with reporting by Gu Yongqiang/Beijing

MONEY Food & Drink

WATCH: Did Dunkin’ Donuts and McDonald’s Hurt Themselves Battling Starbucks?

Dunkin' Donuts and McDonald's both tried aggressive moves to top rival Starbucks, but so far, their efforts have failed.

MONEY stocks

Dunkin’, Mickey D’s, or Starbucks? The Surprising Winner of the Coffee War

Coffee spilling
Gazimal—Getty Images

McDonald's and Dunkin' Donuts' push into premium coffee was supposed to hurt Starbucks. Turns out, the two chains may be firing on one another, leaving Starbucks unscathed.

When Dunkin’ Donuts began selling lattés and other premium coffee drinks around a decade ago, it was viewed as a direct attack on StarbucksSTARBUCKS CORP. SBUX 0.3701% , the nation’s leading specialty coffee chain.

Then five years ago, another front broke out in the java wars when McDonald’s formally launched its McCafé line of premium coffee drinks. At the time, Mickey D’s entry into this brewing battle was called “a game changer” — and not in a good way for Starbucks.

The pincer moves were seen as a real threat to the Seattle-based java juggernaut, especially given the economics of the time. In 2009, the economy was still mired in a recession stemming from the global financial crisis. And with unemployment hovering near 10%, conventional wisdom said that cost-conscious consumers were likely to make a shift away from Starbuck’s pricey menu toward more cost-conscious offerings found at McDonalds or Dunkin’.

Research, in fact, showed that while coffee purchases were relatively recession proof — if you have to have your morning fix, you have to have your fix — the amount of money consumers were willing to spend per visit was likely to fall in economically troubled times. Hence, McDonald’s and Dunkin’, which both cater to working- and middle-class households, saw an opening.

Yet if the past five years have taught us anything, it’s that conventional wisdom was wrong.

As the chart below shows, over the past five years, Starbucks’ same-store sales — that is, revenues at locations that have been open for more than a year — accelerated and far outpaced those of Dunkin’ BrandsDUNKIN BRANDS GROUP DNKN 2.7589% , parent company of Dunkin’ Donuts.

Starbucks vs Dunkin

This point was reinforced when Starbucks announced its latest quarterly results on Thursday, which showed better-than-expected profits, and an 11% jump in overall revenues versus the same period last year.

What gives?

Well, class may indeed be playing a role in the coffee wars — but not in the way that you may have assumed. Earlier this year, Ted Cooper at The Motley Fool made an astute point:

McDonald’s may be able to sell coffee, but it will never come close to replicating Starbucks’ menu. McDonald’s best shot at becoming a coffee destination is to go after the price-conscious coffee crowd…

And who owns that crowd? Dunkin’ Donuts, of course, which despite its name generates nearly 60% of its revenues from coffee and beverage sales, not doughnuts.

The fact that Dunkin’s same-store sales growth pace has sunk precipitously ever since McCafés hit the market — even as the economy improved — is likely due to McDonald’s marketing push for bargain-seeking coffee drinkers. In many markets, in fact, McDonald’s is offering any size hot coffees for $1, which is more than half off what Dunkin’ charges for a hot regular cup of Joe.

Not surprisingly, investors have caught onto the fact that McDonald’s and Dunkin’ may be hurting one another — and not Starbucks — as evidenced by recent moves in Starbucks (SBUX), Dunkin’ (DNKN), and McDonald’s shares:

SBUX Chart

SBUX data by YCharts

The Economy Strikes Back

Meanwhile, the premium status that Starbucks maintains is likely to work to its advantage as the economy improves.

For instance, Dunkin’ Donuts recently announced that it will have to raise its prices slightly to address skyrocketing coffee bean prices in the commodity market. It remains to be seen how those price hikes will affect its consumer’s purchasing habits.

At Starbucks, it’s already known how consumers will react. When the company announced a price hike in 2013, comp-store sales remained strong as consumers cherished the brand enough to pay up, even in a so-so economy. The company announced another price hike in June, which is likely to add to overall revenues going forward.

The Empire Strikes Back

Ironically, the difficulties that McDonald’s and Dunkin’ Donuts have run into in their attempts to strike at Starbucks has created an opening for Starbucks to attack those competitors where they live — in food sales.

Starbucks’ chief financial officer Troy Alstead noted that in the company’s recently ended quarter — when same store sales rose 6% globally and 7% in the U.S. — two percentage points of those comp sales growth was attributable to food sales.

Starbucks’ momentum in food has recently been driven by increased lunch offerings, but going forward, the full effects of the company’s 2012 purchase of La Boulange bakery should start showing their effects.

In a conference call with analysts Thursday, CEO Howard Schultz noted that La Boulange branded baked goods are now available in more than 1,000 Starbucks stores in California and the Pacific Northwest. By the end of this summer, that number should jump to more than 2,500 stores, he said, as La Boulange food items will be sold in stores in New York, Los Angeles, Chicago and Boston.

TIME Retail

Walmart Managers Average Salary Higher Than Starbucks

Wal-Mart Associate Jeff Parker stocks produce at store #100 in Bentonville, Arkansas on July 2, 2003.
Wal-Mart Associate Jeff Parker stocks produce at store #100 in Bentonville, Arkansas on July 2, 2003. Reuters

Their cashiers, however, make less than the national average of $11.22/hour

Walmart may often get criticized for not paying its workers a living wage, but according to a new working paper, climbing the corporate ladder within the chain can lead to substantial income. In fact, the National Bureau of Economic Research found, Walmart store managers make an average salary of $92,462 per year.

The authors of the new working paper used data from career site Glassdoor and the Census Bureau’s Current Population Survey to analyze and compare average salaries of employees at some of the U.S.’s largest retail chains including Walmart, Costco, Whole Foods, and Starbucks. According to the analysis, Walmart store managers are among the highest paid in the nation, with Costco leading the pack with average manager salaries of $109,000. At Starbucks and Whole Foods, store managers bring home on average $44,632 and $75,775, respectively.

However, while store manager pay ranks high, according to NBER, Walmart cashiers earn about $8.48/hour and are paid less than their counterparts at the other chains. At Starbucks, “baristas” make $8.80 an hour, on average, while those at Whole Foods and Costco make $10.31 and $11.59. Cashiers at three out of four of the retailers make less than the average national hourly cashier rate of $11.22/hour.

The paper also shows a significant gender gap, even among cashiers. While high school educated women in retail make 25% less than their male counterparts, women cashiers make 17% less. Among those with some college education, women make 20% and 21% less than men when they have a high school education and some college, respectively.

TIME China

China Food Scandal Hits Starbucks

McDonald's, KFC and Pizza Hut have already taken action over claims that a food supplier used expired meat

Starbucks is the latest global chain to be pulled into a recent food scandal in China, involving Shanghai Husi Food Co.

The food-processing company came under fire after a TV report showed factory staff using expired meat, as well as meat that fell on the floor, in food products that had been supplied to chains including, McDonald’s, KFC and Pizza Hut.

In a statement on Weibo — the Chinese version of Twitter — Starbucks said that while it had no direct business ties with Husi, the chicken used for its chicken apple-sauce panini came from a supplier that purchased its poultry from Shanghai Husi. The sandwich had been on sale in 13 different provinces and major cities, but the coffee chain added that it has since been pulled from cafés.

The TV report on Shanghai Husi showed a factory-quality manager telling investigators, “Our company policy allows us to add expired raw materials to produce beef patties.” The report also found that processed chicken parts had been expired for nearly half a month.

McDonald’s and Yum! Brands Inc., the parent company of KFC and Pizza Hut, both issued apologies on Monday to Chinese customers.

The parent company of Husi, U.S.-based OSI Group, also apologized for the scandal and said it was cooperating with authorities. Shanghai food regulators shut down the Husi factory on Sunday, pending an investigation into the allegations.

Food safety is a hot-button issue in China, where scandals over toxicity and hygiene are commonplace.

TIME Coffee

Starbucks Unveils First Location in Colombia

Inside A Starbucks Store And The "Returning Moms" Program Ahead Of International Women's Day
Bloomberg/Getty Images

And will open 50 more within the next 5 years

Starbucks is spreading its corporate empire to a country already known for the strength of its coffee.

After 43 years of roasting and selling Colombian coffee, Starbucks opened its first store in Bogota, fully aware that it will have to compete with a number of domestic chains in a country with one of the world’s most vibrant coffee cultures. The new coffeehouse is bigger and more fancy than your typical Starbucks—the three-floored café has comfortable armchairs and elaborate wall art. The new branch will be the first anywhere to sell exclusively locally-sourced Starbucks coffee, the company said in a statement.

Starbucks “is looking to achieve a leadership position in the [Colombian] market,” said a statement by Nutresa, one of the two Latin American companies Starbucks is partnering with in the new venture.

The U.S. company’s main competitor will be Juan Valdez, a multinational chain that also sells 100% Colombian coffee. Juan Valdez seems to welcome the competition, though; Alejadra Londono, head of international sales, told the New York Daily News that “there’s room in the market for us both.”

Yet with Starbucks planning to open 50 stores in the market within the next five years, it remains to be seen whether Londono’s assured words will stick.

TIME Breastfeeding Wars

What Starbucks Tells Employees About Breastfeeding Customers

PraxisPhotography—Getty Images/Flickr RF

A young male barista comes to the defense of a nursing mother winning accolades and some criticism as the story goes viral.

A Starbucks employee who defended a woman’s right to breastfeed in the coffee shop was not acting under instructions from head office, but on his own, according to the company.

In a sign of how supercharged the emotions have become about public nursing, a Canadian midwife’s tale of nursing her baby at a local Starbucks in Ottawa went a little viral in early July, getting picked up by news outlets around the globe. The story was, to many, a heartwarming one: after a woman complained to a young, male barista that another woman was breastfeeding without a modesty shield, the barista said he’d take care of it. However, instead of telling the nursing mom to cover up, he just brought her an extra coffee for having to deal with the unpleasantness.

This is not actually Starbucks’ official policy. In fact, Starbucks doesn’t have an official policy on breastfeeding, according to spokeswoman Laurel Harper. The cappu-chain does have an official policy about making customers feel welcome, Harper noted (several times). “We empower our local partners to reach a decision about how best to make a customer’s experience a positive one,” she says. (Starbucks calls its employees partners, because they all get stock in the company.) It was up to the employee to decide which customer in this case was going to have a less-positive experience.

The company also doesn’t have a policy on what to do if a customer comes and exposes different, less nourishing body parts, either, but does expect “partners” to be familiar with local law.

Not all of the reactions to the story, which was first picked up by woman behind the Canadian website PhD in Parenting, have been of the “Awww, good for him” type. For many people, public breastfeeding is akin to indecent exposure. They can’t understand why they have to be confronted by nudity. “I know it’s just life for the nursing mom, but seeing something partially exposed isn’t normal for everyone around them,” was one of the more moderate comments. “I’ve been in a few situations where I just happened to turn my head and my gaze caught sight of something I didn’t want (or mean) to see.” For others it’s an inoffensive as watching someone drink, say a Venti iced skinny hazelnut macchiato with an extra shot and no whip. It’s not their beverage of choice, but it’s not a big deal.

But perhaps because of the very primal urge mothers feel to feed their children, emotions run very high whenever the subject comes up and the right to breastfeed has become something of a cri de couer for mothers—and others—and Nurse-In protests are becoming more popular. One the most recent was at a Connecticut Friendly’s in June. If the actions of the young Starbucks “partner,”are any indication, the culture is tipping in the moms’ favor.

As for the 19-year-old barista in question, he hasn’t been named. Although you might be able to find him by looking for the mom in Ottawa with the biggest smile on her face and working back.

TIME Food & Drink

These Are the Most Popular Starbucks Drinks Across the U.S.

Quartz

People in Portland really love eggnog lattes, apparently

The United States is a nation of enthusiastic coffee drinkers, and this map created by Quartz reveals what types of Starbucks coffee drinks are most popular throughout the country.

The map is based on data from hundreds of millions of Starbucks transactions across the U.S. Though the most popular beverages across the board were basic brewed coffee and lattes, certain cities showed an affinity for more specific, unique drinks. (We’re looking at you, Memphis and Portland.)

Quartz also noticed a sort of “cold-hot axis,” meaning that typically warm states like Florida, Texas, New Mexico and Hawaii order more iced coffee than hot coffee overall. Another divide that’s a bit harder to explain is dark vs. light. Cities like Chicago and Philadelphia opt for light roasts, whereas cities like Boston and Seattle go dark.

Other conclusions: people from southern California really love their Frappuccinos, and people from Seattle (Starbucks’ home city) are really into espresso.

TIME publishing

Starbucks Chair Co-Writing Book on Military Vets

NEW YORK — Starbucks chairman Howard Schultz is collaborating on a book about veterans of the wars in Iraq and Afghanistan.

“For Love of Country: What Our Veterans Can Teach Us About Citizenship, Heroism, and Sacrifice” will be released by Alfred A. Knopf on Nov. 4. The book will be co-written by Washington Post correspondent and editor Rajiv Chandrasekaran.

“Given that less than 1 percent of our country has served in the military conflicts of the last decade, this is a time in America when it’s crucial to bridge the divide in our society between our civilian and military populations,” Schultz said in a statement issued Monday by the publisher.

The book will tell of deeds both on the battlefield and back home, whether an orthopedic surgeon who enlisted at age 60 and saved numerous lives or a military spouse helping wives of severely wounded soldiers.

Schultz has been a prominent advocate for veterans, saying that too little has been done for them once their service was completed. He has pledged to hire 10,000 veterans and military spouses, and earlier this year donated $30 million for research into post-traumatic stress syndrome and brain trauma.

According to Knopf, Schultz is giving all author proceeds to charity.

MONEY inflation

Why the Fed Won’t Care About Higher Prices Until You Get a Real Raise

Stacks of food in bar graph
Tim Macpherson—Getty Images

Why rates are staying low even though your grocery bill is up.

Inflation is the buzz on Wall Street this week. The consumer price index recently topped 2% for the first time since late 2012. To be clear, that’s still very low. If you are a middle-aged American like me, inflation is lower than it’s been for most for your entire life.

Fed chair Janet Yellen says she’s not concerned about inflation yet—she calls the data “noisy.” Money’s Paul Lim has a deeper dive into that data and why the Fed isn’t raising rates here.

But maybe you are scratching your head about Yellen’s calm. You can certainly feel a pinch on regular shopping trips. Meat prices are through the roof. And now there’s even news that Starbucks will be charging more for your morning caffeine fix.

Part of the issue is that we probably notice what’s gone up more than what’s down. (The news media sure does.) There’s always something on the consumer price index spiking up. But then there’s usually stuff getting cheaper, too. The past year has seen a decline in the prices of bread, peanut butter and bananas. Furniture and appliances are cheaper. And men’s clothes cost less (but not women’s, oddly). Kids’ toys, televisions, and computers are bargains compared to last year. No, you can’t live just munching on PB&B sandwiches in front your new laptop (you shouldn’t, anyway)—even so, add all those little items up and they do count as important part of your cost of living.

More important, though, is that the Fed keeps its eye not just on prices but on what’s driving them. If coffee prices shoot up because of a drought in Brazil, you may feel a squeeze in your budget, but that’s not the broad inflation the Fed worries about. The classic driver of broadly rising prices is higher wages.

When you and I are able to get more pay, we spend more. That increase in demand makes it possible for companies to raise their prices. Then workers start looking for even higher pay to catch up to rising prices, and so on. As economist and Fed watcher Tim Duy notes in his takedown of “inflation hysteria” here, “If inflation accelerates while wage growth remains stagnant, demand will soften and so too will any incipient price pressures.”

And how is wage growth looking? Better, but not exactly on fire.

image(27)
SOURCE: St. Louis Fed

Workers are just about staying ahead of prices, a little, and their real wages aren’t keeping up with productivity gains. And that’s for the ones with jobs: Unemployment remains on the high side, with lots of people missing from the labor force too.

The Fed will start worrying about price spikes, in short, when wages start moving too. That the Fed will wait to quash higher prices until you’re getting paid more sounds a little perverse. But the alternative—jacking up interest rates and throwing people out of work every time hamburger gets more expensive—would be a lot nastier.

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