Starbucks risks being scalded by Hong Kong

By Nisha Gopalan

Companies from Cathay Pacific Airways Ltd to Inditex SA’s Zara are struggling to balance their business interests in China with Beijing’s disapproval of the pro-democracy protests that have seized Hong Kong since June.

Add Starbucks Corp to the list.

On Friday, prominent Hong Kong activist Joshua Wong joined calls for Starbucks to cancel its franchise with one of the city’s biggest restaurant companies, after a member of the founder’s family expressed criticism of the unrest. Annie Wu, whose father established Maxim’s Caterers Ltd in 1956, made these comments earlier this month at the United Nations Human Rights Council in Geneva, where she called the protests “riots” and expressed “full support” for the Hong Kong government and police.

Wong’s tweet included a petition that has already picked up more than 12,000 signatures.

Feeling the heat

This could turn out to be an awkward situation for Starbucks, which franchises its Hong Kong and Macau operations to Maxim’s. The fracas comes as the American company expands its footprint in China: Since opening its first shop in Beijing in 1999, Starbucks has set up more than 3,900 cafés in the country, and boasts of plans to open one new store there every 15 hours.

Starbucks now fully owns all of its Chinese locations — after steadily buying back stores in recent years — and has singled out the mainland as a key market, while scaling back some of its European business.

Consumer boycott

For its part, Maxim’s is also in an unenviable position. The restaurant chain is part and parcel of everyday life in Hong Kong; it owns a bakery chain, whose moon cakes are among the city’s most popular, as well as famous restaurants such as Peking Garden. Facing boycotts at shopping malls and university campuses, Maxim’s has taken pains to distance itself from Wu’s comments.

The company released a statement saying that she isn’t a manager and doesn’t have a position at the company.

Maxim’s — whose ownership is split between the Wu family and Jardine Matheson Holdings Ltd, the old British trading house closely linked with the city’s founding in 1841 — introduced Starbucks to Hong Kong in May 2000. The first store opened at Jardine-owned Exchange Square skyscraper in Central, and the chain is now ubiquitous.

While Jardine doesn’t break down how much profit Maxim’s gets from its Starbucks licence, Bloomberg Intelligence estimates that Hong Kong makes up 90 per cent of the profit at Jardine’s retail arm Dairy Farm International Holdings Ltd, which includes the Wellcome supermarket chain and Mannings drugstores, among other businesses.

If there was ever a moment for Wong to grandstand, this could be it. Saturday marked the five-year anniversary of the Occupy movement that brought him to prominence, and the People’s Republic of China celebrates 70 years since its founding on Tuesday.

The demonstrators who have committed 17 straight weekends to their cause have made clear that they want Chief Executive Carrie Lam to meet their “five demands, not one less”, one of which would compel the government to stop labelling the protests as “riots”.

That might explain why Wu’s comments struck such a chord. But while Lam has conceded on a key measure — withdrawing a bill that would extradite criminal suspects to China — she appears unwilling to consider some of the protesters’ other demands.

This stalemate could mean that companies hoping to ride out the current unrest will only get sucked in deeper. Starbucks has long sought to portray itself as a reflection of the communities it serves; that will become increasingly difficult as it tries to please so many masters. In recent years, the coffee chain has also shown that it can respond swiftly to PR disasters. This might be a good time to dust off that playbook.