Apple and Starbucks in Chengdu, China: Fast Growing Largest Inland Economy (1)
May 6, 2015
Akira Kondo
Chengdu, the capital of populous Sichuan province and home of the former Chinese Communist leader, Deng Xiaoping, as well as, of course, Pandas, is located about 1,000 miles west of Shanghai or a two hour high speed train ride from neighboring Chongqing. It is one of the largest cities in inland China in terms of population, but it is also one of the economically important cities in China. In the earlier last summer, United Airlines became the first U.S. carrier to fly a nonstop to Chengdu from San Francisco to meet travel demands between this inner city and the United States. Thanks to Untied, Chengdu has been more approachable than ever and this may be one of the confirmations that Apple and Starbucks have been enjoying their presence in this global city in inland.
Basic Facts Per capita GDP in Sichuan province overall is slightly above 32,000RMB (or US$5,150), about 32 percent less than neighboring Chongqing or about 13 percent less than comparable Mao Zedong’s Hunan province. By just looking purely at such data, it is reasonable to understand that there is only one Apple store available at this moment, compared to three Apple stores in Chongqing. On the other hand, there are, however, twice more Starbucks stores available in Chengdu than in Chongqing or three times more stores than in Hunan province. 
Basic Facts: Sichuan Province, Chongqing, Hunan Province | Sources: Apple Inc., Deutsche Bank Research, Starbucks China, National Bureau of Statistics of China
By looking at per capita GDP among these inner cities, the numbers are not impressive and not convincing enough to establish a situation that those middle-income consumers can afford to attain an expensive iPhone or a Starbucks drink. For instance, average monthly income of Sichuan people is just 2,700RMB while a popular iPhone 6 (16GB) costs 5,288RMB or Starbucks’ Tall-sized Green Tea Frappuccino, the Chinese all-time favorite, costs 30RMB. That simply said, it requires two months of salary to attain that iPhone or one-third of a daily income to enjoy the Frapp.
However, there is a reason that Apple or Starbucks or any multi-national companies cannot ignore these inner cities. Their growth rates of per capita income are growing fast and nearly twice faster than wealthier global cities, like Shanghai and Beijing. Over the past nine years, per capita GDP in Sichuan province, for instance, grew more than 17 percent, higher than the national average of 15 percent. That means their income level today will double after a little more than 4 years according to Rule of 72. Although China’s overall economy is clearly slowing nowadays, it is still hard to ignore such high growth rates for investors and executives. 
Regional Per Capita GDP Growth Rate, Average Growth Rate of Regional Per Capita Income (2005-2013) | Source: National Bureau of Statistics of China
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 Apple Store MixC Chengdu
Apple Store in Chengdu
When I visited Chengdu in the earlier April, there was only one Apple Store available in the city. The store is not really located on a tourist place, like Tianfu Square and Chunxi Road, rather located on a residential and business district of the city. As a tourist, it is no reason to stop by this Apple Store unless your iPhone is in trouble. However, the store is nicely located in a relatively high-end shopping mall, where most internationally well-known retail stores settle down and so do a Starbucks store. Unlike Shanghai as always, iPhone users in Chengdu seemed lesser or even harder for me to find new gold-colored iPhone 6 Plus during the trip while I still could find them easily in neighboring Chongqing a few days earlier. It is maybe understandable if we just look at per capita GDP numbers between those cities. Per capita GDP in Sichuan province is 32,000RMB, about 32 percent less than neighboring Chongqing. Sichuan people also like to eat Xiaochi, small snacks, what neighboring Chongqing people always grab. However, it does not mean Chengdu people just like eating Xiaochi while ignoring modernity, such as attaining iPhone or sipping Starbucks coffee. 
At Taikoo Li. (TL) Flagship Starbucks store (TR) Flagship OMEGA store (BL) Flagship Gucci store (BR) The largest book store in China.
It is very likely that once the new Apple Store opens, more and more middle-income consumers will flock to the store to experience its modern products. Unfortunately, most consumers in Sichuan province today are trapped in the middle-income category, which makes harder for them to attain an expensive iPhone. However, tens of thousands of those consumers are getting out of the middle-income trap every year thanks to the faster-than-average per capita growth in the region. Those people are certainly going to become soon-to-be Apple’s customers within next couple of years while today’s wealthier people already enjoy Apple’s modern products.
Sichuan consumers tend to own relatively cheaper smartphones from Xiaomi, HTC, or Samsung at this moment, but probably until they reach upper middle-income category in coming years. In most Chinese cities, including Chengdu, there are always hundreds of local smartphone shops on off-streets to sell reasonable non-Apple smartphones to millions of middle-income consumers, who cannot afford to purchase an expensive iPhone. One of the interesting stores on the off-street nearby Tianfu Square is a fake Apple Store. This fake store stands impeccably, nicely decorated with golden balloons for its opening day, while its employees wear Apple logo imbedded blue T-shirts. It is hard to distinguish whether it is the real or the fake one and to know what they are really selling, but they are likely to offer used Apple products as well as some maintenance services in a competitive market. |
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(L) A new Apple Store may be expected to open at Taikoo Li. (C+R) A fake Apple Store nearby Tianfu Square. Like real Apple Store, employees wear blue T-shirts while advertising iPhone 6 and Apple Watch.
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Smartphones are must-have items for today’s Chinese. While fashion-oriented Shanghai people have to own the newest iPhone to update their modern lives, price-sensitive Sichuan people are also seeking the modernity but iPhone is still not easily attainable at their income levels today. However, once they reach the upper middle-income level, they are going to step into one of Apple Stores in the city. The opportunity is enormous for Apple and that opportunity may come much sooner than later.
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