Starbucks: a global ‘coffee culture’
From its first location in Seattle’s Pike Place Market in
1971, Starbucks has grown into one of the largest coffee
chains in the world. In 2018, Starbucks had 29,324 stores
globally – an increase from the previous year, when it had
27,339. The company purchases and roasts high-quality
coffee beans which are then brewed and retailed in trendy
designer coffee shops that cater to a loyal following of
young urban professionals, who appreciate the distinct
taste of Starbucks’ coffee. In 2018, its sales were US$24.72
billion.
The company’s road to success began in 1985, when, after
convincing the founders of Starbucks to test the coffee bar
concept, the then director of retail operations, Howard
Schultz, started his own coffee house to sell Starbucks
coffee under the name Il Giornale. Within two years,
Schultz purchased Starbucks and changed its company
name to Starbucks Corporation. Since then, the company
has expanded rapidly, opening stores in key markets and
creating a ‘corporate coffee culture’ in each of the urban
areas in which it settled. Coffee bars are located in hightraffic areas and include large bookstores, suburban malls,
universities and high-traffic intra-urban communities.
Popularity has not come without a price for Starbucks.
Coffee prices fell considerably in the late 1990s and led to
the displacement of thousands of farmers. The main reason
for a fall in the price of coffee was the oversupply that
arose from improved production techniques and from a
crop boom in the 1990s. Although Starbucks only
purchases approximately 1 per cent of the global supply of
coffee, its high profile has made it a main target for
protestors who accuse the coffee giant of not providing a
fair price to coffee growers; despite Starbucks’ policy of
purchasing high-quality beans at premium market prices.
To address the concerns of protestors, Starbucks
introduced Fairtrade-endorsed coffee to its coffee houses.
While the amount of Fairtrade coffee sold by the company
is insignificant, at 1 per cent of total sales, it is enough to
portray the company as progressive and avert a consumer
boycott.
The company directly operated 8,575 coffee houses in the
United States in 2018. Unlike many coffee and fast-food
chains, Starbucks does not franchise (license the right to
operate one of its stores) to individuals in the United States.
It does, however, negotiate licensing agreements with
companies that have control over valuable retail space,
such as an airport or hospital. In 2018, there were 6,031
Starbucks stores operating under licenses in the US.
With coffee houses in over 75 countries, today Starbucks
has a global presence. In contrast to its domestic operations,
the majority of Starbucks’ international operations are
through licenses. Indeed, of 13,082 international stores in
2017, 8,319 were licensed and in joint venture, while 4,763
were directly owned. While Starbucks international stores
represented around 48 per cent of the total number of stores,
international revenues only made up about 26 per cent of
total revenues in 2017. Starbucks has also adopted
different international strategies in different countries: for
example, in 1998, when it expanded into the UK, it did so
through an $83 million acquisition of Seattle Coffee
Company which had 60 outlets. The outlets were then
rebranded as Starbucks. After failing to make gains in 2007,
Starbucks, in 2012 formed a 50:50 joint venture with Tata
Global Beverages in India, called Tata Starbucks. The joint
venture has so far been seen as a success – after opening
its first outlet in October 2012, it opened its 75 th outlet in
April 2015, and now has a presence in seven cities.
While Starbucks has had many successes in its
international ventures, it was not successful in expanding
to Australia. Starbucks first entered Australia in 2000
through a wholly owned subsidiary and opened several
stores in quick succession. By 2008, however, it became
apparent that Starbucks had troubles, and from both
cultural and financial pressure, it closed 61 of its 85 outlets.
While Starbucks adapted its product line in China to meet
the different needs of consumers, in Australia they failed
to appreciate the differences between US and Australian
preferences. Starbucks is branded as ‘affordable luxury’,
but as analysts point out, Starbucks’ aggressive expansion
meant its availability led it not to have a ‘luxury image’ but
to be a symbol of American consumerism. In fact,
Australians prefer smaller boutique-style coffee cafés, with
personal touch and stronger-tasting coffee than was on
offer at Starbucks.
More recently, Starbucks tapped into one of the most
difficult coffee markets in the world: Italy. Though the
founders pride themselves on the Milanese-inspired origin
of the company, it took Starbucks 47 years to actually enter
the country. Opening its flagship store on a trendy square
in Central Milan in 2018, the company hopes to attract
tourists as well as locals through its store’s luxurious and
high-end design. Italians are famous for their coffee culture
and are said to be skeptical of the American lifestyle.
Nevertheless, Starbucks hopes to succeed in this difficult
market, competing against local, cheaper coffee houses.
For its goal, the company has sought help from various
sources to make sure the Starbucks-in-Italy story becomes
a successful one. For example, the retail giant entered a
partnership with Percassi, a local brand management and
real estate company. Whether these and other adaptionrelated efforts allow Starbucks to succeed and help it win
the Italians’ hearts, is a question that (for now) remains to
be written in the stars.
Source: International Business (8th Ed), Collinson, Narula, & Rugman,
Pearson, 2020 (pp.41-42)