Peter Strehle / Michael Cruickshank
Starbucks - international business concept and Starbucks
in Germany
Seminar paper
Document Nr. V32098
http://www.grin.com/
ISBN 978-3-638-32903-3
9 783638 329033
International Business Methods
International Business Methods
Starbucks
international
–
the
WorlStarbucks
business
concept
and
Starbucks in Germany in a Cup
Course of International Business Methods
IBTM Program
University of Lappeenranta, Finland
Autumn Semester 2004
11.11.2004
Starbucks – the World in a Cup
I
Table of Contents
Table of Contents ......................................................................................................................I
1
Introduction ....................................................................................................................... 1
2
Starbucks’ International strategies ................................................................................. 3
3
2.1
Competitive Forces.................................................................................................... 3
2.2
Entry Strategies.......................................................................................................... 7
2.3
Success factors......................................................................................................... 11
2.4
Problems of globalisation ........................................................................................ 12
Starbucks in Germany.................................................................................................... 14
3.1
German Coffee Market ............................................................................................ 14
3.1.1
Coffee Shop trend............................................................................................. 14
3.1.2
Coffee - unquestioned front runner in the beverage
consumption of the Germans............................................................................ 14
3.2
Starbucks’ Joint Venture with KarstadtQuelle AG ................................................. 15
4
Conclusion........................................................................................................................ 18
5
Appendix ........................................................................................................................... II
6
Table of References .........................................................................................................IX
Starbucks – the World in a Cup
1
1 Introduction
Starbucks Corporation was founded in 1985 by Howard Schultz. The origins of Starbucks
reach back to 1971, when the Starbucks Coffee Company was founded by three students in
Seattle. These students, Gerald Baldwin, Gordon Bowker and Zev Siegl love coffee and tea.
And this was the only reason why the set up the Starbucks Coffee Company. They just want
to bring the best coffee in the world to Seattle. This time Starbucks only sold the coffee beans
and the according coffee machines and mills. In the first ten years four more stores were set
up. Howard Schultz, who was working in a Swedish house ware company this time,
recognized the development and increasing demand of coffee mills of Starbucks.
Infected by his interest in this company he started his research in Starbucks. He often went to
Seattle and always met the founders of Starbucks, trying to convince them to employ him.
Howard Schultz, who had no idea about coffee, but a lot of knowledge about selling, stayed
very obstinate and so finally in middle of 1982 he became a manager at Starbucks. Since he
joined the company he started to learn as much about coffee as he could. Inspired from the
Italian coffee culture, which he got know during a visit in Milan, he wanted to introduce a
coffee bar culture in the United States.
After disagreements with his partners he decided to set up his own business. So, in 1985 he
opened his first coffee bar in Seattle – Il Giornale. To get the capital he needed he spoke to
242 investors. 217 declined, but the others gave him the money to win the competition
together with Starbucks.
In 1987 he could purchase the Starbucks Coffee Company and most important the brand name
that he used for all his stores, as Starbucks was a more familiar brand to the Americans.
When he acquired Starbucks for US-$ 3.8 million the company had already 11 stores and
about 100 employees. He kept almost all the employees because he also wanted to make
Starbucks become a social company. So, he also paid more than the minimum wage, cares for
good health insurances and even offered stock options to part-time employees. So it was no
surprise that Starbucks had the lowest fluctuation rate among the restaurant and fast food
business sector.
But today also some ex-employees mention that the good and social image of Starbucks is a
fallacy, as there are long working hours and not many chances to be promoted. In 2001
managers from about 700 stores sue Starbucks for unpaid forced overtimes. Starbucks finally
agreed to pay US-$ 18 million.
Howard Schultz’ strategy was to found as many stores as possible and also as fast as possible.
He even paid up to twice of the local rents to get some good places for his stores and to beat
Starbucks – the World in a Cup
2
the competition. Also he completely acquired already established coffee chains and stores.
For instance, he spent US-$ 23 million for the COFFEE CONNECTION which owned 25
stores in Boston.
Coffee consumption is not very high in the USA. For instance, the consumption in
Scandinavia is twice as high as in the USA. But since the 1990s it started to recover the peak
from the ‘60s and ‘70s. As Starbucks was able to reserve this trend they had great success in
the USA and the number of stores increased rapidly. Nowadays they have even more stores in
the United States than McDonald’s. Worldwide Starbucks employs about 74’000 people (last
reported count) in over 8337 stores right now. And international highlights are for example
one Starbucks in Vienna just opposite the Hotel Sacher, which is very famous for the old
Austrian coffee culture or a store in Tokyo with the highest sales of all Starbucks stores
worldwide.
The majority of Starbucks’ sales were made with company-operated retail stores, but also
15% of the sales were made by specialty operations such as selling coffee beans to hotels and
airlines or revenues from licensing agreements. Starbucks also has a joint venture with
PepsiCo and an alliance with Dreyers Grand Ice Cream with whom they introduced the
Frappuchino-line.
In 1995, when the US market almost reached saturation, Starbucks Coffee International was
forced to concentrate on international operations.The strategy to enter a foreign market was
mainly joint venture, in some markets they also used licensing as entry strategy. In 1995 the
first joint venture was formed with SAZABY INC. to enter the Japanese market. More Asianpacific countries and later European countries followed.
Starbucks Mission Statement:
Establish Starbucks as the premier purveyor of the
finest coffee in the world while maintaining our
uncompromising principles while we grow.
Environmental Mission Statement:
Starbucks is committed to a role of
environmental leadership in all facets of
our business.
The following six guiding principles will help us
measure the appropriateness of our decisions:
We fulfil this mission by a commitment to:
•Provide a great work environment and treat each
other with respect and dignity.
•Embrace diversity as an essential component in the
way we do business.
•Apply the highest standards of excellence to the
purchasing, roasting and fresh delivery of our
coffee.
•Develop enthusiastically satisfied customers all of
the time.
•Contribute positively to our communities and our
environment.
•Recognize that profitability is essential to our future
success.
•Understanding of environmental issues and
sharing information with our partners.
•Developing innovative and flexible solutions to
bring about change.
•Striving to buy, sell and use environmentally
friendly products.
•Recognizing that fiscal responsibility is
essential to our environmental future.
•Instilling environmental responsibility as a
corporate value.
•Measuring and monitoring our progress for
each project.
•Encouraging all partners to share in our
mission.
source: http://www.starbucks.com/aboutus/environment.asp
Starbucks – the World in a Cup
3
2 Starbucks’ International strategies
Since the beginning of Starbucks an orientation towards growth was visible. After a constant
growth within the USA a saturating market made it necessary to find alternatives in order not
to stagnate. The result was an international focus for the company. In order to be successful in
business, in a domestic as well as in a foreign market, different factors are of importance.
These factors can be described and analyzed on the basis of Porter’s five forces model.
Porter’s framework sees five major factors that influence a business: threat of substitute
products, bargaining power of suppliers, bargaining power of purchasers, rivalry between
competitors and entry barriers to a market.
2.1
Competitive Forces
Substitute products influence the demand for a company’s product. More substitutes offer a
bigger choice for customers. As a result, with increasing price elasticity and given the same
utility of a good, decreasing prices for substitutes will result in fewer sales. In a perfect
market the competitor with the lowest price will attract all customers. To be successful,
customers must be able to see a higher benefit from using a certain good in order to be willing
to pay a higher price for it. A different sort of substitutes is the alternative use of money, so
instead of going to a coffee house a cinema visit might be an alternative to spend money.
However, most customers go to Starbucks to have a drink, and they will most likely not
abandon a cinema visit for a cup of coffee which makes the threat of substitutes offering
different experiences smaller.
Starbucks is not only a coffee house, but offers an experience. In relation to this substitutes
have to be measured at the package Starbucks offers its customers: a huge variety of coffees,
nice ambience, fancy decoration and wireless LAN access in most of its American and
European stores. It is hard for a normal supermarket or coffee shop offering hot and/or cold
beverages to imitate Starbucks, although e.g. in Britain different other retailers have a similar
assortment, similar music, decoration and ethics, they cannot equal the brand of Starbucks and
the image connected with it. Thus, Starbucks can ask for a premium for their offer. Problems
appear when Starbucks is reduced to a coffee house. Then any other café is equal to Starbucks
and cheapest price or habits coffee culture is the main factor for customers, especially in
countries with a big coffee culture where Starbucks is new and scarce.
The bargaining power of suppliers is determined by their chances of influencing the price they
get for their product. If suppliers are concentrated or few or if switching costs between
suppliers are high, their influence is big.
Starbucks – the World in a Cup
4
Today as in the past years, coffee is the second-most traded commodity behind crude oil. In
coffee industry, there are many small suppliers, competition is big and the products are
exposed to global price fluctuations making it hard for farmers to make long-term
calculations. A result of more countries starting to produce coffee prices slumped from over
one US-dollar during the 1980’s to less than 50 US$ cents for one pound of coffee today. As
there are only two sorts of coffee beans, Robusta and Arabica from which only the latter is
being used for premium coffee, suppliers wanting to serve Starbucks have to create and
maintain a high quality standard and offer good prices. As prices are so low, their profit
margin is diminishingly small or they might even sell with loss. Power of suppliers therefore
can be considered as weak. As a minimum means of protection Fair Trade coffee was
established in the second half of the 20th century. It is a not-for-profit program that ensures
coffee producers in poor countries to get a fair price for their goods. But despite Starbucks
paying higher prices for their beans, Fair Trade contributes only to a diminishingly small part
to Starbucks’ business1.
In return for a superior quality the Seattle company specially trains suppliers to meet their
standards, takes samples to identify quality differences at early stages and, in addition to Fair
Trade, pays prices above market average2 in order to maintain their quality standard and to
have a good relationship towards their suppliers. But in regard of the expansion strategy of
Starbucks preserving a constant supply of high quality coffee will become difficult. High
quality coffee is a scarce resource and crops are naturally limited. Through this suppliers
might gain a stronger position to negotiate with Starbucks and the coffee industry in general.
At the other end of the value chain are the customers. The normal customer who visits a retail
store has no negotiating power. His price is fixed. Customers with a stronger position are
those who demand large amounts giving them a better position. Starbucks deals with both
types. Apart from the retail store customer Starbucks has got partnerships with big companies
like Pepsi, Dreyers, Barnes & Noble etc. They are able to improve the image of Starbucks and
have a strategic value as they helped develop new products and to increase Starbucks market
share3. Because of this they are able to make demands towards Starbucks and negotiate
prices.
Apart from these factors competition is big in retailing business among coffee chains. The
1 Starbucks Coffee Company, http://mba.tuck.dartmouth.edu/pdf/2002-1-0023.pdf, [referred 10.11.2004].
2 STARBUCKS, FAIR TRADE, AND COFFEE SOCIAL RESPONSIBILITY,
http://www.starbucks.com/aboutus/StarbucksAndFairTrade.pdf, [referred 10.11.2004].
3 Subdahara/Dutta, Starbucks’ International Operations, in: ICFAI Center for Management Research, p.3, 2003.
Starbucks – the World in a Cup
5
biggest competitor for Starbucks is McDonalds. They have a very big infrastructure, one of
the largest networks in existence, but a different image. They have a rather minor image and
their offer is still oriented at a fast satisfaction of needs. In contrast to this Starbucks offers an
environment where spending time is the main point. Different coffee chains try to imitate
Starbucks and are able to attract customers as their focus is a bit different. One of the biggest
competitors, Canadian Second Cup, focussed on shopping malls but is expanding to single
locations now as well. So in general competition is very big. Despite this fact Starbucks has
managed to become the biggest player in this business, so not only their success in the USA is
evident but a certain contribution of their international business is included in this success as
well. So as there is hardly any power of suppliers, only few purchasers who are able to put
pressure on Starbucks but big competition in combination with many different coffee cultures
around the world their expansion strategy is very difficult.
Their huge international presence started with the saturation of the American market. Lack of
experience in international business made it harder to initiate international expansion.
Therefore the strategies of Starbucks have to be taken into account as well as the five factors
influencing their business.
Furthermore certain risks can be identified when a company goes international.
•
Strategic risks: The problems described by Porter can be seen as strategic risks. They
are external threats a company has to foresee and react to but can hardly be influenced
by a company. A company can only adapt to the environment by developing
competences, acquiring know-how and by this being able to minimize strategic risks.
•
Operational risks arise from within the company when doing business. A broken
machine e.g. can be the cause for production problems or inadequate personnel might
prevent a company from understanding customer needs.
•
Political risks are immanent in the political system of a target country. State
regulations, instability, etc. can prevent a company from being successful in foreign
markets. Understanding and openness towards political influences is necessary in
order to reduce difficulties beforehand.
•
Environmental risks comprise negative environmental effects that have to be dealt
with by a company, e.g. pollution or waste. This category seems to be of minor
importance to a single Starbuck’s business unit, however, on a global scale,
environmental concern has to be integrated into the strategy of Starbucks.4.
4 Subdahara/Dutta, Starbucks’ International Operations, in: ICFAI Center for Management Research, pp. 1-11, 2003.
Starbucks – the World in a Cup
6
All these risks have to be dealt with. In order minimize the impact of occurrence, 4 different
mitigation methods can be used helping to decrease uncertainty about a risk and at the same
time prolonging the period for taking action against it. Four categories of mitigation strategies
most often used are
•
avoidance: a risk can be avoided if strategies with less risk and the same expected
profit are chosen
•
acceptance: is necessary if consequences of a decision are known
•
control: a continuous monitoring and adaption process are the most common strategies
to minimize risks and to cope with them effectively
•
transfer: if a risk is visible the information should be made accessible to all partners of
the companies in order to enable them to react. Sharing the risk relates to risk
management, insurances, warranties or contractual risk shifting.5
Graphic 1: International Risks and Mitigation Strategies
ce
p
ac
e
nc
purchaser
power
strategic
risks
ef
le
ct
&d
u
ed
&r
fe
r
l
ro
n
io
ct
ns
nt
threat of
substitutes
operational risk
tra
co
io
n
rivalry
between
competitors
da
supplier
power
political
risks
entry
barriers
oi
av
ta
nc
e
environmental
risks
source: own illustration
5 Gibson/Walewski, Risks of International Projects: Reward or Folly?,
http://www.cpbis.org/sloan/sloan_conference/tues_pm_s2_p2/s2_p2_track_b/GIBSON%20Handouts%20Session%202
%20Part%20II%20Track%20B.pdf, p.4, [referred 05.11.2004].
Starbucks – the World in a Cup
2.2
7
Entry Strategies
There are different forms of entry strategies to a foreign market. Modes of foreign production
comprise licensing/franchising, contract manufacturing – being unsuitable for Starbucks’
business, joint ventures and wholly owned subsidiaries. The key element is to find the entry
strategy that allows a company to benefit most from a given market potential.
In order to achieve this, several categories of factors have to be considered.
The first category is company factors consisting of international experience, resources,
international strategies and flexibility. These factors are internal factors and can be influenced
by a company in the long run. Factors that are related to the product and/or the customer are
the second category. These are degree of newness, openness towards new products, need for
service, etc. A last category consists of factors related to the target market, where market size,
market potential, entry and trade barriers, competition and other factors are relevant.
How these factors can be dealt with is partly determined by the mode of entry to a market.
Depending on the entry strategy, the way a market is accessed can be influenced. Key
questions are ease of market access, control over foreign operations, costs and risks,
possibility to gain market, customer and operational knowledge and experience, chances of
winning competition and strategic fit.
A wholly owned subsidiary is a company situated in a target country that takes care of
international operations. For this subsidiary the target market is the domestic market.
Depending on the country tax and labour cost benefits may be realized, and at the same time
control over foreign operations stays with the parent company. Economies of scale can be
realized, standards can be set because of a larger scale and the image and brand can be
protected and even improved. On the other hand, a different country may bear political,
cultural and social risks resulting in a difficult financial and operational situation. Furthermore
knowledge about markets, customers, ethics and culture has to be acquired, but as a result the
experience will stay with the company.
Joint ventures describe the collaboration of a domestic with a foreign company in order to
enter a target market. The domestic company is often used to provide market, customer and
cultural information about its market, it can be used to get access to its distribution network
and in some cases foreign governments might require the integration of a local company in
order to grant access to their market. Partner skills can be integrated and special knowledge
can be used to gain market benefits. And above all a lack of resources may make it necessary
to find a partner in order to be able to enter a foreign market. The price that has to be paid is a
loss of control about operations and less flexibility. Arrangements have to be made, contracts
Starbucks – the World in a Cup
8
have to be agreed upon and all aspects of cooperation have to be considered. However, an
increase in newly founded joint ventures shows that the benefits that can be gained by
entering a joint venture count more than a partly loss of control about operations, especially as
the negative effects can be minimized by a thorough search for a partner.
The third entry method, licensing, gives a company in a foreign market the right to use name,
brand and experience from a company and lets him run his own business. With giving a
license a company can enter a foreign market without having to invest in that country
spreading brand recognition and at the same time the licensee profits from a renowned name
and maybe other synergy effects for his business. Again, the price is total loss of control over
foreign operations, and only thorough arrangements between licensor and licensee can
minimize risks6.
Starbucks has got a certain procedure to enter a foreign market. The company finds local
business partners in most foreign markets. It tests each country with a handful of stores in
trendy districts which are chosen by the new local partners, using experienced Starbucks
managers. It sends local baristas (coffee brewers) to Seattle for 13 weeks of training. Then it
starts opening stores by the dozen. Its coffee line-up doesn't vary, but Starbucks does adapt its
food to local tastes. In Britain, it won an award for its mince pie. In Asia, Starbucks offers
curry puffs and meat buns. The company also fits its interior décor to the local architecture,
especially in historic buildings. Recognition effects and a standardized taste become
intermingled with local specialties, making every Starbucks store a unique experience.
In order to internationalize business Starbucks Coffee Intl. was founded as a wholly owned
subsidiary to take care of international operations.
Starbucks first international experience was collected in Japan. A joint venture with Sazaby
Inc., a Japanese retailer and restaurant operator, was the beginning of the creation of over 500
stores throughout Japan within 8 years7. Sazaby gave them market access, market knowledge
and locations for their stores. The Seattle-based company was facing even more problems due
to a different cultural background in Japan. Though being advised to alter their American
strategy in order to adapt it to Japan, Starbucks was successful8 as the imitation of an
American way of life was very popular. On top of that Sazaby provided them with detailed
knowledge about Japanese coffee and tea drinking habits allowing them to adapt their
6 Taggart, McDermott, The Essence of International Business, Hertfordshire, 1993, pp.10-12.
7 http://www.starbucks.co.jp/en/company_history.htm, [referred 08.11.2004].
8 Online Extra: Q&A with Starbucks Howard Schultz. Business Week, September 9, 2002.
Starbucks – the World in a Cup
9
products to Japanese taste9. A competitive pricing strategy enabled Starbucks to evade direct
competition but placing itself well over the low quality segment thus taking a large amount of
market share. Its Japanese business has been the only one since to undertake an IPO in 2001,
showing the big success that was achieved in Japan. As a résumé, Howard Schultz said:
“Almost six years after we opened here [Japan], this is the best-performing market on a unit
level for Starbucks in the world. It’s also the second largest in the world [after the U.S.].
When we came here in August of 1996, we underestimated the size of the market just like we
did in America. So we’re sitting here today with approximately 360 stores, and we’re opening
two new stores a week in Japan. We’ll have 500 stores by September 2003, heading towards
1,000.”10
Similar procedures have been made in joint ventures in other countries, but less successful.
Another entry strategy is licensing. Starbucks uses licensing with companies who are able to
provide unique location benefits. As exclusive spots often are unreachable, partnerships have
to be established. Real estate of this kind can be airport locations, national grocery chains,
major food services corporations, college and university campuses and hospitals11.
The following table shows the main entry strategies to foreign markets as well as the number
of stores opened in each country in combination with the share of ownership Starbucks holds.
9 Subdahara/Dutta, Starbucks’ International Operations, in: ICFAI Center for Management Research, pp. 1-11, 2003.
10 “Q&A with Starbucks’ Howard Schultz”, BusinessWeek Online, September 9, 2002.
11 www.business.uiuc.edu/ce-brown/ accy503msa/Downloads/STARBUCKS%20CORP.pdf, [referred 09.11.2004].
Starbucks – the World in a Cup
10
Table 1: Starbucks’ international operations
Country
Partner
Agreement
Starbucks’
Ownership
Australia
April
2002
eoy
2003
Stores
Stores
---------
majorityowned
90%
29
60
Austria
Bon appetit Group
jv
19.5%
3
15
China (Beijing)
Mei Da Coffee Co
license
–
26
45
China
(Shanghai)
Shanghai President Coffee jv
Co
5%
25
45
Germany
KarstadtQuelle AG
jv
19.5%
0
21
Greece
Marinopoulos Brothers SA
jv
18%
0
5
Hong Kong
Maxim’s Caterers Limited
jv
5%
25
70
Indonesia
PT Mitra Adiperkasa
license
–
0
5
Israel
Delek Development
jv
19.5%
5
12
Japan
Sazaby Inc.
jv-public
40%
357
570
Malaysia
Berjaya Coffee Co
license
–
23
30
Mexico
S.C. de Mexico, S.A. de jv
C.V.
18%
0
5
Middle East
M.H. Alshaya Co. W.L.L.
license
–
65
98
New Zealand
Restaurant Brands Ltd.
license
–
32
42
Philippines
Rustan Coffee Corp.
license
–
42
57
Puerto Rico
MacNaughton Group
jv
5%
0
6
Singapore
Bonvests Holdings Ltd.
license
–
29
35
South Korea
Shinsegae Department Store
jv
50%
40
82
Spain
Grupo Vips & Europastry, jv
SA
18%
2
13
Switzerland
Bon appetit Group
jv
19.5%
7
20
Taiwan
President Coffee Co.
jv
5%
91
137
---------
majorityowned
97%
26
37
wholly owned
100%
297
470
1,153
1,912
Thailand
United
Kingdom
---------
System-wide
Company-owned
358
572
Licensed/JV
795
1,340
Source: Merrill Lynch, May 20, 2002, p. 19.
Starbucks – the World in a Cup
2.3
11
Success factors
As can be seen there are many factors influencing the development of Starbucks. But it still is
not clear what external factors have been beneficial for their success. Five elements can be
taken as success factors giving Starbucks the opportunity to become more successful than
their competitors.
During the past years there has been a switch in demand towards real coffee and away from
instant coffee, because the consumers noticed the real coffee as a product of higher quality. In
connection with increasing incomes and better informed consumers there is a tendency to
replace low-quality coffee with higher quality. Nowadays people know much more about
coffee and spend more money on superior products than in the past. Consecutively, as people
become more interested in nutrition, they tend to inform themselves about what they eat and
drink. Especially in the USA, but also in Europe and Asia, there is a hype to live healthier.
This and also several campaigns such as “don’t drink & drive!” made many people drink nonalcoholic beverages. Coffee is one of the most attractive alternatives in this case.
On the other hand you could say that coffee is not really healthy, too, but in comparison with
similar fast food behaviours, like going to a burger chain, going for a coffee seems much
more healthy and modern to the majority of the customers as well as having a social
importance additionally.
After the climax of home entertainment, with pay-TV, videos and DVDs at the end of 1990s
there is a return to the regular “going out” in developed countries. A different organization
of leisure time is giving the coffee bar a bigger importance making it a perfect place to meet
friends for talking, relaxing but also a good place for business meetings or home workers.
Starbucks sees itself as a “third place” (Schultz) – a place between work and home to feel
good at. At the opening of the first Starbucks store in Berlin Cornelius Everke, managing
director of KarstadtCoffee GmbH said: “We're not in the coffee business serving people we're in the people business serving coffee.”
In this time people are more and more attracted by luxury goods and with rising income are
also willing to pay for them. Even if coffee normally isn’t a luxury good in our society
anymore, there is some difference when you go out to drink a cup of coffee at Starbucks.
Evidence for this is that people are willing to spend much more money for a coffee at
Starbucks, even if they could have the same coffee for less money in a café at the next corner.
In this context specialty coffee that is served in Starbucks Coffee Bars is seen as an
affordable luxury good.
A last key success factor can be seen in a change between old and modern coffee culture
Starbucks – the World in a Cup
12
and the imitation of the American way of life. Outside the USA, especially in Asia, people
like to imitate the American way of life. This is a very good advantage for Starbucks which
helps to succeed in the Asian markets. There is also a huge change in the coffee house culture
as such. In opposite to the old coffee house culture, as it is found in Vienna/Austria for
example, where everything is relaxed and you spend maybe the whole afternoon, nowadays
people are in a hurry and are more interested in take away offers or self-service.
This is exactly what consumers can find in Starbucks bars. Starbucks also represent the
modern life which makes it very attractive especially among the younger people.
2.4
Problems of globalisation
As Starbucks establishes a global presence, its growing ubiquity has not gone unnoticed by
anti-globalization activists. A clear manifestation of this came in November 1999, as tens of
thousands of protesters took to the streets of downtown Seattle when the World Trade
rd
Organization (WTO) held its 3 Ministerial conference there. Although non-governmental
organizations and activists had gathered to oppose the WTO, some activists deliberately
targeted multinationals like Starbucks, Nike and McDonalds12. A small, but vocal, percentage
of these protestors gained international press coverage by committing acts of vandalism
against carefully chosen targets like Starbucks.
Recalling this incident against his firm Schultz says: “It's hurtful. I think people are illinformed. It's very difficult to protest against a can of Coke, a bottle of Pepsi, or a can of
Folgers. Starbucks is both a ubiquitous brand and a place where you can go and break a
window. You can't break a can of Coke.” 13
Accusations even reach international organizations like WTO or IMF of supporting
globalization processes by trade liberation, by allowing export-dominated business and FDI.
The main point against MNC is their exploitation of low labour cost countries, their disregard
of environmental, social and cultural ethics14 and finally their strict striving towards market
leadership at the expanse of single small-business companies being no threat to a MNC.
An example of this was given in an article on the Organic Consumers Association website
describing Starbucks’ Mexican first store in Mexico in September 2002 which was situated in
the Sheraton Hotel on Reforma Boulevard in Mexico City, at the same time making the first
12 The protesters claim that international organizations like the WTO and International Monetary Fund (IMF) are tools of
multinational corporations. Since Seattle, violent protests have been the norm at events such as the annual meetings of
the IMF and World Bank, G-8 summits, and the World Economic Forum.
13Business Week, “Planet Starbucks,” September 9, 2002.
14 Open letter to Starbucks, http://www.globalexchange.org/campaigns/fairtrade/coffee/OpenLetterToStarbucks.html,
[referred 09.11.2004].
Starbucks – the World in a Cup
13
in an "origin country,", a coffee-producing country:
“Indeed, the only jarring note is the 36 pesos ($3.60) the young woman at the register wants
for a double latte, 10 times the price Indian farmers are getting for a pound of their product in
Chiapas, Oaxaca, and other coffee-rich states of southern Mexico.[…]There is no starker
contrast in the economics of coffee these days than between the cushy comforts and gourmet
blends of the Starbucks “Esperienia” and the grim, daily existence of 360,000 mostly Indian
coffee farmers who work small plots carved from the jungle mountains of southern
Mexico”15.
But it is not only global concern, very often local concern is a more severe problem as an
example in London showed in 2002. Starbucks wanted to open a store in Primrose Hill but
was fought down by a local committee and the opposition of local inhabitants, partly because
of real concern for local welfare as well as for anti-globalization reasons16.
Starbucks has many opponents who do not approve of their business ethics, but it seems to be
a minority, only they have a big voice. Nevertheless Starbucks will continue its growth plans,
and further internationalization is at hand. Success in European countries has shown that even
difficult countries with a strong coffee culture can be “conquered”, although business seems
to be different from Asian markets.
15 John Ross, “The Unloving Cup,”, http://www.organicconsumers.org/starbucks/121602_fair_trade.htm, [referred
08.11.2004].
16 Stars v Starbucks: not a bean for the coffee giant, The Independent Sunday (London, England); June 02, 2002.
Starbucks – the World in a Cup
14
3 Starbucks in Germany
3.1
German Coffee Market
The raw coffee foreign trade in the Germany registered 2003 an import of gross 14.542
million bags. In the year 2002 there were 14.304 million bags. Based on the total population
of 82.5 million citizens in July 2003 the theoretical per-capita consumption for 2003 is 6,5 kg
raw coffee.
3.1.1 Coffee Shop trend
The coffee shop branch does not grow any longer so rapidly, rather even slow. But it grows at
all, and that is well like that. In the year 2003 about 600 coffee shops were seized. This is
however only a good third of for Germany prognosticated 1,500 possible shops.
Establishments take place no longer only in the metropolises. Even in smaller cities and in the
countryside one sets on the coffee thirst and the variety of the coffee beverages.
One
estimates that about 50% of the seized Outlets are in large cities, the remainder distributes
itself on the countryside. In the scramble about the best and most expensive top-locations
more operators start to search for alternatives. Worse locations or Shop-in-Shop locations,
like airports, stations, perfumeries, bookshops, fashion shops etc. are already locations also.
Each possibility is used to win and strengthen market shares. The today's Coffee Shop is no
longer only a place in order to enjoy coffee, but mediated also a new kind of lifestyle. The
Coffee Shop should be a total experience with authority and well-being feeling factors. In
any case a development of the coffee shop industry and a improvement of the positive image
of coffee can be expected - and everybody will profit of that.
3.1.2 Coffee - unquestioned front runner in the beverage consumption of the Germans
In year 2001 each German drank 159,2 litres coffee beverage. That is approximately 23% of
his annual beverage consumption. Altogether the German consumed 686,1 litres of beverages
in year 2001 (without drinking water from the tap). At the second place was beer with a percapita consumption of 123,1 litres. Then followed by water with 110,2 litres. The tea
consumption (green and black tea, without herb teas) amounted to 26,2 litres17. Because the
ifo-Institute followed continuously the development of the German drinking habits, a view
back is possible and worthy. 20 years before the per-capita consumption of beverages was
17 ifo Institute for economic researches, Munich
Starbucks – the World in a Cup
15
602,3 litres (only the old states of the Federal Republic). Bean coffee led this time with 169,6
litres, followed by beer with 147,1 litres and refreshment beverages with 77,7 litres. The longterm trends, which can be observed with the several beverages, are interesting. The total
consumption per head developed upwards about more than 80 litres, whereby the largest
increases took place in the second half of the 1980's. By the effect of the German reunion
temporarily the level of the per-head consumption decreased. Because the total consumption
number of this research does not contain the drinking (tap) water consumption, no exact
statements about the actual extent of the beverage consumption of the Germans can be made.
Coffee beverages reached its peak value in the year 1989 before the reunion with 190,5 litres.
3.2
Starbucks’ Joint Venture with KarstadtQuelle AG
Starbucks entered the German market in May 2002 with opening the first store in Berlin. The
underlying entry method was a joint venture with KarstadtQuelle AG which was formed in
October 2001. KarstadtQuelle AG is holding 82% of the KarstadtCoffee GmbH.
KarstadtCoffee GmbH, the joint venture between KarstadtQuelle AG, Europe’s largest
department store and mail-order group, and Starbucks Coffee Company, the world's leading
provider, roaster and marketer of speciality coffee, was set up last autumn and is responsible
for introducing Starbucks in Germany18.
Starbucks was very optimistic about its success in the German market. Why not? How can
you fail with a coffee shop in a country with such a huge coffee culture like in Germany?
"Our entry into the German market comes at a time when our company is undergoing
unbelievably dynamic growth in Europe, as well as the two coffee houses that we opened
recently in Madrid, our growth in Switzerland and Austria is exceeding our expectations. In
Germany, one of the countries with the greatest coffee consumption world-wide, the market
still offers us unexploited potential. I am confident that the Starbucks Coffee House
experience will win many friends in Berlin's open-minded, international environment.”19
The first aim was to set up about 200 Starbucks coffee shops until 2007. Of course, like all
over the world, their strategy was to set up as many stores as possible in the shortest possible
time. But not everybody supports this aggressive globalization strategy of Starbucks. “Like a
virus”20 Starbucks is spreading itself. Nowadays up to 20 million people worldwide visit one
of their coffee shops weekly.
18 Karstadt-quelle.de, 2002
19 Howard Schultz, may 24th 2002, opening of the first two stores in Germany
20 Naomi Klein, No Logo!
Starbucks – the World in a Cup
16
But the competitors in Germany, like Tchibo, Eduscho, Lavazza or Segafredo are not really
scared about the market entry of Starbucks because the coffee shop market in Germany is not
exhausted yet and as you can see from the answer of Martin Schäfer, CEO of Woyton (a
coffee-shop chain which set up 8 stores in Düsseldorf), when asked if he was scared about
Starbucks: “We see Starbucks in principle positive. Their appearance helps to push the market
into the correct direction”. The power of the brand Starbucks will help the coffee bar culture
to the bloom in Germany.
But still, Germany is always a difficult market to enter, especially because of its very high
labour costs and high rents in good locations which often cost up to 15.000€ for a 250m²store.
Until October 2004, three years after market entry Starbucks has established 36 stores in
Germany, mostly in good locations in the German metropolises. But after huge financial
problems of the partner KarstadtQuelle AG the situation will change now. KarstadtQuelle AG
already reported to withdraw out of the joint venture with Starbucks. Several sources21 say
that KarstadtQuelle AG is not allowed, by contract, to sell its 82% share on KarstadtCoffee
GmbH to a third party, leaving only one possible purchaser – Starbucks. If it is true (no
comments of KarstadtQuelle AG have been given), this will be a big advantage for Starbucks
in the negotiations during the next weeks. As KarstadtQuelle AG paid almost all the
investment costs of the market entry and the set up costs of the first stores, Starbucks does not
really suffer from the ending of this joint venture. Maybe it is exactly the opposite because
now the establishment in the German market is already done and Starbucks can go on with
their German strategy and does not have to share the future profits with KarstadtQuelle AG.
"I believe that the German market finally can become our largest market in Europe”22 While
there is depression in Essen23 Seattle is euphoric24: “35 German stores in two years, what a
success!” In the report there is no speech of the difficulties of the partner. On the contrary, it’s
full of warm gratitude: “our business partners made an excellent job with the introduction and
establishment of the Starbucks mark.”
The starting losses and the high investments in the beginning were taken by KarstadtQuelle
AG. Now, Starbucks can acquire the existing store network favourably and in at latest two
21 Handelsblatt
22 Howard Schultz, one day after the withdrawal reports by KarstadtQuelle AG
23 headquarter of KarstadtQuelle AG
24 headquarter of Starbucks Corp.
Starbucks – the World in a Cup
17
and a half years25 Starbucks can harvest the fruits alone.
In the negotiations with Starbucks, which are being held now, it is of major concern to
Karstadt to get back as much as possible of the invested money. A KarstadtQuelle speaker
confirms this on request, but mentioned no details about when the withdrawal was to be
carried out at latest, how much Karstadt invested into the structure of the stores and now gets
back as compensation?
But the signs for the negotiations do not look very well for KarstadtQuelle AG. About only
ten per cent of an investment was refunded to the Swiss Bon Appétit group26, when it said
good-bye from a similar joint venture with the Americans. The aim, announced with the
opening of the first locations in Berlin in 2002, to open about 200 stores in the next five years
has already been abandoned by Starbucks. The search for suitable central city centre locations
became more difficult than expected. This year only two more shops will open in Munich and
Nürnberg. Also the once formulated project to operate about 1.500 locations was reduced to a
third, leaving only 500 possible shops in Germany. Meanwhile more than 300 “partners”27
are employed in coffee shops and Essen headquarters. A large part of the coffee shops work,
according to data from industry sources, already profitable. Until 2007 Starbucks wants to
reach the break-even point in the sum of all stores.
The German market entry proved more difficult than expected, however, market potential in
Germany is still very big and the failure of the joint venture with KarstadtQuelle AG so far
has done no harm. It finally proved beneficial for Starbucks as the possibility to acquire
already established stores seems to result in a small pay-cheque. Yet, the biggest obstacle for
staying successful in the German market are costs and taking over premium locations. But in
the past Starbucks has shown that costs are not of major concern, leaving only the problem of
location to the Seattle-based company.
25 FAZ, october 1st, 2004
26 partner of Starbucks in Austria and Switzerland (licensing)
27 partners = employee in „Starbucks language“
Starbucks – the World in a Cup
18
4 Conclusion
Howard Schultz seems to have done it right. From a small idea of bringing Italian espresso
bars to the USA he built one of the biggest global players today, although in the beginning he
had to convince many people and prove them wrong. Now, his success is evident, mostly
admired and the realisation of the American dream.
However, not everything that he starts is gold. Some problems have to occur in such a huge
company, but to Starbucks they are merely peanuts. Their focus is bigger, only “the big
picture”, as Howard Schultz always calls it, counts. Up to now his idea of the “third place”, a
place between home and work, could be brought to many countries in the world.
Today it will become evident if his vision of the “third place” can be brought to Germany. It
is unclear if a true coffee culture has already been established in Germany or if there is
flexibility leaving enough space for Starbucks to become part of this culture. Most likely
young people, target customers, will be attracted by the idea to experience American culture,
listen to fancy music and meet people – the original idea of Starbucks. On the other hand,
older generations will probably not be willing to wait in a queue for ordering and receiving
their coffee –if there is such a thing as a normal “coffee” at Starbucks – paying premium
prices and listening to fancy music. They will probably retreat to old-fashioned coffee houses
with old-fashioned music and old-fashioned waiters for drinking a normal cup of coffee, the
same as they have done before.
But that is exactly the idea behind it: not to sell coffee but to provide an experience. Bringing
a piece of the American way of living to the world is a good start, but maybe in Germany it
might be necessary to do more. In Germany it is important to be present in order to attract
customers and make them chose a new location above their traditional cafés, making
communication an important topic. In many eyes they are only seen as a coffee house for
young people, but their claim to offer premium products and experiences does not become
visible. Maybe Starbucks has to leave their non-advertising strategy behind for the German
market and start going public. This will make them truly different from traditional coffee
houses and create interest among potential customers. Furthermore, imitators might face more
difficulties when having to work against an aggressive marketing strategy.
If Starbucks is able to present their image and their understanding of coffee culture and
combine it with the superior marketing and sales skills of Howard Schultz, there will be
hardly any competitor who can inflict pressure on Starbucks.
Starbucks – the World in a Cup
II
5 Appendix
Starbucks Timeline 1971 - 2004
1971
Starbucks opens its first location in Seattle's Pike Place Market.
1982
Howard Schultz joins Starbucks as director of retail operations and marketing.
Starbucks begins providing coffee to fine restaurants and espresso bars.
1983
Schultz travels to Italy, where he's impressed with the popularity of espresso bars in Milan. He sees the
potential in Seattle to develop a similar coffee bar culture.
1984
Schultz convinces the founders of Starbucks to test the coffee bar concept in a new location in downtown
Seattle. This successful experiment is the genesis for a company that Schultz founds in 1985.
Starbucks introduces Christmas Blend.
1985
Schultz founds Il Giornale, offering brewed coffee and espresso beverages made from Starbucks coffee
beans.
1987
With the backing of local investors, Il Giornale acquires Starbucks assets and changes its name to
Starbucks Corporation.
Opens in Chicago and Vancouver, B.C.
Starbucks location total = 17
1988
Starbucks introduces mail order catalog with service to all 50 states.
Starbucks location total = 33
1989
Opens in Portland, Oregon.
Starbucks location total = 55
1990
Starbucks expands headquarters in Seattle and builds a new roasting plant.
Awarded Horizon Air account.
Starbucks location total = 84
1991
Establishes a relationship with CARE, the international relief and development organization, and
introduces the CARE coffee sampler.
Starbucks – the World in a Cup
III
Becomes the first privately-owned U.S. company to offer a stock option program that includes part-time
employees.
Opens first licensed airport location with HMS Host at Sea-Tac International Airport.
Opens in Los Angeles.
Starbucks location total = 116
1992
Completes initial public offering with Common Stock being traded on the Nasdaq National Market under
the trading symbol "SBUX."
Awarded Nordstrom account.
Opens in San Francisco; San Diego; Orange County, California; and Denver.
Starbucks location total = 165
1993
Begins Barnes & Noble, Inc. relationship.
Completes $80.5 million convertible debenture offering.
Opens second roasting plant in Kent, Washington.
Opens in Washington, D.C.
Starbucks location total = 272
1994
Awarded ITT/Sheraton (now Starwood Hotel) account.
Completes offering of additional Common Stock.
Opens in Minneapolis; Boston; New York; Atlanta; Dallas; and Houston.
Starbucks location total = 425
1995
Based on an extremely popular in-house music program, Starbucks begins selling compact discs.
Awarded United Airlines account.
Begins serving Frappuccino® blended beverages, a line of low-fat, creamy, iced coffee beverages.
Opens state-of-the-art roasting facility in York, Pennsylvania.
Forms alliance with Canadian bookstore Chapters Inc.
Completes $165 million convertible debenture offering.
Starbucks Coffee International forms joint venture with SAZABY Inc., to open Starbucks coffeehouses in
Japan.
Opens in Philadelphia; Pittsburgh; Las Vegas; Cincinnati; Baltimore; San Antonio; and Austin, Texas.
Starbucks location total = 676
Starbucks – the World in a Cup
IV
1996
Starbucks Coffee International opens locations in Japan, Hawaii, and Singapore.
Awarded Westin (now Starwood Hotel) account.
Starbucks and Dreyer's Grand Ice Cream, Inc. introduce Starbucks® Ice Cream and Starbucks Ice Cream
bars. Starbucks Ice Cream quickly becomes the number one brand of coffee ice cream in the U.S.
North American Coffee Partnership (Starbucks and Pepsi-Cola Company business venture) begins selling
a bottled version of Starbucks Frappuccino® blended beverage.
Successfully converts approximately $80.5 million of its 4.5 percent convertible subordinated debentures
to Common Stock.
Opens in Rhode Island; Idaho; North Carolina; Arizona; Utah; and Ontario, Canada.
Starbucks location total = 1,015
1997
Awarded Canadian Airlines account.
Successfully converts approximately $165 million of its 4.25 percent convertible subordinated debentures
to common stock.
Forms alliance with eight companies to enable the gift of more than 320,000 new books for children
through the All Books for Children first annual book drive.
Establishes The Starbucks Foundation, benefiting local literacy programs in communities where
Starbucks has coffeehouses.
Opens in Florida, Michigan, and Wisconsin.
Starbucks Coffee International opens in the Philippines.
Starbucks location total = 1,412
1998
Starbucks Coffee International opens locations in Taiwan, Thailand, New Zealand, and Malaysia.
Introduces Milder Dimensions® a lighter and milder tasting line of premium coffee blends.
Introduces Tiazzi® blended juice tea, a refreshing mixture of tea, fruit juice and ice.
Acquires Seattle Coffee Company in the United Kingdom with more than 60 retail locations.
Acquires Pasqua Inc., a San Francisco based coffee retailer.
Forms Urban Coffee Opportunities, a joint venture with Earvin "Magic" Johnson's Johnson Development
Corp., to develop Starbucks Coffee locations in under-served, urban neighborhoods throughout the U.S.
Signs a licensing agreement with Kraft Foods Inc. to extend the Starbucks brand into grocery channels
across the U.S.
Launches Starbucks.com.
Opens two new coffeehouse concepts, Cafe Starbucks in Seattle and Circadia® Coffee House in San
Francisco.
Begins offering the Doonesbury@Starbucks line of products with all net proceeds donated to local
Starbucks – the World in a Cup
V
literacy organizations.
Opens in New Orleans; St. Louis; Kansas City, Missouri; and Portland, Maine.
Starbucks location total = 1,886
1999
Starbucks Coffee International opens locations in China, Kuwait, Korea, and Lebanon.
Acquires Tazo®, a Portland, Oregon based tea company.
Forms the "Out of the Park, Into the Books" partnership with homerun king Mark McGwire.
Partners with Conservation International to promote environmentally sound methods of growing coffee.
Introduces Shade Grown Mexico Coffee.
Acquires Hear Music, a San Francisco based music company.
Enters agreement with Albertson's, Inc. to open more than 100 Starbucks locations in their supermarkets
in the year 2000.
Opens in Memphis, and Nashville, Tennessee; and Saskatchewan, Canada.
Starbucks location total = 2,135
2000
Howard Schultz transitions from chairman and ceo to chairman and chief global strategist.
Orin Smith promoted to president and ceo.
Enters into licensing agreement with TransFair USA to market and sell Fair Trade CertifiedSM coffee.
Introduces a Commitment to Origins™ coffee category that includes shade grown, organic and Fair Trade
Certified selections.
Expands contribution to Conservation International to establish conservation efforts in five new sites.
Enters agreement with Host Marriott International to open locations in select properties.
Starbucks Coffee International opens in Dubai; Hong Kong; Shanghai; Qatar; Bahrain; Saudi Arabia and
Australia.
Starbucks current location total = 3,501
2001
Introduces coffee sourcing guidelines developed in partnership with The Center for Environmental
Leadership in Business, a division of Conservation International.
Commits to the purchase of one million pounds of Fair Trade CertifiedSM coffee.
Offers $1 million in financial support to coffee farmers through Calvert Community Investments.
Begins to offer high-speed wireless internet access in stores.
The Starbucks Foundation awards more than 450 grants totaling $4.2 million to literacy, schools and
community-based organizations across North America.
Announces a four-year, $1 million philanthropic partnership with Jumpstart, a national organization
Starbucks – the World in a Cup
VI
which pairs college student tutors with Head Start children.
Begins offering the Starbucks Card, a stored value card for customers to use and reload.
Enters agreement with Hyatt Hotels Corp.
Starbucks Coffee Japan introduces a stock option program for eligible full and part-time partners and
successfully implements IPO.
Breaks ground for Starbucks third roasting plant located in Carson Valley, NV.
Starbucks and international business partners seed Starbucks Cares Fund with $1.2 million contribution to
benefit September 11th Fund. Customers and partners contribute more than $1.4 million to Starbucks
Cares.
Starbucks Board of Directors authorizes stock repurchase plan of up to $60 million of stock.
Announces the fourth 2-for-1 stock split effective on April 27.
Starbucks opens 300th location in Japan and celebrates fifth year of business in Japan.
Starbucks Coffee International opens in Switzerland, Israel, and Austria.
Starbucks location total = 4,709
2002
Signs memorandum of understanding with Fairtrade Labelling Organizations International (FLO)
enabling Starbucks to enter into licensing agreements with national FairTrade organizations to sell
FairTrade certified coffee in the countries where Starbucks does business.
Publishes its first Corporate Social Responsibility Annual Report.
Introduces Starbucks Barista Quattro™ thermal coffeemaker, a 4-cup version of its popular Barista
Aroma™, and Saeco Italia™, a fully automated home espresso machine.
Celebrates 10-year anniversary of Starbucks IPO.
Introduces Starbucks DoubleShot™, to the ready-to-drink coffee category.
Signs licensing agreement with TransFair Canada to bring Fair Trade CertifiedSM coffee to more than
270 retail locations in Canada.
The Starbucks Foundation awards more than 500 grants totaling $5.9 million to literacy, schools and
community-based organizations across North America since 1997.
Reinforces its dedication to coffee origin countries and the farmers who produce Starbucks coffee through
an expanded line of Commitment to Origins™ Coffees.
Extends the Frappuccino line to include non coffee options, Chai, Vanilla and Coconut Crème
Frappuccino ice blended beverages.
Launches its high-speed wireless internet service branded T-Mobile® HotSpot™ in more than 1,200
Starbucks stores.
Tazo and Mercy Corps establish Collaboration for Hope and Advancement in India (CHAI), a project to
build strong communities in the tea growing district of Darjeeling where Tazo purchases some of the
finest teas available in the world.
Organizes more than 35,000 volunteer hours in the month of September and contributes more than
$275,000 through the Starbucks Make Your Mark program to charitable organizations across North
America.
Starbucks – the World in a Cup
VII
Starbucks Board of Directors authorizes stock repurchase plan of up to 10 million shares.
Establishes Seattle Coffee Trading Company (SCTC) in the Canton of Vaud, Lausanne, Switzerland.
Starbucks Coffee International opens in Oman; Indonesia; Germany; Spain; Puerto Rico; Mexico; Greece
and Southern China.
Current location total=5,886
2003
The Starbucks Foundation awards more than 650 grants totaling $6.5 million to literacy, schools and
community-based organizations across North America since 1997.
Begins three-year $225,000 commitment to America SCORES, a national non-profit, youth development
organization that uses the sport of soccer and literacy to inspire teamwork among at risk children in urban
public schools.
Introduces Shade Grown Mexico and Fair Trade CertifiedSM coffees to the coffee selections available to
Hyatt hotel and resort’s guests.
Develops innovative, next-generation Starbucks Card combining credit and stored value technologies.
Launches Starbucks Card Duetto™ Visa, the first-of-its-kind payment card blending Visa credit card
functionality with the re-loadable Starbucks Card.
Starbucks Board of Directors authorizes stock repurchase plan of up to 10 million shares.
Expands high speed wireless service, T-Mobile® HotSpot™ to more than 2,700 Starbucks stores.
Acquires Seattle Coffee Company, which includes Seattle’s Best Coffee® (SBC) and Torrefazione
Italia® (TI) coffee brands.
Celebrates Earth Day with a $50,000 contribution to Earth Day Network.
Introduces Iced Shaken Refreshments, a handcrafted and refreshing new beverage category featuring
coffee and tea shaken over ice.
Starbucks Coffee International opens its 1,000th Asia Pacific store in Beijing, China.
Encourages more than 50,000 hours of partner and customer volunteer time and contributes $500,000 to
nonprofit organizations across the United States and Canada through Make Your Mark volunteer program
in September.
Starbucks Coffee International opens in Turkey, Chile, and Perú.
Current location total = 7,225
2004
Starbucks Coffee International opens in Paris.
Extends partnership with Conservation International for $2.5 million loan fund providing coffee farmers
access to affordable credit.
Opens Starbucks Coffee Agronomy Company in San Jose, Costa Rica.
Launches in-store CD burning service powered by HP. The new music delivery experience allows
Starbucks customers to create personalized CDs at the Starbucks Hear Music™ Coffeehouse in Santa
Monica, California.
Starbucks – the World in a Cup
VIII
Dedicates six weeks to promote environmental awareness in its Company-operated stores in the United
States and Canada and engages millions of customers in a dialog of environmental stewardship.
Tazo and Kraft Foods announce licensing agreement to distribute Tazo super-premium teas in U.S.
grocery channels.
Announces Starbucks and Jim Beam Brands Co. agreement to develop and market a superpremium
Starbucks-branded coffee liqueur outside of Starbucks stores.
Presents Jumpstart with $100,000 in honor of the non-profit's 10-year anniversary.
Loans $1 million to Calvert Community Investments, enabling Calvert to support the Fair Trade™
Certified coffee movement.
Joins the United Nations Global Compact, an international network of corporations, U.N. agencies, trade
unions and nongovernmental organizations that support a shared set of nine principles about the
environment, labor and human rights.
Expands agreement with United Airlines to include cooperative marketing agreement.
Debuts strategic marketing alliance with XM Satellite Radio featuring a 24-hour "Starbucks Hear Music"
channel.
Introduces new Frappuccino® Light blended coffee beverages.
Signs licensing agreement to open Seattle's Best Coffee cafes in more than 400 existing Borders Books &
Music® stores over the next several years in the continental U.S. and Alaska, and within new Borders
stores as they open.
Current location total = 8,337
Source: http://www.starbucks.com/aboutus/timeline.asp, [referred 08.11.2004].
Starbucks – the World in a Cup
IX
6 Table of References
Business Week, “Planet Starbucks,” September 9, 2002.
Gibson/Walewski, Risks of International Projects: Reward or Folly?,
http://www.cpbis.org/sloan/sloan_conference/tues_pm_s2_p2/s2_p2_track_b/GIBSON%20Handouts%
20Session%202%20Part%20II%20Track%20B.pdf,[referred 05.11.2004].
ifo Institute for economic researches, Munich
John Ross, “The Unloving Cup,”, http://www.organicconsumers.org/starbucks/121602_fair_trade.htm, [referred
08.11.2004]
Online Extra: Q&A with Starbucks Howard Schultz. Business Week, September 9, 2002.
Schultz, H., Die Erfolgsstory Starbucks, 2003.
Starbucks Coffee Company, http://mba.tuck.dartmouth.edu/pdf/2002-1-0023.pdf, [referred 10.11.2004].
STARBUCKS, FAIR TRADE, AND COFFEE SOCIAL RESPONSIBILITY,
http://www.starbucks.com/aboutus/StarbucksAndFairTrade.pdf, [referred 10.11.2004].
Stars v Starbucks: not a bean for the coffee giant, The Independent Sunday (London, England); June 02, 2002.
Subdahara/Dutta, Starbucks’ International Operations, in: ICFAI Center for Management Research, 2003.
Taggart, McDermott, The Essence of International Business, Hertfordshire, 1993.
“Q&A with Starbucks’ Howard Schultz”, BusinessWeek Online, September 9, 2002.
http://www.business.uiuc.edu/ce-brown/ accy503msa/Downloads/STARBUCKS%20CORP.pdf, [referred
09.11.2004].
http://www.globalexchange.org/campaigns/fairtrade/coffee/OpenLetterToStarbucks.html, [referred 09.11.2004].
http://www.starbucks.co.jp/en/company_history.htm, [referred 08.11.2004].
http://www.starbucks.com/aboutus/timeline.asp, [referred 08.11.2004].
International Business Methods
IBTM 2004
University of Technology Lappeenranta
◦ Starbucks – The World in a Cup
Peter Strehle
Michael Cruickshank
Professor Tauno Tiusanen
Assistant Jatta Kinnunen
30.11.2004
International Business Methods
History of Starbucks
Competitive Forces
Entry Strategies
Success factors
Starbucks in Germany
Conclusion
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank
1
International Business Methods
◦ History of Starbucks
1971 Starbucks Coffee Company founded in Seattle
1982 Howard Schultz joined Starbucks CC
1985 Schultz founded „Il Giornale“
1987 Schultz purchased Starbucks & brand rights
1995 Internationalization of Starbucks started
2002 Starbucks entered German market
2004: 74000 employees in 8337 stores worldwide
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank
2
International Business Methods
◦ Competitive forces
- Substitute products
- Supplier power
- Purchaser power
- Entry barriers
- Rivalry between competitors
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank
3
International Business Methods
◦ Entry strategies
- Wholly owned subsidiary
• 2 countries
- Licensee
• 7 countries
- Joint Venture
• 15 countries
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank
4
International Business Methods
av
ce
pt
an
ce
environmental
risks
ac
rivalry
between
competitors
purchaser
power
&d
e
fle
threat of
substitutes
fe
r
n
io
ct
du
re
l&
ro
nt
co
ct
io
n
strategic
risks
ns
supplier
power
tra
political
risks
e
nc
da
oi
entry
barriers
operational risk
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank
5
International Business Methods
◦ Success factors
- Switch in demand towards real coffee
- Hype to live healthier
- Different organization of leisure time
- Specialty coffee as an affordable luxury good
- Modern coffee culture &
Imitation of American way of life
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank
6
International Business Methods
◦ Problems of globalization
„ It's hurtful.
I think people are illinformed. It's very difficult to
protest against a can of Coke, a bottle
of Pepsi, or a can of Folgers.
Starbucks is both a ubiquitous brand and a place
where you can go and break a window.
You can't break a can of Coke.“
[Howard Schultz, Business Week, “Planet Starbucks,” September 9, 2002]
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank
7
International Business Methods
◦ Starbucks in Germany
German coffee market
- High per capita coffee consumption (23% of beverages)
1980: 169,6 litres
1989: 190,5 litres
2001: 159,2 litres
- Growing coffee shop industry
1500 possible coffee shops estimated for Germany, 2003: ~600 shops
- Coffee shop as „The third place“
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank
8
International Business Methods
◦ Starbucks in Germany
Starbucks and KarstadtQuelle AG
- October 2001:
Joint venture with KarstadtQuelle AG (82%) was formed:
Karstadt Coffee GmbH
- May 2002:
First stores open in Berlin
- 200 stores to be opened until 2007
October 2004: 36 stores were opened
- End of 2004:
Joint venture will be ended
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank
9
International Business Methods
◦ Conclusion
- Starbucks internationally successful
- The Third place really exists
- Future in the German market?
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank
10
International Business Methods
Thank you
for your attention
International Business Methods
IBTM 2004
Peter Strehle ♦ Michael Cruickshank