International Business Strategy:
Starbucks Corporation
“We’re not in the coffee business serving people.
We’re in the people business serving coffee."
Howard Behar, President of Starbucks International
STARBUCKS Expansion into
São Paulo, Brazil
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Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion
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Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion
Introduction
• Starbucks strives to become the most
recognized and respected coffee retailer in the
world
• Expansion of international operations is key
to furthering Starbucks’ position in the coffee
industry
Company Overview
Starbucks History:
• Founded 1971 in Seattle, WA
• Named after first mate in Moby Dick
• Early on roasted and sold coffee beans
• 1980s began selling coffee by the cup
Company Overview
Starbucks History:
• 1987 - Howard Schultz bought Starbucks
• Schultz introduced the “Starbucks Experience”
• 1992 - 165 locations nationwide
• 1996 - International expansion began
Company Overview
Starbucks Today:
• $6.4 billion in revenue
• Serving over 35 million patrons
• More than 7,500 shops in the US
• Operating 3,000 plus shops in 36 foreign
countries
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Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion
Starbucks Products
• STARBUCKS stores offer regular and
decaffeinated coffee beverages, teas, pastries,
muffins, and other breakfast foods
Starbucks Ventures
EthosTM Water
Starbucks Frappuccino®
Starbucks DuettoTM Visa
Starbucks ice cream
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Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion
Why Expand into Brazil?
• Strong coffee culture
• Favorable political climate
• Large Economy
• Other American corporations’ success
Strong Coffee Culture
• Coffee has been harvested since the early 1700’s
• “Café Mana” – Morning Coffee
• Largest producer of coffee beans; twice as much
as the 2nd runner up - Vietnam
• Soon to be the 2nd largest consumer – behind the
U.S.
Favorable Political Climate
• Democratically elected President
• Strong diplomatic ties with the U.S.
• Current president’s focuses on economic
expansion and encourages foreign investment
Large Economy
• Largest economy in South America
• GDP approximately 620 billion and growing
• 5th most populated country in the world
• Over 186 million people
American Corporate Success in Brazil
• Coca Cola – 1940’s
• McDonald’s – 1960’s
• Most American Corporations outside U.S.
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Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion
Starbucks’ Expansion Strategy
• Wheel and Hub expansion method
• São Paulo will be the hub
• Spoke out into the rest of
Brazil and beyond
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Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion
Mode of Entry
• Foreign Direct Investments
• Licenses
• Joint Ventures
Mode of Entry
Joint Venturing with
Mode of Entry
• World’s second largest retailer
• 7,000 stores internationally
• Creator of hypermarket
• 99 hypermarkets in Brazil
Mode of Entry
Carrefour has:
•Strong brand name recognition
•Readily available resources
•Massive distribution network
Mode of Entry
• Targeted Hypermarket locations in São Paulo
1. Downtown district
2. Main business district
3. Cultural District
4. Shopping District
• Focus on working professionals
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Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion
Finances
• Carrefour 50% <> Starbucks 50%
• $350,000 loans
•Retrofit coffee shop in hypermarket
•Equipment and beginning inventories
• $100,000 infusion to sustain early operations
Finances
Critical Assumptions:
• Sustain growth of 20% per year - 1st five years
• Brazilian inflation hovers around 6-7%
• Capital obtained at 10% for 7 years
• Equipment life at least 5 years
Finances
Coffee Shop Setup
DESCRIPTION
COST
Notes
Building retrofit labor
$89,000 Approx 40 man-weeks labor
Materials
$91,000 Includes walls, bathrooms, plumbing, and counter construction
Furniture and displays
$58,000 Tables, chairs, couches, displays cabinets, etc.
Equipment
$76,000 Coffee/espresso makers, utensils, pastry warmers, ovens, etc
Setup inventory
$36,000 Coffees, filters, supplies, pastries, etc
Operating capital
$100,000 50% investor, 50% Starbucks
TOTAL
$450,000
Finances
Net Earnings (in $1000s)
Break-Even Analysis
$150
$100
$50
$0
1
2
3
4
5
-$50
-$100
YEAR
Break-even Point = $18,200
Finances
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
Beverage Sales
$ 184,900
$ 235,193
$ 299,165
$ 380,538
$ 484,045
Foodservice and other
$
$
$
$
$
TOTAL SALES
$ 195,994
$ 249,304
$ 317,115
$ 403,370
$ 513,087
Cost of Goods Sold
$
$
$
$
$
Gross Margin
$ 165,034
$ 209,923
$ 267,022
$ 339,652
$ 432,038
Operating Expenses
$ 254,160
$ 242,384
$ 253,021
$ 264,509
$ 276,386
Income before Taxes
$
$
(32,461)
$
14,001
$
75,143
$ 155,652
Income Taxes (38%)
$
$
-
$
5,320
$
28,554
$
Net Earnings
$
$
(32,461)
$
8,681
$
46,589
$ 96,504
REVENUE
11,094
30,960
(89,126)
(89,126)
14,112
39,381
17,950
50,093
22,832
63,718
29,043
81,049
59,148
Finances
• Project Losses in Years 1 and 2
• Break-even in Year 3
• Profit Margin Projections
• 14% in Year 4
• 22% by Year 5
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Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion
Conclusion
• Most respected coffee retailer in the world
• International expansion is key to success
• Brazil is the next market to enter
• Partner with Carrefour
• Projected strong profitability by Year 5
Questions?