Starbucks in Sweden
International Marketing
Marketing 360-401
Larrea
Novermber 13, 2012
November 13, 2012
Faraz
Chowdhury
Neal
Deters
Mohammed
Farooq
Mikaela
Odell
Morgan
Phillips
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Table of Contents
1. Executive Summary
3
2. Host-country macro environmental factors)
analysis and trends
4
3. Host-country national cultural characteristics
8
4. Host-country micro analysis and trends
10
5. Host-country Global/National Competitive
Environment
14
6. Host-country industry analysis
19
7. Host country risk analysis
25
8. Conclusion
28
9. Resources
31
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Executive Summary
Starbucks is one of the most powerful and recognized names in the coffee industry. They
have been in business since 1971 and since then they have been able to expand their business to
more than 60 countries with over 19,000 locations all over the world. They are one of the more
powerful and fast paced companies in the world and we want to grow the company even further
with great opportunity that we found in Sweden.
The purpose of this research paper is for Starbucks to examine whether the company will
be able to enter a new country with immense opportunity in the coffee industry. We have done
extensive research to find whether it will be feasible for Starbucks to enter Sweden and expand
their business further. In order to provide usable and reliable results, we have done extensive
research of the country to investigate the macro environmental factors, analysis, and trends,
national cultural characteristics, micro analysis and trends, Global/National Competitive
Environment, industry analysis and last but not least and overall risk assessment of the country
for the business to enter.
Currently, Starbucks does not have any locations in Sweden, besides the two, which are
located in airports and only available to flying passengers. It will technically be a new market
which is why all of this research is crucial in the decision making process. This paper will focus
on the details of each of those topics and will provide with the most important fact in the
PowerPoint presentation.
Lastly this paper will conclude by pitching a recommendation to Starbucks as to how
they can enter the market, and what they can do to become successful like they have in other
parts of the world, especially the United States of America.
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Host-country macro environmental factors) analysis and trends
Before we attempt to enter Sweden’s Coffee market, we first need to look at the various Macro
Factors that could affect us. Macroeconomics deals with a countries economy as a whole rather
than an individual market. There are several different levels in macroeconomics; we will be
looking at the demographic environment, the economic structural environment, the technological
environment, the political environment, and the cultural environment. By looking closely at these
various factors we can make an educated decision on whether Sweden is a plausible market to
enter.
The demographic environment encompasses everything about the people of Sweden. The
population of Sweden is 9,103,788. The population of Stockholm is 1.279 million people; this
may be a good started city for our company because the population is high. This means there will
be more people to purchase our product in one area. In Sweden there are about 15.4% of 0-14 yr
olds, 64.4% of 15-64 yr olds, and 20.2% of 20.2%. The largest groups (15-64 yr olds) have a sex
combination of 2,967,938 male and 2,897,454 female. The median age for each sex is 41 yrs old
for Males and 43.3 yrs old for Females, The total age median is 42.2 yrs old. With these age and
sex demographics we can better determine a target market for our product in Sweden. The final
statistic that could prove helpful is the countries religion. 87% of the population is Lutheran and
13% consists of other religions. Knowing these demographics of Sweden can prove very useful
when determining whether or not to enter the country.
The next section our company should look at is the Economic Structural Factors.
Knowing where the country of Sweden is financially is very important to look at before
attempting to enter. A company wouldn’t want to spend millions of dollars to enter the country
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only to face large financial trouble because of the economy. Sweden’s economy consists of a
mixed system of high-tech capitalism and extensive welfare benefits. The economy is heavily
leaning to foreign trade; this is good news for us because it will make entering Sweden’s market
easier for us. In 2008 the Swedish economy slid into a recession in the third quarter. It was a
tough time, but they quickly have been on the rise ever since. The Swedish government is even
proposing stimulus measures to further help the economy. The GDP is another important factor
in Sweden’s economy, but there are several we should look at. The GDP official exchange rate is
538.2 billion finally the GDP real growth rate is 4%. These two numbers tell us so much about
the country. The GDP is the market value of goods and services in a country and the growth rate
tells us how much it’s growing. Sweden has the #21 GDP in the world, for us this can be good
news for us because we won’t have to worry much about differing prices. Another stat we should
look at is the labor force, it consists of 5.018 million people and the unemployment rate is 7.5%.
With these numbers we know that upon entering the country we’ll have a group of potential
employees. This will help with the ease of entering the country. As seen on ChartsBin.com
Sweden is one of the easiest countries to do business with today
(http://chartsbin.com/view/3647). The current Inflation rate for Sweden is 3%; this is remarkably
low for inflation rate. The CPI for Sweden is 314.81 (Index 1980=100), this presents good
opportunity for our business in the area of pricing. With these statistics we can say that Sweden
is in good financial standing in the world and would be a good choice to enter for our business.
The next factor we need to acknowledge is the Technological environment. Sweden is
one of the more technologically advanced countries in the modern world. For Sweden, The
Internet and Energy resources are the most advanced in the country. Sweden is one of the
world’s leading information and communication technologies nations. It claims to be the
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birthplace of countless technologies including Bluetooth, GSM, and LTE. These gadgets are key
to communications across the globe. Sweden is becoming the capital for all things wireless;
Motorola, Intel, Huawei, and Oracle have their research headquarters in Sweden. Half of the
world’s mobile traffic is handled by Sweden. If a company wants to do well in this environment
they should consider making sure their technology can interact in this high interchanging market.
Another technology environment that Starbucks should consider is Energy. Since their oil
crisis in the 70’s, Sweden has invested
heavily in alternative energy sources. 45% of
Sweden’s Energy today is composed of
renewable resources. This percentage
surpasses all other European countries.
Sweden’s electricity production, 2009 (TWh).
Sweden in 2005 introduced a special program designed to boost energy efficiency. About 180
industries are given tax relief in exchange for increasing green energy. Today the program has
energy savings of about 1.4 TWh per yr (worth about 500 million SEK). The energy situation in
Sweden is something Starbucks needs to take a good look at. Our company needs to make sure
that they take advantage of the opportunity this law provides and take the necessary steps to
make sure their green energy is high. This way Starbucks can begin to assimilate into the culture
easily. This will greatly benefit Starbucks when if they penetrate the market.
The fourth environment we need to look at is the Political environment. Sweden consists
of a Constitutional monarchy with parliamentary democracy. Their parliament to called the
Riksdag and consists of 349 members. Sweden also has a king who is the head of state but holds
no authority. Elections are held every 4 years and about 7 million people are registered to vote.
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Sweden’s government is built upon decentralization on a local and regional level. All public
power comes from the people, Sweden prides that this is the first sentence in their constitution. It
is actually made up of 4 different constitutions they are called Regeringsformen (form of
government), Successionsordningen (order of succession), Tryckfrihetsförordningen (press law)
and Yttrandefrihetsgrundlagen (constitution for freedom of speech). The latest change in the
constitution was made for Sweden’s entrance into the European Union. The government is
extremely stable and supports a growing economy. This government situation is ideal for a
company entering a new country. It’s stable, effective, and easy to understand, these qualities
make Sweden’s government trouble-free to work with.
The cultural environment is the final important factor we need to look into. Sweden is a
very rich culture that values its diversity. 1/5 of the population is rooted in other countries.
Swedes pride themselves on focusing on love, respect for the environment, and good home
atmosphere. These principles are something to focus on when looking at the culture
environment. Swedes also significance efficiency, the smoother a process goes the more laidback they become. They value old traditions while embracing new technologies. Something even
more important than their values is the food. Swedes love foods and have all sorts of holidays to
celebrate. On October 4th is cinnamon roll day where they celebrate the delicious pastry. They
also reserve Saturdays to eat all the candy they want. Sweetness is prominent in their cuisine
from bread to cheese. The laid-back, sweet focused culture can benefit our future venture should
we choose to go forward.
While the general culture is something to take in, another angle to look at is Sweden’s
business culture. The style of business is relaxed and egalitarian. Decisions are reached by
consensus of all members of a team, boss included. Vacations are long and coffee breaks are
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meant to be enjoyed. Swedish businessmen value passion, but when it comes to arguing and
open emotion they prefer to keep those under wraps. It’s all about finding a quick and easy way
to get things done. Business dress is casual and everyone is on a first name basis with each other.
Manager’s think of themselves as coaches and uses principles of cooperation and agreement.
Sweden has the smallest power distance in the world; it is instead replaced with personal
responsibility. Swedish executives are also more likely to take risks; they have extremely low in
the “uncertainty avoidance index”. The business men in Sweden also discuss matters a bit
differently, they want to get straight to the point rather than dawdle with personal matters. This
grouping of traits makes up a normal Swedish businessman. With this knowledge we can better
understand the people we might meet trying to enter the market.
With these various environment taken into consideration, star bucks can better determine
whether or not Sweden is a good choice for their next venture.
Host-country national cultural characteristics
Sweden is a country in northern Europe and its capital is Stockholm. Since 1812
Sweden’s borders has been unchanged and the country has not been in war for almost two
hundred years. Sweden is a very technologically advanced country and it has strong
infrastructure and good communication and transportation systems. The biggest religion in
Sweden is Christianity and Islam is the second largest one (due to all immigration). The Church
of Sweden got separated from the state in the year of 2000 and only 17% of Swedes says that
religion is important in their daily lives. Sweden is actually the second least religious country in
the world (after Estonia). About 85% of the population are non- believers, agnostics or atheists.
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Even though religion is not very important, they do celebrate many traditions that are rooted
from Christianity like Easter, Christmas and Fat Tuesday. Swedes do not think it is important
where the traditions come from they are just eager to keep the customs and festivities themselves
alive. This information might be relevant to keep in mind when opening a coffee shop in Sweden
since you might want to do holiday special events but not tie it into religion. Also the country is
very stable (no wars for 200 years) so you do not have to worry about safety and drastic changes.
Egalitarianism is a key component in Swedish society and it is also accounted for when it come
to business. Egalitarianism is characterized by a belief in equal political, social, economic and
civil right for all. Therefore consensus is a very important when it comes to business decision
making in Sweden. Since equality is so important in Sweden they are also one of the world
leaders when it comes to gender equality. Swedes also have an average of five weeks of vacation
a year, so if you are doing business with Sweden, be prepared for that business is slow during the
summer months June to August. It is very important to keep this I mind when you open a
business in Sweden. You should probably try to hire an equal amount of males and females. You
also have to be prepared to pay your employees five weeks of vacation a year.
Host-country microanalysis and trends
Political system:
“All power in Sweden comes from the people”; this is the first sentence in the Swedish
constitution. The people are represented by a parliamentary political system and there is also a
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king which is the head of the state but he does not have any authority in governing Sweden (he is
more like a symbol). The prime minister is the person with the most power. The government’s
role in the Swedish economy is quite large. They own shares in many important industries like
the commercial banks, telecommunication companies, postal service, drug chains, information
technology etc. The Swedish state also owns the alcohol industry: it is a monopoly. Only one
company called Systembolaget can sell alcohol, and only they and wholesalers authorized by the
state are allowed to import alcohol.
Social systems:
Sweden has a strong welfare system and its citizens receive lifetime benefits. Education
is free (including college) and most health care and pension benefits are paid by the person’s
employer and also from income taxes. Swedish people also benefits from five weeks of paid
vacation a year plus paid sick days. If someone has a child they are entitled up to 480 days of
partial pay, the dad also get to take advantage of this. A couple with a child are also allowed to
take up to 120 paid “child sick days” a year. Swedes see these benefits as equal opportunities for
everyone and they believe that all children should be given free education and health care. Of
course everything has a price and to maintain such a high welfare state people in Sweden pay
high taxes. Employers pay payroll taxes on top of salary taxes, income taxes are directly
deducted from people’s salary and taxes on goods and services are included in the price. People
in Sweden pay taxes individually; even when you get married you continue to pay taxes
individually. People pay around 26%-35% in taxes from their salary and also a 20%- 25% tax if
they earn above 298,600 sek ( about $42, 600) so some people can end up paying 60 % in taxes.
If Starbucks decides to enter Sweden they have to keep the high tax rate in mind so they can
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calculate whether or not it will be profitable for them to enter Sweden.
Starbucks that is situated in the airport closest to Stockholm sell their coffee at a high
price. A regular cup of small coffee costs 29 Kronor ($ 4.3) and a big café latte costs 53 kronor
($ 7.9). Even though the taxes are higher than in the US, Starbucks would be able to charge more
per cup of coffee, and might be profitable that way instead.
Degree of openness:
Sweden is a member of the European Union but they have their own currency, the
Swedish “Kronor”. Sweden has a high degree of openness to the rest of the world, exports
account for about 50% of their GDP. The country is also one of the top recipients of foreign
direct investment and the majority of the investments are technology based. Sweden is called
early adopters and Foreign Policy has ranked Sweden as one of the top three most globalized
countries in the world. Since Sweden is such an open country it is less risky to open up a foreign
business there.
Product market:
Sweden is a relatively small market because the country only has around 9 million
habitants. World known brands like Volvo, IKEA and Ericsson come from Sweden. Many
foreign companies use Sweden to try out new product and services before introducing them on a
larger scale. Sweden has many import prohibitions that Starbucks should be aware of, for
example, any importation of foods containing meat or milk products for personal consumption is
prohibited unless it has legit documentation from the country where it comes from. Since
Sweden is a member of the EU it is also part of the EU custom tariff system. To meet import
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regulations from non EU countries, the EU uses the custom tariff system (TARIS). Depending on
how much a shipment is worth you either have to pay a value added tax, duty, both or none.
Products that are imported and that has a lower price than regular, have to pay an anti dumpingduty rate on top of the regular custom duty. Clearly it is important to find out how much duty and
tariffs you have to pay for your imported products because the ones listed above are only a few.
Sweden accounts for a pretty small market and it might not be so profitable for Starbucks
to only penetrate into Sweden. Many foreign companies use Sweden as a test market (because
the poplation is characterized as early adopters), before they launch their product on a larger
scale. Starbucks have a big opportunity in doing this because they can start introducing
Starbucks in Sweden and if it works well they might be able to bring it over to all the other
Scandinavian countries (the countries are pretty similar). The population of Scandinavia is
roughly 25 million people.
Labor market:
Unemployment rate in Sweden is currently 7.4% but from 1980 to 2012 the average
unemployment rate in Sweden is 5.68%. The unemployment rate for people under 24 years old
is high, it amounts to 24.2 % and people between 24-54 years old have a 6.1% unemployment
rate. The Federation of Swedish Trade Unions says that the high unemployment rate for young
people is due to the education system. They say that many young people do not graduate with a
degree and therefore do not have the necessary skills for jobs, but they have themselves to blame
since education is free. Also the people who do get a degree usually choose a career where there
are more graduates than needed.
Sweden has many unions that affect the workplace;
70% of Sweden’s workforce is influenced by unions. Foreigners do not really understand that for
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Swedes “joining a union is like joining a church”, most people do it at birth and usually take it
for granted”, Said Michael Collins, National Secretary of the Civil Aviation Section of the
Union.
Hierarchies:
Swedish companies are no very keen on business hierarchies. They believe that informal
contracts and direct communication are very important to run a business in a good way. They
most often bypass management levels and different business department boundaries. Sweden
“violates” the corporate chain of command. They do not see the trade of information to do
anything with the chain of command; still Swedes have great respect for their managers.
Mangers have more like a coaching role and usually do not act like a boss. Since Swedes think
that egalitarianism is so important, many business decisions are based on consensus and
compromise so decision-making in business therefore tend to be a slow process. Swedes have a
direct and open communication style, so business communications are literal and straight to the
point. Swedish people also value their personal space so leave a large distance between the
people you are talking with. Since Sweden has such a low level of hierarchies they tend to have
informal business cultures and people greet each other using first names. Swedish people also
take an average of two coffee brakes a day called “fika”. It is a great opportunity to informally
talk to people during this time. It is important to be punctual when dealing with Swedes, if you
are for some reason running late let them know a head of time. Swedes draw a distinct line
between personal and business life and they seldom reveal anything about themselves as an
individual. Personal relationships in business are not very important to Swedes.
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The information provided above might be important to know for Starbucks because they
probably would want to focus on building many Starbucks close to business locations. People
take an average of two coffee breaks each day and if Starbucks is close to their work place they
might go there twice a day. Another important point to keep in mind if Starbucks decides to hire
American managers is that they have to adapt to the Swedish management style. Swedes are no
very keen on business hierarchies and managers should therefore have a more relaxed
management style and act more like coaches.
Host-country Global/National Competitive Environment
Market Threats
When evaluating a countries competitive market within a specific industry, you must first
identify the current competition and threats within the market. When considering the threats
within Sweden’s coffee market, we should take a look into who controls the RTD (Ready to
Drink) market. The most recent statistics state, that Emmi Nordic AB, controls 41% of the
market, while continuing growth internationally. To add onto this, Emmi Nordic has sustained
control over the market for the past five years, and looks to continue to do so. They are easily a
considerable threat when looking to enter Sweden’s coffee market. Emmi also had the largest off
trade sales volume last year with a 7% increase. These sales were made through their strong
connections with distribution channels and brand awareness. This could potentially play as an
incredible threat within the future (4).
Other competitors in the market holding significant shares include Lidl Sverige KB,
holding 14% of the RTD Coffee industry. Although Lidl Sverige does not appear as an immense
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threat to entering the market, they still maintain a substantial percent of the market (4).
While we have taken a look at the competition in the market, threats can be found beyond
the simple competitor. One important issue to keep in mind while entering Sweden is the
continued importance of health today. Although, coffee continues to be a stimulant to the work
environment and social environment, people still have concern with the risks of consumption.
The main threat is the nationwide debate of the negative content and effects of coffee. An
example of this is how consuming coffee while having an empty stomach creates a greater
increase in stomach acid. This then can cause stomach pains for such individuals (2). As you can
see, competitors and other threats play a very significant role when looking to enter a
competitive market.
New Market Entrants
Aside from the threats of the market, we must also take a look at the possible new
entrants to the Swedish coffee industry. From the information we have gathered, it appears there
are no direct corporate competitors entering the market. However, we must make sure and
concentrate on the up and coming Cafes in the European region, specifically in Norway (6).
Sweden has already seen a growth of cafes in over the past year. The some surrounding countries
also appear to have experienced similar growth within the café markets (5). Because of this, we
need to keep watch over new cafes, which could be potential threats within the near future for a
newly entering Starbucks.
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Industry Analysis
After analysis of the competition and threats of new entrants, we must take into
consideration the direction in which the industry is moving. According to Euromonitor’s reports,
total sales of RTD coffee increased in the 2011 year by 3%, making a total increase of 290,000
liters. On top of that, the total volume sales are expected to increase 14% over the forecast
period. The leader with this ever improving industry is currently Arla Foods Amba with a 45%
share of RTD volume sales in 2011. Arla made this possible through their strong brand
awareness of the company’s products.
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As stated before, the largest off trade sales was by Emmi Nordic AB at 7%, while Arla Foods
Amba came in at a close second with 6% increase respectively, with both coming from good
distribution channels and brand awareness. In addition, the coffee market also noticed a fast
growth within the specialty coffee area, with current value sales increasing 13%. This was trend
was created by specialist coffee shops, creating an environment to which people can meet up and
enjoy a nice espresso based coffee. Specialty coffee shops have become increasingly popular
within larger cities, although many have begun expanding throughout the rest of the Sweden
territory. Potential threats within the industry, as stated before are the ongoing health scares, and
the negative effects of coffee (2). Other threats include Swedes buying sealable IKEA coffee
cups. It has become increasingly popular to purchase these handy coffee cups, and fill them up at
home, and take on the go (4).
Starbucks History and Entry
Starbucks has been around now for quite some time. It was created in 1971. During this
time, the coffee market was controlled by supermarket brands such as Folgers and Maxwell
House. In 1983, CEO Howard Schultz traveled to Italy and identified an interesting trend among
the European coffee industry. He noticed the popularity of espresso bars, and their ability to
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draw in customers. Not long after, Starbucks was born. In 1988, they began providing both full
and part time employees with health benefits. Thus creating strong relationships between
management and employees. In 1996, Starbucks began their global expansion, and continues to
do so today (7). With all this being said, we believe that has Starbucks has built themselves as a
strong competitor within not only the American Markets, but also the international markets.
Sweden’s stability allows for an easier ability for entry. Statistics of the Swedish market also
prove that Sweden’s truly do have a strong passion for coffee. However, Sweden’s coffee
competitors have an immense grip on the markets share (4). Cafes although have begun popping
up around Universities and Cities, allowing for yet again a great opportunity for entry. Although
we believe Starbucks to be a perfect match for Sweden, it has shown to create little growth
within most European markets. Starbucks has yet to turn profits in any of its French retail outlets,
and continues to struggle with growth even in its profiting areas. The European debt crisis, along
with high rent and labor costs, has continued to cut the profits of those who have done well.
However, the biggest struggle for Starbucks is relating to the European local trends (3). We
believe however, that Starbucks has much to offer Sweden, with its many similarities with the
Swedish trends. Starbucks employee health benefits prove to show equality among the
workplace, which is something in which Sweden is very fond of. Other similarities include
Starbucks ability to create a laidback and local environment. The Starbucks environments are
built upon the creating an environment in which an individual will want to sit down and grab a
cup of coffee, or even hangout. This is the exact sort of trend that Sweden’s look for when going
to get a cup of coffee. It is traditional for them to socialize and considered rude to leave without
finishing your coffee. With all this being said, we believe Starbucks will be a perfect fit for
Sweden.
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Distribution
Based on the information pertaining to our competition within the market, it is difficult to
believe we would be able to sustain a substantial market share. However, our plan is to
implement an agreement with Arla Foods Amba, that will put them in charge of marketing,
production, and distribution of the Starbucks branded RTD coffee throughout Europe (1). This
will come as an incredible benefit, as Arla Foods maintains a 45% share of the Swedish coffee
RTD market.
Host-country industry analysis
Host-country industry analysis
To begin with, looking at the coffee industry from a global perspective, “coffee is worth
over $100 billion worldwide” and over 500 billion cups of coffee are drank every year
(Goldschein). Because of these staggering numbers, the amount of coffee shops is also beginning
to grow worldwide. One country, as mentioned earlier, that was recognized as a potential market
for coffee shops, particularly Starbucks, was Sweden. Currently, they rank as one of the highest
country of coffee consumption, at about 8 kg per capita (CBI). Adding to that, an average
Swedes consumes about three and a half cups of coffee everyday (CBI). This number, according
to Euromonitor International research, is not forecasted to decline anytime soon, but if it does it
will only “decline marginally” (Euromonitor). Even after the economy took a hit these past
recent years, research analysts did not find much fluctuations in coffee consumption.
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The reason being is that coffee is seen as a necessity in Sweden, and the majority drink it
regularly. Although, they did notice that the price of coffee went up, so many people began to
make it at home, as opposed to purchasing it from coffee shops. Notice how they did not stop
consuming coffee. This price increase did not affect sales of coffee overall
in Sweden, rather it still had “positive growth” (Euromonitor). Last year, in 2011, coffee prices
saw an average increase of 25% per unit due to poor harvesting (Euromonitor). Many countries
in Europe saw their coffee prices go up, and some more than doubled.This was a temporary
panic, and in the beginning of 2012, things began to smooth out again. This might have caused
consumers to begin purchasing coffee machines because the majority of Swedes have coffee
machines in their home. Another reason might be is that they want to try something new and
convenient. This has lead to an increased demand for fresh coffee pods as well as the retail value
in Sweden over the past 5 years (See Table 5). Nonetheless, “Standard fresh ground coffee” is
still the most popular in Sweden and it accounts for a “93% share of total volume sales” (See
Table 1) (Euromonitor). Specialty coffees are beginning to come into play, but they are slowly
creeping their way in and have not impacted classic coffee sales much.
In the future, it is forecasted that coffee sales will not take much of a hit. It is estimated
that there will be approximately a 1% decrease in the growth, and that is due to the new concept
of coffee machines at home. Though, the retail value of coffee pods is expected to increase over
the next 5 years (See Table 13). There is a conceived notion that coffee machines were being
bought for home, due to higher coffee prices, but in the forecast, prices are expected to become
normal in the near future (Euromonitor). Prices are decreasing which means costs will be lower
for coffee shops and therefore their selling price will also decrease. In Sweden, the major coffee
house chains tend to keep their prices competitive, so this will also not be an issue. It is also
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being noticed that Swedes have always been concerned of their health and that will grow, but
coffee sales will not be affected according to researchers (Euromonitor). Competition is expected
to pick-up with new item brands as well as product introductions, but this will not have an
immediate impact in the near future; it will take long to develop. Overall, there is no foreseeable
threat to the coffee industry and it’s sales in Sweden.
Currently our company, Starbucks, has only two locations, and both of them are in
airports, which means they are not open to the general public. It is only open to only flying
passengers, but nonetheless Swedes are somewhat familiar of Starbucks. This means that we do
not have a real position in the market and once we enter we will need to create that position.
Our company, Starbucks’, position will be very unique compared to the other coffee
shops in Sweden. Like mentioned earlier, Swedes have a high demand for strong coffee, and
since Starbucks’ coffee is known for having strong flavors, they will already have leverage over
the other coffee shops in Sweden. Recognizing that they desire strong flavors, we will heavily
emphasize and market the idea that Starbucks offers strong coffee. Since there will be many
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people that are not aware of Starbucks in Sweden, advertising will be critical. Along with that,
we will also create a unique environment in the coffee shops that will encourage people to sit and
drink inside.
Sweden’s typically have two coffee breaks a day, and this break is known as “fika”
(Euromonitor). It involves going out with coworkers or friends to grab some coffee and
a sweet snack along with it (Expats in Sweden). It is seen as rude if one leaves an event
or meeting without drinking coffee. Typically, Swedes tend to sit down and drink coffee,
as opposed to many Americans who like to grab and go. This means that it is critical to create a
positive environment geared towards the local’s needs. Starbucks has succeeded at creating that
coffee shop environment geared towards Americans, and if they are able to do the same for
Swedes, they will be able to bring in a lot of traffic.
Popular coffee houses in Sweden are Wayne’s Coffee and Espresso House. These two
“chains accounted for the most growth in 2011” (Euromonitor). Along with that, “Café/ bars is
totally dominated by domestic outlets such as Espresso House, Wayne’s Coffee and Bishop
Arms” and “these three players alone accounted for 71% of chained value sales in 2011”
(Euromonitor). This means that Starbucks’ greatest competition are these three coffee chains.
This market seems to be saturated with these three chains and in order for Starbucks to survive
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they will need to hit the market strong. Not only will they have to heavily advertise in the proper
manner, but also open up as many as stores as possible throughout areas. According to
Euromonitor, “the main way to gain sales share is to open new outlets” (Euromonitor). Another
type of coffee houses that are growing are “specialist coffee shops” (Euromonitor).
The demographics attracted to this are young and middle age individuals, as well as
women, but it is quickly evolving. So what Starbucks can also do to differentiate themselves is
by offering specialty coffees as well as classic. Also, coffee shops in Sweden tend to offer quick
bites to eat, such as cookies, sandwiches, and the most recent popular item, cupcakes
(Euromonitor). Coffee shops in Sweden tend to change their menu often based on the recent
trends and demands. Also, if one coffee house has a new item that becomes popular, it is almost
guaranteed that competitors will follow. It will be critical for Starbucks to have an insider which
keeps up with the constant trends in order to continue attracting their target market. Starbucks
will need to recognize all these attributes before beginning to open up shops. If they create a
constantly changing menu based on Sweden trends, create a positive store environment, offer
specialty and classic coffee, and open up as many stores as feasible, they will have great success
in Sweden.
Similar to any business entering a new market abroad, Starbucks would also be faced
with potential stumbling blocks or barriers of entry. These barriers of entry could vary, but
mainly revolve around the issues that a new business has in a new market. Some barriers of entry
that were noticed for Starbucks when entering the Sweden ranged from competition to costs. To
begin with, existing competition is certainly going to be an issue. The current competitors
mentioned above, as well as the small coffee shops are well- established in their market. They
most probably know the inside out of this market. They have been in the market for quite some
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time allowing them to recognize current patterns and trends. This experience certainly gives
them a leg-up over any new market entrant. They are already insiders, and this is what Starbucks
currently lacks. Starbucks will need to understand the market just as well as the competition or
even better. They will basically be playing catch-up to the competition. This eventually leads
into the fact that doing all this research will be very costly. Even though Starbucks is already a
large corporation, their strategy, like any other business, is to keep costs low. The costs of doing
research, becoming an insider, understanding the consumers, will all be very costly. They will
need to be thorough in their research in order to be successful in the long- term.
Another potential stumbling block when entering the market is the loyalty customers
already have towards their current coffee shops. According to Euromonitor’s research,
consumers are fairly loyal to their current coffee brands, although there is a growing amount of
people that are willing to try something new. Like mentioned earlier, there is an urge for stronger
coffee, and this is where Starbucks could begin to attract customers. Also, since customers are
already known to be loyal, once Starbucks grabs those consumers, they must be able to maintain
them.
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Lastly, another potential stumbling block could be the fact that the competition already
has the majority of the prime locations. By prime location, it is meant the locations that have the
highest foot traffic around them. This is most likely a barrier of entry that Starbuck’s will face,
again, because of the fact that the competition has been there for so long. They know the
locations well, they know the “hot spots,” and chances are they have already conquered those
areas. Also, according to Euromonitor, “all of the leading players (Espresso House, Wayne’s
Coffee and Bishop’s Arms) have declared that they will continue to expand and that there is
room for further growth in Sweden.” This is a major threat to Starbucks as well.
So being able to find the locations that have not yet been taken is going to be a challenge.
Even more difficult than that will be opening a Starbucks in a prime location in which a
competitor already exists. Being able to compete head on with the competition and being able to
to drive customers in their store as opposed to the competitors will be critical to their success.
These are just a few of the many barriers of entry that Starbucks can or will face when entering
Sweden’s market.
Host country risk analysis
In order to do business in Sweden, our team performed extensive research that would
give an idea as to what to anticipate when we enter the market. Whether we are testing the
market or actually establishing our business with the intent of long-term growth, we have to be
wary of these aspects to ensure we are not dealing with unforeseen dangers that might sink our
business in a foreign state. In order to perform the research, we looked at the overall risk
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assessment of the country, political risk, security, infrastructure, tax, government, legal and
regulatory and foreign business support in Sweden.
We started with security risk and found that Sweden is in excellent form. They have good
relationships with their neighbors and have long standing government that has been tried and true
with the people of the country. One of the core values of the country as a whole is to protect the
people and their human rights. On a different note, as far as terrorist threats their threat is low
simply because they have good relationships with almost everyone. They do not have history of
disruptive actions against any groups, which keep them very neutral with everyone. Crime rate is
also very low making it easy for business to establish themselves in Sweden.
In terms of political stability and legal risks, Sweden enjoys a very good reputation as a
politically and socially stable country. All the main political parties and groups support
institutional setting with basic political structure. As a result, when conflicts arise between
parties, they are settled within political framework. Their political system is known as being
pragmatists and with broad agreement between political parties. As far as legal and regulatory
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risk, Sweden has many international companies that operate from there. They do not discriminate
against international companies or favor locals but are equally supportive of both.
The legal system is fair and there is little to no political interference, which makes their
legal framework stronger. They have strick laws about enforcing contracts and copyrights
against intellectual property. As a member of the EU, they have a series of laws that protect them
business from a business standpoint. They business do not favor international or domestic ones
simply because many international companies have set up shop in Sweden due to favorable tax
rates and other perks. Tax policy is high according to international standards. The government
had cut tax in 2007 thru 2009 and now business have experience a tax cut - from 28% to 26.3%.
One of the bigger issues when it comes to Sweden is their labor market. For business that
are going into Sweden with manufacturing intent have the obstacle of dealing with the everdifficult labor market. Labor in Sweden is more expensive than countries such as the US and
many other perks that are built into their labor market. However their infrastructure risk is very
low since technology is very advanced. Because of their high tech manufacturing, it eliminates
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much of the need for labor on a general basis. Having said that, implementing technology
requires a significant amount of capital; but in the long run they are more cost effective as
opposed to a labor heavy manufacturing model.
Overall risk in Sweden is very low. They have a strong political, legal, tax systems along
with low levels of threats from outside; strong financial and very advanced infrastructure.
Conclusion
In order to enter Sweden, Starbucks needs to do a lot of research in terms of what to do,
what not to do. We have spent many of our very valuable hours researching the best ways to
enter the market. In the end we realized that greenfield operation would be the most effective
way to penetrate the market. We want to ensure that Starbucks quality and experience remains as
the American standard with slight modification to cater to the Swedish market.
Our product is Starbucks. It is not only the Starbucks coffee but the Starbucks experience.
More and more people are demanding high quality premium coffee and we are aiming to meet
that latent demand. We can also use the Swedish culture to engrave our experience into their
daily lifestyle. Swedes take coffee breaks known as fika on a daily basis and we can leverage that
to ensure that we are a part of the daily lifestyle in Sweden
In terms of price, according to our research we have seen that people in Sweden are
looking for higher quality coffee and are willing to more for that coffee. As mentioned earlier
coffee is a part of their daily lifestyle and we can leverage that to ensure our product is the type
of coffee that the Swedish customer is looking for.
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We will be distributing our coffee from our own Greenfield operation stores. We will be
using those outlets sell our coffee as well as other amenities such as ready to drink, pre-packaged
coffee. As far as sourcing the coffee, we will be importing from brazil as it is our biggest
supplier. We use their export network to supply our stores all over the world. In order to enter
Sweden we can use their network and partner with a domestic logistics company to help us move
our product within the country. Once we establish a foothold int the Swedish market, we can
incorporate our own logistics to move product much like our model in the US.
Last but not least, our promotion will be targeted toward the commuter traffic. We will be
targeting professionals because research has shown that they are heavier coffee drinkers than
non-professionals. We will be promoting our product in train stations, billboards in high traffic
areas to get exposure to the people who are our prime target. Also with our test market stores, we
can have different types of engaging promotional efforts and create viral marketing campaigns
and create buzz along the way.
Overall we have seen that there is a huge opportunity in the Swedish market for us to
establish our business. We have stores all over the world and Swedish market is an untapped
market that we can use our experience, knowledge and resources to penetrate. It is a low risk
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strategy as Sweden is a very low risk country overall and easy of doing business due to
institutional support and such are very low. Since there are high demands and good opportunity,
if we do not enter the market it will be one more market that we have overlooked and are not
using to grow our business.
Resources
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1.
"Starbucks Newsroom: Starbucks Corporation to Make First Entry Into The ReadyTo-Drink Coffee Category in Europe with Arla Foods." Starbucks Newsroom: Starbucks
Corporation to Make First Entry Into The Ready-To-Drink Coffee Category in Europe with
Arla Foods. N.p., n.d. Web. 08 Nov. 2012.
<http://news.starbucks.com/article_display.cfm?article_id=323>.
2.
"The 7 Negative Aspects of Coffee." The 7 Negative Aspects of Coffee. N.p., n.d. Web.
08 Nov. 2012. <http://drinkhealthydrinks.com/the-7-negative-aspects-of-coffee/13/>.
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"Starbucks Struggles to Compete in European Market." SmartPlanet. N.p., n.d. Web.
08 Nov. 2012. <http://www.smartplanet.com/blog/smart-takes/starbucks-struggles-tocompete-in-european-market/24904>.
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"RTD Coffee in Sweden." Passport GMID. N.p., n.d. Web.
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"Cafes/Bars in Sweden." Passport GMID. N.p., n.d. Web.
<http://www.portal.euromonitor.com.ezproxy1.lib.depaul.edu/Portal/Handlers/accessPD
F.ashx?c=08PDF&f=S-21425922074608.pdf&code=0k6fbs%2fZh7rtXS7shKItEBODChM%3d>.
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"Cafes/Bars in Norway." Passport GMID. N.p., n.d. Web.
<http://www.portal.euromonitor.com.ezproxy1.lib.depaul.edu/Portal/Handlers/accessPD
F.ashx?c=72PDF&f=S-19900121136972.pdf&code=3g7PeiW5QkfMFitWQXWODJfKp3c%3d>.
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Miller, Katherine, Marya Besharov, and Nancy F. Koehn. “Starbucks Coffee Company
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