Week 4
Please see attached.
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Case 9-1 Starbucks Takes
Coffee Culture Around the
World
Starbucks has also been successful in other European countries, including
the United Kingdom and Ireland. This success comes despite competition
from local rivals such as Ireland’s Insomnia Coffee Company and Bewley’s
and the fact that per capita consumption of roasted coffee in the two
countries is the lowest in Europe.
Starbucks currently has more than 1,200 outlets in Europe; that figure
includes company-operated stores in Austria, France, Germany, the
Netherlands, Switzerland, and the United Kingdom, as well as licensed
locations in Greece, Russia, Spain, and the United Kingdom (see Figure 9-
3 ). Scandinavia represents a major opportunity; for example, Finland
leads all other countries in per person coffee consumption, at nearly 27
pounds per year. Nordic neighbors Norway and Sweden are also in the top
five. To date, Starbucks has been slow to expand in the region. However,
that is changing as Starbucks partners with Norway’s Umoe Restaurant
Group. Michelle Gass, the executive in charge of Starbucks’ European unit,
is determined to make Starbucks a household name in the region.
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Figure 9-3 Starbucks Global Presence: Select European Markets
In January 2004, Starbucks opened its first outlets in Paris. CEO Howard
Schultz acknowledged that the decision to target France was a gutsy move;
after all, café culture has long been an entrenched part of the city’s heritage
and identity. The French prefer dark espresso, and the conventional wisdom
is that Americans don’t know what good coffee is. As one Frenchman put it,
“American coffee, it’s only water. We call it jus des chaussette—‘sock juice.’”
Also high on Starbucks CEO Schultz’s wish list for Europe: an outside-the-
box coffee product that will enable him to open shops in Italy. “That’s a
dream that I have yet to accomplish,” Schultz says. Some would say the
CEO’s dream could turn into a nightmare. After all, Italy’s coffeehouse
tradition dates back more than 400 years, and today more than 110,000
coffee bars are scattered the length and breadth of the peninsula. Sniffed a
spokesman for one of Starbucks’ European competitors, “The Italian café
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is a culture that the Americans have repackaged. They concentrate more on
their image than the coffee.”
Starbucks Introduces Coffee Culture to
China
Not surprisingly, Greater China—including the mainland, Hong Kong, and
Taiwan—represents another strategic growth market for Starbucks. Starting
with one café in Beijing at the China World Trade Center, which opened in
1999, today Starbucks operates more than 400 outlets in mainland China.
Another 700 units are licensed locations in China, Hong Kong, and Taiwan.
Plans call for a total of 1,500 outlets by 2015.
Starbucks has faced several different types of challenges in this part of the
world. For one thing, China is a nation of tea drinkers. Also, government
regulations initially forced the company to partner with local firms. After the
regulations were eased, Starbucks stepped up its rate of expansion,
focusing on “Tier One” metropolitan areas such as Beijing and Shanghai.
Another challenge comes from the traditional Chinese teahouse. Indeed,
one rival, Real Brewed Tea, aims to be “the Starbucks of tea.” A related
challenge is the perceptions and preferences of the Chinese, who do not
care for coffee. Those who had tasted coffee were familiar only with the
instant variety. Faced with one of global marketing’s most fundamental
questions—adapt offerings for local appeal or attempt to change local
tastes—Starbucks hopes to educate the Chinese about coffee. Meanwhile,
the company has rolled out new products—for example, red bean
Frappuccino and a Hainan chicken and rice wrap—that are designed to
appeal to local tastes.
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Chinese consumers exhibit different behavior patterns than in Starbucks’
other locations. In China, most orders are consumed in the cafés; in the
United States, by contrast, most patrons order drinks for carryout. (In the
United States, Starbucks is opening hundreds of new outlets with drive-
through service.) Also, store traffic in China is heaviest in the afternoon.
However, this behavior is consistent with Starbucks’ research findings,
which suggest that the number 1 reason the Chinese go to cafés is to have
a place to gather.
Weathering the Economic Crisis
Meanwhile, when the global economic downturn deepened, cash-strapped
consumers cut back on nonessential purchases. The notion of a “$4 latte”
seemed out of step with the times, and some perceived Starbucks’
premium brand image as a liability. Even before the economy nosedived,
Schultz had circulated a memo to senior executives titled “The
Commoditization of the Starbucks Experience.” In the memo, Schultz
warned that overaggressive market expansion was compromising the
company’s brand experience.
In part, the memo was a response to unofficial Web sites and blogs, such
as starbucksgossip.com, where customer and employee complaints and
company information were circulated. To better connect with its customers,
Starbucks created a social media Web site known as My Starbucks Idea
(MSI; http://mystarbucksidea.force.com). Within months of MSI’s launch in
2008, nearly 75,000 ideas had been submitted. Forrester Research
recognized Starbucks’ social media initiative with a Grandswell award in
the “Embracing” category. Today Starbucks has more than 50 million
“likes” on Facebook.
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Starbucks also stepped up efforts to communicate with the general public
using traditional media. Working with the BBDO advertising agency,
Starbucks launched a corporate branding campaign that was timed to
coincide with a major revamping of its food offerings. Full-page print ads
in The New York Times and USA Today were keyed to the tagline “It’s Not
Just Coffee. It’s Starbucks.”
Sensing a window of opportunity, McDonald’s executives proceeded with
plans to roll out McCafé, a branded coffee concept featuring cappuccino
and other coffee drinks at prices significantly lower than Starbucks’. At a
Starbucks in Paris, for example, a cappuccino is €4.00 ($6.00); a
comparable drink at McCafé is €2.00 or €2.50. McCafés feature
sophisticated brewing equipment and special coffee blends.
Starbucks Innovates at Home
Back in Seattle, in 2014 Starbucks was preparing to launch a new venture,
Starbucks Reserve Roastery and Tasting Room. Growth in mass-market
coffee consumption in the United States was slowing, a sign that it was
entering the mature phase of the product life cycle. For several years,
Starbucks had been selling limited quantities of seasonal Reserve beans
that were much more expensive than the company’s regular offerings. Why
does, say, a pound of Aged Sumatra beans cost $29.95 while “regular”
Sumatra costs $12.95? Known as “single-origin coffees,” the Reserve beans
typically are sourced from small farms with limited production capacity.
Some produce as few as 60 bags of green coffee beans each year. To
ensure a reliable source of Reserve beans, Starbucks is cultivating
relationships with small-scale farmers. The company even bought
Hacienda Alsacia, a coffee producer in Costa Rica.
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Schultz is determined to appeal to the upscale segment of coffee
aficionados who geek out over geographic and agricultural details, who can
appreciate the nuances of such so-called microlots, and who are willing to
pay up to $7 for a freshly brewed cup. To bring his vision to life, Schultz
bought a 15,000-square-foot building near the first Starbucks and
transformed it into a “theater of coffee.” Liz Muller, creative vice president
for global design at Starbucks, says the goal of the Starbucks Roastery is
to “create a space to reinvent retail for the 21st century.”
Discussion Questions
9-5. In the United States, nearly two-thirds of Starbucks outlets are
company owned; the remaining one-third is operated by licensees.
Outside the United States, the proportions are reversed: About two-
thirds are run by licensees or partnerships in which Starbucks has
equity stakes. What is the explanation for the two different market
expansion strategies?
9-6. In response to the economic downturn, Starbucks launched
a new line of instant coffee called VIA Rea
Respond to the following in a minimum of 175 words:
Identify a U.S. company with presence in a foreign market. Discuss the strategy that company used to establish their company, service, or product.
Business decision-makers often talk about “first mover” advantages. They are referring to a strategic advantage that a company often benefits from by being the first to enter a particular market. This could refer to a country market or a product market. Does the first mover advantage always hold true, class? Explain why or why not.
What factors should be considered for price-setting in foreign markets?
Read Case 9-1 Starbucks Takes Coffee Culture Around the World attached.
Write a 700- to 1,050-word paper in which you answer the following discussion questions in detail:
· What is the explanation for the two different market expansion strategies?
· Should Starbucks enter the Italian coffeehouse market? Why or why not?
· In the long run, which company is more likely to win the global “coffee war”: Starbucks or McDonalds? Do you see another potential competitor? Who and why?
Utilize outside source material to support your ideas, and include analytical data specific to this study.
Cite at least three outside references in addition to your textbook.
Format your paper consistent with APA guidelines.