Posted: October 1, 2012 |  AUTHOR: KEN FOX | CONTACT ME

 

Starbucks offers a recognizable brand globally that delivers on the product expected, in a welcoming environment. Starbucks became my immediate respite, a place of comfort and relief from the cold, not knowing anyone and not being able to speak Mandarin. I would walk into Starbucks in Chengdu, China, read the English menu and speak English to a Chinese barista behind the counter. I would often be drinking hot chocolate alone in the restaurant or with one or two other guests early in the morning. The store was new, clean and modern. My only complaint was they did not have any English reading material.

On a more recent trip to Xian, China (in May 2012) I found myself with some colleagues in an architecturally stunning, ultra modern Starbucks enjoying a place of peace, comfort, and familiarity that was welcoming. The customers were not only expats like me but also young Chinese enjoying being seen and buying Starbucks beverages and other items.

Starbucks exemplifies a marketing oriented company, committed to building loyal employees, positive relationships with suppliers and customer satisfaction. The company is continually innovating, introducing new products and growing internationally.

The company’s global revenues in 2011 were $11.7 billion, up 11% from 2010. Starbucks operates over 1,700 stores worldwide in 55 countries (2011). It plans to open 800+ new stores globally in 2012.

As many of you know, Starbucks created a community and an experience. It had taken a commodity, coffee, and translated it into an iconic brand. Recently the brand has
established a strategic platform beyond coffee as well. In early 2011, Starbucks changed their logo, eliminating all text, and most noticeably, any reference to coffee.

While some questioned this move, Howard Schultz, the founder and CEO, had other ideas about expanding Starbucks beyond a place to have coffee. However, Schultz also realized his commitment to coffee and innovations continue in that area. First, let’s look at recent new initiatives related to the base coffee business and existing retail units:

1. A concerted effort to expand distribution of packaged Starbucks coffee in multiple retail outlets, including grocery, discount retailers, club stores, etc.
2. Introduced Via instant coffee, in single serve packs
3. Introduced two blond (or light) roast coffees in stores: Veranda and Willow, and a line of packaged coffees for other retail distribution: Starbucks Blonde (Veranda Blend), Medium House Blend and Dark, French Roast
4. Introduced K-cups, individual serve packs (2012)
5. Launched Refresher Beverages, a natural energy drink made from Green coffee extract and natural juices
6. Starbucks will launch a premium, single cup coffee machine for home use, called Verismo in the fall of 2012.
7. Formed a partnership with Royal Caribbean Lines in Dec. 2010 to have coffee shops on two cruise ships.

8. Starbucks acquired Seattle’s Best coffee in 2003. It currently operates as a separate division, and has about 129 cafes. It is expected to be a $1 billion business over time. It will launch Seattle’s Best Coffee vending machines in the near future.

Starbucks has made a number of acquisitions to extend their business beyond coffee.

1. Starbucks acquired the upscale juice maker, Evolution Fresh in Nov. 2010.
“Our intent is to build a national Health and Wellness brand leveraging our scale, resources and premium product expertise. Brining Evolution Fresh into the Starbucks family marks an important step forward in this pursuit.” (Howard Schultz)
-The first Evolution Juice store opened March 2012 in Bellevue, WA. Other immediate plans are to open additional units in Seattle and San Francisco.

2. Starbucks acquired Bay Bread and its La Boulange Bakery brand in June 2012. The company has 19 stores in the San Francisco area serving salads and sandwiches on their artesian breads. Starbucks plans to expand this baker nationally in the U.S.

3. Starbucks will open it first Tazo Tea Shop in Seattle, WA in October 2012.
It will include a tea bar where customers can blend their own tea with the help of a “tea partner” or employee. It offers 80 types of tea.

Simultaneously, Starbucks expands internationally, especially in China and India, plus other countries in Asia.

China
The company currently has approximately 570 stores in 48 Chinese cities. It plans to open 150 new stores in 2012. China is expected to be the company’s second largest market after the U.S. by 2014
It plans to have 1,500 stores in China by 2015
John Culver, head of Starbucks Asia Pacific, explains that 2nd and 3rd tier Chinese cities would be the focus of the next wave of expansion.
Except for Shanghai, where it has a joint venture with a Taiwanese company, Starbucks owns nearly all its stores in China

India
Currently, India’s laws prevent global retailers from opening and using their brand names and resources throughout this country. This is to protect the thousands of “mom & pop” small retailers. Companies such as Wal-Mart, Carrefour and IKEA are waiting for the laws to change. Wal-Mart does business in India through the back door, via a joint venture with Bharti Enterprises, Ltd., the owner of one of India’s largest cell phone networks, which acts as a Wal-Mart franchise.

Starbucks formed an alliance with a powerful Indian conglomerate called The Tata Group. Besides owning Jaguar and Land Rover, Tata owns Tetley Tea and the Eight O’clock brand of coffee. Starbucks’ alliance with The Tata group allows it to tap the company’s resources, including locally owned coffee and tea plantations. Tata has also agreed to let Starbucks open retail units in their very upscale Taj Hotel chain. Although more known for its teas, India is currently the world’s fifth largest coffee exporter.

Final Thoughts
Howard Schultz’s vision was always international. His original concept came from visits to Milan, and being intrigued by the coffee shops in Italy. His vision continues for the brand to maintain a strong and loyal customer base, as well as venturing into new but related businesses. He also continues to find meaningful growth internationally. His recent increased distribution of Starbucks branded coffees in the U.S. will supplement the sales of coffee at his stores. Via’s launch and the increased Starbucks packaged brand distribution will also be leveraged in select international markets. His focus on Asia is transforming historical tea drinkers to young Asian coffee drinkers who aspire to be like their Western counterparts. He has a winning business that continues to grow in new places.

References:
1. Starbucks Annual Report, 2011
2. Starbucks Buys Juice Maker Evolution Fresh, CNNMoney, November 10, 2011
3. How Starbucks Transformed Coffee From a Commodity into a $4 Splurge, Fast Company, September 27, 2011
4. Starbucks Buys La Boulange Baker for $100 million to Improve Food Offerings, Huffington Post, June 4, 2012
5. Starbucks Brews Plan to Enter India, The Wall Street Journal, January 14, 2011
6. Starbucks thriving in China’s Smaller cities, Asia Business Daily, April 6, 2012

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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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