Starbucks - Going Global Fast

Stephanie Rogers

Case 1

August 29, 2016

Starbucks – Going Global Fast

1. Starbucks faces many controllable and uncontrollable elements in entering the global market. For a controllable example, in Italy, the prices for a cup of coffee are much cheaper than what it is for America. Americans pay about $1.50 per cup, while Italians pay anywhere between 55-67 cents per cup. Some uncontrollable factors include competition and laws. For example, Starbucks is very popular in Japan. However, there are many imitators popping up. Starbucks then decided to expand their business into convenience stores with chilled coffee in plastic cups. They hope to grab a piece of the $10 billion market for coffee sold in cans, but it is extremely competitive. Another uncontrollable element that Starbucks faces is the laws. For example, France has different regulations and generous labor benefits. Philippe Bloch speculates whether Starbucks would be able to cope with these laws and still make a profit.
2. There are a few major risk factors that Starbucks faces. Market saturations is a risk for the company. In Seattle, there is one coffee shop for every 9,400 people. The owner of Starbucks estimates that the company “self-cannibalizes” its own stores at a rate of 30 percent a year. To overcome the market saturation in the US, the company should focus their efforts on international marketing. Losing customers poses a threat because as Starbucks edges out its competitors, the customers lose interest with so few options. A solution to this problem would be to focus on improving the quality of their coffee and perfecting other aspects such as food. The younger generation is also a threat to the company because they don’t feel comfortable at the shops. This is because either they can’t afford the coffee drinks or the only peers they see are working behind the counter. They could combat this issue by reevaluating their pricing strategy. Globally, the main risk that the company faces is that it makes less money on stores overseas because most of them are operated with local partners, which reduces the company’s share of the profits to only 20 to 50 percent. A way to overcome this risk is by properly adjusting to the different cultures, keeping SRC and ethnocentrism out of the decision making process, and thereby eliminating the local partners.
3. The main critique I have about the company’s corporate strategy is the fact that they think more is more, in layman’s terms. Starbucks opens stores so close to their preexisting stores that they actually “self-cannibalize” themselves, meaning they steal customers away from themselves. They focus on opening these stores that won’t be making the maximum profit, while there are still some states with as few as 4 Starbucks shops. Another critique would be that Starbucks is more concerned with expanding than the service they are providing. They used to have the lowest employee turnover rate of any restaurant or fast-food company. This was due to their unusual policy of giving health insurance and stock options to its part-time employees. Now, these benefits are not enough to keep employees happy. They claim the pay is not sufficient for the amount of work that is required. Starbucks wants to promote the image of happy employees cheerfully serving customers, but that is not the case.
4. To improve profitability in Japan, Starbucks has already catered to the Asian palate by creating two variations that are less sweet than the American versions. To increase the profitability, they could create some type of attraction to bring the customers to Starbucks, such as a cultural or entertainment campaign. Another idea to boost sales would be to cater to the Japanese busy lifestyles by introducing the online system of ordering. They could also lower their prices so that they stand out amongst the many coffee shops in Japan.