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Starbucks Internationalisation Strategy

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Marlyn Gutierrez

on 13 April 2015

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Transcript of Starbucks Internationalisation Strategy

Starbucks Coffee

The Industry
The firm

Motivation for Expansion
First Starbucks location outside North America
1996 - Tokyo, Japan
Success in the Asian Market
Joint Venture
Starbucks normally uses licensing to
- Hotels
- Airports
- Tourism places and
- Schools/universities
Wholly owned subsidiaries
They have knowledge of the market
Cultural distances gap
- Market saturation in the US
- High potential of new emerging markets
- Customers loyalty and security in the supply-chain
(Where and Why?)
Location Advantage
Starbucks procedure of global expansion:
Selects local partners
Together try to adapt its business traditions to the local market
Spain have outside terraces
Japan coffee more seats
Starbucks holds less than 50% of the shares in their joint ventures
Ex: Australia, Austria, China, Colombia, France, Germany, Greece, Hong Kong, Israel, Japan, Mexico Puerto Rico, South Korea, Spain, Switzerland, Taiwan
Ex: China, Indonesia, Malaysia, Middle East, New Zealand, Philippines, Singapore
Ex: Mostly US and Canada
* They have limited control on their expansion rate
Majority Owned: UK,Australia and Thailand
1990’s :
Demand for coffee blends increased from 0.5 to 1.5 cups a day
Specialty blends are the industry’s fastest growing segment
Japan is the 3rd largest coffee consuming nation,
4th largest coffee importer
Entering the market with a joint venture
SAZABY (retailer and restaurateur)

Why JV?
- Lack of local knowledge
- Institutional distance
- Attraction of local talents issue
- High predicted operational costs

From a successful JV ...
1,060 stores
Starbucks' 3rd largest market
- Successful innovative japanese retailer and restaurateur
- A lifestyle company
- Shared values, culture and community development goals

...to full ownership
2014 : full ownership

Goal : 1,130 stores end 2015 and introduction of new concepts

Japanese coffee stores industry
Degree of Rivalry: Moderate
Suppliers' Bargaining
Power: Low
Starbucks maintains a Fair Trade certified coffee which encourage a fair partnership with its suppliers

Threat of Substitutes:
Many possible
substitute beverages
to coffee drinks offered at Starbucks
Tea, juices, sodas, etc.
Substitution drinks are not more expensive
Consumers can make their own coffee at home at cheaper costs

Buyers' Bargaining
Power: Low
Many different buyers
Low volume purchases, which lower they buyer’s power

The industry’s saturation is high
Coffee chains have larger scale and scope, stronger relationship with suppliers and better access to raw material
Economies of scale
Threat of New Entrants: Moderate
Barriers are not too high
Specialty coffee market
is easy to penetrate
Small localized coffee shops

Mature stage with a medium level of concentration

Major slowdown due to the economic crisis of 2009
Forecasted growth rate of 3.9% per year for the next 5 years
Increase in consumer confidence
Expanding in menu offerings
Improving global economy.

The industry is dominated by Starbucks and Dunkin Brands, both companies owns more than 60% of the market share.

The Retail Coffee and Snacks Store Industry
A promising market
Five Forces
There are an estimated 66 billion cups of coffee consumed each year in the US
Consumers do not have any costs of switching
Many local coffee shops

Starbucks’ main competitor is Dunkin Brands, with 24.6% of the market share in the industry
Other competitors make up to 40% of the market share left, and include McDonalds, Costa Coffee, Tim Horton’s, etc.
2000’s :
- $300 million cafes chains market
- 20% annual segment growth rate
- Current local domination of Cafe Coffee Day

A huge market where competitors are struggling
2012 :
- Landmark Group and Costa Coffee terminating their respective franchise agreements

Entering the market giving to consumers what they want

Local adaptation?
JV with TATA Global Beverages
Why JV?
- Complex and unique market
- High real estate costs and bureaucracy
- Coffee beans sourced from Tata Coffee
- Tata Catering

Specific strategy
- Position the brand in a tea-drinking nation
- Open elaborate and plush outlets
- Co-branding of stores
« Starbucks Coffee : a Tata Alliance »
- One per one opening tactic rather than quick expansion

Expanding with discipline
68 stores
7 cities
Indian coffee stores industry
Next expansion strategy:

- Open smaller stores in smaller cities
- Less upmarket locations

United Kingdom
Struggling to compete
2008 :
closed 61 of its 84 stores
license to Withers Group (7-eleven)

Joint venture
A proud coffee nation
- Entered too quickly and too late
- Well established Australian coffee culture - No adaptation to local culture
- Bad locations
- High prices
- Failed to communicate

Not the expected success
plan : 200 stores

2013 : 160 stores in 40 towns
JV with Karstadtquelle
The German problem
- location
- established competition
- habits
- price

Today : strategic redeployment in transport hubs
and new concepts

Ownership Advantages
-Brand value
-Starbucks experience
"Completely mobile"

Vertical integration of supply chain

Focus on leveraging core business activities. A focus on good coffee!!
Continue innovating to meet customers preferences, but at the same time keep their focus on core competencies

Market Growth and Penetration
Increase presence in China
Keep their first moving advantage

Five things they got right!
Brand global, Partner local, Commit long term, Think different and Position smart.
(Forbes, 2012)

Entering by acquisition
1998 : acquisition of 65 Seattle Coffee Company stores
Why 100% owned subsidiary?
- Need to enter quickly a fast growing market
- Same language and culture
- Close legal environment and management practices
Strategic reorientation
British coffee stores industry
791 stores

Had to license some shops to reduce costs

Bloomberg, "Starbucks has an Australian problem", 05/2014
BBC News "The company file storms into the UK" 1998
Business Source Complete
Euromonitor International
De Kluyver C., "Fundamentals of global strategy: a business model approach", 2010
De Wit B., Meyer R., "Strategy: Process, Content, Context", 2010
Forbes, "Starbucks' full ownership of Japan unit to boost international revenue growth", 09/30/2014
Forbes, "5 Things Starbucks Did to get China Right
How Starbucks built a Global Brand,
Huffington Post, "Starbucks India: Coffee chain to open first India outpost with Tata Global", 01/2012
Investors business daily "Starbucks Joint Ventures" 2014
MarketLine, "Starbucks Corporation 2014"
Marketingmag.com, "Can a local operator succeed when Starbucks failed in Australia - by opening more stores?", 06/2014
Reuters, "Starbucks eyes more German store openings in European push", 11/2013
Starbucks, Annual Report 2013
Starbucks, Quarter Report 2014
The Economic Times, "Coffee chain Starbucks expanding aggressively in India", 04/2014
The Economic Times, "Starbucks to debut in towns and suburbs ; to half the size of the new stores" 09/2014
Pellichino Russel, "Starbucks Industry Profile and Organization Analysis"
Monopolistic competition
Starbucks' premium products:
competitive advantage
Main input in the value chain
Chloé Beaudoin
Marlyn Gutierrez
Jack Porter
Nicolas Portnoy

April 13, 2015

Internationalization Strategy
“Our product is not sitting on a supermarket shelf like a can of Coca-Cola. Our people have done a wonderful job of knowing your drink, your name, your kids' names and what you do for a living."
Starbucks CEO Howard Schultz, 2008
Full transcript