Resuming Internationalization of starbucks

FAYOKE OGUNDAHUNSI

GLOBAL BUSINESS STRATEGY 1- BUS-5024-OLA

Table of Contents

STARBUCKS BACKGROUND.........................................................................................................................2

COFFEE INDUSTRY.......................................................................................................................................2

CONSUMPTION.......................................................................................................................................2

CASE STUDY ANALYSIS................................................................................................................................3

QUESTION 1............................................................................................................................................3

PACE OF INTERNATIONALIZATION (see exhibit 1)..................................................................................3

RHYTHM OF STARBUCKS’ INTERNATIONALIZATION (see exhibit 2)......................................................3

SCOPE OF STARBUCKS INTERNATIONALIZATION (see exhibit 3)...........................................................4

QUESTION 2............................................................................................................................................4

QUESTION 3............................................................................................................................................4

LESSON LEARNED........................................................................................................................................5

STARBUCKS TODAY.....................................................................................................................................5

Brand Awareness Event....................................................................................................................6

Acquisition and Partnership.............................................................................................................6

Technological innovation..................................................................................................................6

Global Expansion..............................................................................................................................6

GRAPHICAL REFERENCE..............................................................................................................................7

EXHIBIT 1.................................................................................................................................................7

EXHIBIT 2.................................................................................................................................................7

EXHIBIT 3.................................................................................................................................................8

REFERENCE LISTS:........................................................................................................................................8

STARBUCKS BACKGROUNDStarbucks was originally opened to sell coffee beans and coffee-making equipment. The current

CEO of Starbucks joined the company in 1982. And after his trip to Italy, he became enthusiastic

about introducing the coffee culture in the United States. However, the previous CEO at the

time was not too enthusiastic about the idea. As a result, Howard Schultz opened his own store

named II Giornale Stores.

In 1992, Howard bought the Starbucks stores and renamed his original store to Starbucks. The

Starbucks Company went public in 1992 and due to increasing saturation of the marketplace,

Starbucks began to expand its outlets outside of North America and into the Far East and

Middle East region. Today, Starbucks has grown to over 17000 stores in 56 countries

worldwide.

COFFEE INDUSTRYIn the 13th century, coffee was discovered in Yemen and Ethiopia and by the 16 th century, its

discovery had expanded in parts of Middle East Asia, Turkey, Persia and Northern Africa. It

eventually expanded into Europe and Indonesia. By the 17th century, Coffee houses which was

already popular in Europe began to open in the United States.

By the late 1990s, the industry accounted for $80 billion in Sales with European Union gaining

35%, 25% for the United States and 9% for the Japanese market.

CONSUMPTIONAccording to international coffee organization, “Due to the struggling economy, consumption of

coffee dropped from 33.4-26.7gallons/capita in 1970” and as at 2009/2010, coffee consumption

also fell by 1% and this was as a result of:

The 2008 economic recession

Media reports about the negative effects of coffee on health

Most important factor in this drop was the increase in prices experienced as a result of

the cost effect in the supply chain at the time.

CASE STUDY ANALYSISQUESTION 1: How did the pace, rhythm and scope of Starbuck's internationalization in the coffee industry affect its performance?PACE OF INTERNATIONALIZATION (see exhibit 1)Most noticeable trend in the pace of internationalization is the negative slope between the

Starbucks international expansion and its effect on its performance. In most situations, it can be

concluded that the slope for its foreign expansion had a substantial effect on the performance

of Starbucks compared to its domestic expansion. Starbucks best performing years can be

attributed to the slower pace adopted in the year 2004-2007. The opposite can be attributed to

the year 1993 to 1997. (Alkema, Koster & Williams, 2010)

1993- Moderate expansion-Low Return on Asset.

Starbuck had a 155% increase in firm’s asset due to the opening of their second roasting plant.

(Alkema, Koster & Williams, 2010)

1997&1998- High Expansion -Moderate Return on Asset

Starbuck acquired the Seattle Coffee Company in the United Kingdom along with its 65 stores

which was already generating revenue at the time. Therefore, Starbucks was able to tap into

the revenues. This acquisition is said to have enabled Starbucks to expand at a faster pace in

the United Kingdom without the loss of performance (Alkema, Koster & Williams, 2010)

2001- High Expansion-Above average Return on Asset.

Reason lie in Starbucks announcement to “expand its retail business to increase its market

share in the existing market”. The same year, Starbuck opened additional 337 new stores in

United Kingdom (75%), Thailand (25 stores) and Australia (18 stores). This three store

accounted for 90% of Starbucks expansion in the year alone. (Alkema, Koster & Williams, 2010)

RHYTHM OF STARBUCKS’ INTERNATIONALIZATION (see exhibit 2)

1994-1997 and 1998-2001: High volatility in internationalization resulting to lower performance in the period

1994 and 1997: Domestic expansion was very regular but was offset by the foreign

expansion to a larger extent. Reason in this case was because the countries Starbucks expanded

into happened to be countries where the company faced higher cultural differences. (Alkema,

Koster & Williams, 2010)

2002-2005 and 2006-2009: Less Volatility resulting to high performance .

Starbuck at this point slowed down its growth expansion and focused on improving its performance. (Alkema, Koster & Williams, 2010)

SCOPE OF STARBUCKS INTERNATIONALIZATION (see exhibit 3)By 1993-1995, Starbucks had not yet expanded internationally, however, in 1996 when it began

its expansion, it became clear that the more countries Starbucks expanded into, Returns on

Asset and performance suffered (Alkema, Koster & Williams, 2010)

To conclude, Starbuck aggressively pursued internationalization at the expanse of the

performance of its current stores. And because it was unable to control both aspect of its

strategy, it failed to achieve maximum performance and growth. Aside from its lower

performance in relative to expansion, Starbucks likewise faced various external factors such as

competition, rising supplier prices and fair trade which affected the entire industry.

QUESTION 2: Was Starbucks too aggressive in its internationalization?

1. Yes, Starbucks was extremely aggressive in its internationalization. Growing too fast at a

pace that did not enable them to re-assess their market position eventually had a

negative effect on its overall performance.

2. It likewise made Starbucks vulnerable to external factors such as competition, changing

customers’ needs and cultural factor. In the face of extreme international expansion,

constant reassessment of its country expansion portfolio should have been done in

order to identify the profitable and unprofitable investments made.

QUESTION 3: How should Starbucks approach internationalization going forward?

1. Most important factor in approaching internationalization is Balance. Starbucks’ should

endeavor to slow the pace at which they expand so as to build a strong foundation in

the market they enter into.

2. Starbucks should also consider tapping into the rural markets. Price is a factor in this

market and therefore, Starbucks can consider accommodating the low-mid income

earners as part of their target group. Especially as competitions such as McDonalds and

Tim-Horton gaining a lot of market share with their low-price coffee. The disadvantage

in this however, is its effect on the brand image. Starbuck prides itself as being a luxury,

therefore, to use this recommendation would be to reassess how it would maintain the

brand image while also expanding its market to accommodate this new segment.

3. Another factor to consider is the use of social media. Competitors such as McDonalds

have utilized this medium extremely well to their advantage, therefore Starbucks should

identify areas in which it can utilize the social media platform in creating awareness on a

more domestic and international platform.

4. With the population getting more health conscious, it is advisable that its offering cater

to this segment of the market. – McDonald and Tim- Horton has adopted this trend in

their offering by informing customers about the calories in their offerings.

5. The emerging market such as china also show significant opportunities. Therefore,

Starbucks could begin looking into this markets to identify where the opportunities lie.

The key is to strategically expand and not just based on the number of outlets they can

open but on building a strong competitive brand image that weathers the cultural

factors that might impede its growth.

6. Starbucks should looks for ways to increase customer loyalty whether it is through

product offerings or the services it provides for the customer. Therefore, if reducing

prices is not an option, a better way would be to focusing on improving its performance

and product/service offerings.

LESSON LEARNED 1. For organizations to expand into the international markets successful, extensive

research into the market, its economic stability and cultural differences and

preferences that might have an impact on the business must be conducted.

2. Using the information derived to analyze how your organization can better position

itself to achieve maximum efficiency and effectiveness by accessing not just the

external factors but likewise the internal factors such as its strengths and

weaknesses.

STARBUCKS’ TODAYAccording to Schultz(2014), “The seismic shift in consumer behavior underway presents

tremendous opportunity for businesses the world over that are prepared and positioned to

seize it” he continued saying “Over the next five years, Starbucks will continue to lean into this

new era by innovating in transformational ways across coffee, tea and retail, elevating our

customer and partner experiences, continuing to extend our leadership position in digital and

mobile technologies, and unlocking new markets, channels and formats around the world:

Investing in our coffee, our people and the communities we serve will remain at our core as we

continue to redefine the role and responsibility of a public company in today’s disruptive global

consumer, economic and retail environments.”

In this period, Starbucks has decided to shift its strategic focus towards improving its

performance through excellent customer service and a more realistic strategic expansion. It is

likewise utilizing special events promotion to improve its brand awareness. Example include:

1. Brand Awareness Event : The Starbucks investor Day being hosted on the eve of its grand

opening of the first of its kind Starbucks Reserve and Tasting room. According to

Starbucks Newsroom (2014) “This is an interactive coffee and dining venue that

redefines delivery of an immersive brand experience. Moreover, the additional small

batch roasting capacity afforded by the new Roastery will enable Starbucks to expand

availability of its super-premium, micro-lot Starbucks Reserve® Coffee to 1,500 locations

globally, and to support the launch of Starbucks new Starbucks Reserve® brand and the

opening of the first 100 dedicated Starbucks Reserve stores”

2. Acquisition and Partnership : In 2012, Starbucks acquired Teavana- a $109 billion global

tea category. According to the Starbucks newsroom “ With this acquisition, Teavana will

continue to expand and to bring its super-premium loose leaf teas, handcrafted

beverages and exclusive food offerings to carefully targeted markets both in the U.S.

and abroad” the report further illustrated that “In addition, building on the successful

launch of handcrafted Teavana® Shaken Iced Tea through Starbucks® stores earlier this

year and the innovative partnership with Oprah Winfrey around Teavana® Oprah Chai

Tea, Teavana will continue to grow its presence in Starbucks® retail stores with sachets,

innovative iced teas and expansion of the Chai tea platform”

3. Technological innovation : Today, Starbucks is likewise utilizing the Mobile commerce by

introducing the Mobile Order & pay application platform. This application allow it to

enhance its customer service experience with customers only needing to place orders in

advance of their visit and then pick up the order at their preferred Starbucks store.

According to Adam Brotman, Starbucks’ chief Digital officer (2014) “Of all the new

traffic-driving initiatives for the company, Mobile Order & Pay is at the top of that list

and we are confident that it will be game-changing for our customers and our business”

4. Global Expansion : According to growth (2014) “Starbucks China and Asia-Pacific region

represent enormous, immediate, high-value opportunities for the company, and

Starbucks today announced plans to double its store count in China – to over 3,000

stores – by 2019” it continued that “ Starbucks japan which is supposed to be completed

in the second quarter of 2015 – the company’s first international market outside of

North America and with more than 1,000 stores its second largest market overall in

retail store sales – will position Starbucks to further accelerate growth in the dynamic,

rapidly-growing CAP region”

GRAPHICAL REFERENCEEXHIBIT 1

EXHIBIT 2

EXHIBIT 3

REFERENCE LISTS:1. Growth, S. (2014). Starbucks Details Five-Year Plan to Accelerate Profitable

Growth.Starbucks Newsroom. Retrieved 14 October 2015, from

https://news.starbucks.com/news/starbucks-details-five-year-plan-to-accelerate-profitable-

growth

2. Alkema, R., Koster, M., & Williams, C. (2010). Resuming internationalization at

Starbucks' (1st ed., pp. 1-16). London, Ontario: Richard Ivey School of Business.