Starbucks’ Foreign Entry Strategy
Forty years ago, Starbucks was a single store in Seattle’s Pike Place Market selling
premium-roasted coffee. Today, it is a global roaster and retailer of coffee with
some 24,464 stores, 47 percent of which are in 63 countries outside the United
States. China (2,204 stores), Canada (1,418 stores), Japan (1,160 stores), South
Korea (872 stores), and the United Kingdom (898 stores) are large markets
internationally for Starbucks.
Starbucks set out on its current course in the 1980s when the company’s director
of marketing, Howard Schultz, came back from a trip to Italy enchanted with the
Italian coffeehouse experience. Schultz, who later became CEO, persuaded the
company’s owners to experiment with the coffeehouse format—and the Starbucks
experience was born. The strategy was to sell the company’s own premium roasted
coffee and freshly brewed espresso-style coffee beverages, along with a variety of
pastries, coffee accessories, teas, and other products, in a tastefully designed
coffeehouse setting. From the outset, the company focused on selling “a third place
experience,” rather than just the coffee. The formula led to spectacular success in
the United States, where Starbucks went from obscurity to one of the best-known
brands in the country in a decade. Thanks to Starbucks, coffee stores became
places for relaxation, chatting with friends, reading the newspaper, holding
business meetings, or (more recently) browsing the web.
In 1995, with 700 stores across the United States, Starbucks began exploring
foreign market opportunities. The first target market was Japan. The company
established a joint venture with a local retailer, Sazaby Inc. Each company held a
50 percent stake in the venture, Starbucks Coffee of Japan. Starbucks initially
invested $10 million in this venture, its first foreign direct investment. The
Starbucks format was then licensed to the venture, which was charged with taking
over responsibility for growing Starbucks’ presence in Japan.
To make sure the Japanese operations replicated the “Starbucks experience” in
North America, Starbucks transferred some employees to the Japanese operation.
The licensing agreement required all Japanese store managers and employees to
attend training classes similar to those given to U.S. employees. The agreement
also required that stores adhere to the design parameters established in the United
States. In 2001, the company introduced a stock option plan for all Japanese
employees, making it the first company in Japan to do so. Skeptics doubted that
Starbucks would be able to replicate its North American success overseas, but now
in 2018 Starbucks has 1,160 stores and a profitable business in Japan.
After Japan, the company embarked on an aggressive foreign investment program.
In 1998, it purchased Seattle Coffee, a British coffee chain with 60 retail stores, for
$84 million. An American couple, originally from Seattle, had started Seattle
Coffee with the intention of establishing a Starbucks-like chain in Britain. In the
late 1990s, Starbucks opened stores in Taiwan, Singapore, Thailand, New Zealand,
South Korea, Malaysia, and—most significantly — China. In Asia, Starbucks’
most common strategy was to license its format to a local operator in return for
initial licensing fees and royalties on store revenues. As in Japan, Starbucks
insisted on an intensive employee-training program and strict specifications
regarding the format and layout of the store.
By 2002, Starbucks was pursuing an aggressive expansion in mainland Europe. As
its first entry point, Starbucks chose Switzerland. Drawing on its experience in
Asia, the company entered into a joint venture with a Swiss company, Bon Appetit
Group, Switzerland’s largest food service company. Bon Appetit was to hold a
majority stake in the venture, and Starbucks would license its format to the Swiss
company using a similar agreement to those it had used successfully in Asia. This
was followed by a joint venture in other countries. United Kingdom leads the
charge in Europe with 898 Starbucks stores. By 2014, Starbucks emphasized the
rapid growth of its operations in China, where it now has 2,204 stores and plans to
roll out another 500 stores within three years, making China by far the second
largest market for Starbucks behind the U.S. The success of Starbucks in China has
been attributed toa smart partnering strategy. China is not one homogeneous
market; the culture of northern China is very different from that of the east,
consumer spending power inland is not on par with that of the big coastal cities. To
deal with this complexity, Starbucks entered into three different joint ventures: in
the north with Beijong Mei Da coffee, in the east with Taiwan-based Uni-
President, and in the south with Hong Kong–based Maxim’s Caterers. Each partner
bought different strengths and local expertise that helped the company gain
insights into the tastes and preferences of local Chinese customers, and to adapt
accordingly.
