How Starbucks Failed in Israel

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African Journal of Marketing Management Vol. 3(4), pp. 78-88, April 2011 Available online ISSN 2141-2421 ©2011 Academic Journals


Lack of peripheral vision – How Starbucks failed in Israel Avner Barnea
Ono Academic College, Israel. Tel: +(972)522498639. Fax: +(972)46265011. Accepted 27 April, 2011

This study was conducted to discuss the unsuccessful experience of Starbucks in Israel and to show that it was primarily a result of lack of peripheral vision in addition to other factors, including a weak management performance. Relevant information published in Israel and abroad were gathered using the concept of peripheral vision, supported by other concepts, to analyze and offer insight into this case study. Starbucks in Israel made major mistakes, mainly in reading the map of the local coffee shop business and taking for granted success in the Israeli market. There was lack of up-to-date information on the local coffee shop business, and the relevant senior members were reluctant of being interviewed. This study can make a contribution to global corporations considering entering of Starbucks into the Israeli dynamic and competitive business arena. This is the first work in Israel and worldwide on the failure of Starbucks to penetrate Israel. Key words: Competitive intelligence, marketing intelligence, peripheral vision, predictable surprise, Israel. INTRODUCTION In the beginning of April 2003, Starbucks, the world leader in coffee shops with 7000 locations worldwide and total net revenues of $ 4 billion in 2003 (, 2003 ), ended its operation in Israel and closed its six stores after almost two years of a tough struggle to survive (, 2003). This is the only country where Starbucks surrendered. Starbucks had faced market entry difficulties in countries such as Austria and Switzerland (, 2003) but it had never reached the stage that it did in Israel, when senior management had to admit that the firm could no longer compete successfully. This article discusses the experience of Starbucks in Israel. This case is similar to the experience of other global corporations in Israel, such as KFC, Wendy's, Pizza Hut, Subway, Dunkin' Donuts, and Hard Rock Cafe (, 2003), and requires competitive intelligence (CI) to understand what went wrong in order to reduce the chances of similar cases occurring in the future. The concept of "peripheral vision" will be used to analyze this case and offer insight on similar ones. When Starbucks first set foot in Israel in May 2001, it was not a complete surprise to its local competitors and to the few international coffee chains already operating in this market. For almost a year the Israeli business press had been intensively reporting about the intentions of the coffee giant regarding the Israeli coffee market (, 2003). Obviously the local competitors were upset, and some of them tried to become the local partner of Starbucks. However, when it became known that the Delek Group had signed an agreement with Starbucks to become the local partners (80% held by Delek Group and 20% by Starbucks), most of them were relieved. The Delek Group, a leading Israeli holding company, was among the top 10 investment and holding groups in Israel, with three major subsidiaries: Delek Petroleum Ltd., Delek Real Estate Ltd., and Delek Investments and Properties Ltd. (DunsGuide Israel, 2000). At the time, it was considered a very successful business group, active mainly in energy, real estate and in automotive sector, among others. It was the sole distributor of Ford and Mazda, but had no previous experience in the coffee shop business. The local competitors carefully analyzed the experience in Israel of other US food giants, like KFC, Wendy's, Pizza Hut, Dunkin' Donuts, Hard Rock Cafe and McDonald's. They found that...
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