Starbucks Internationalisation

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2-pages Executive Memo

Recommendations regarding Starbucks' Future Internationalization

“A 16 years Internationalization Strategy which led reaching one third of the world's countries and two thirds of earth's entire population .”

March 2012

Consultant : Cyril-André LESAGE

Introduction This short memo's goal is to provide some strategic advices regarding the future of Starbucks' internationalization. The following analysis will be divided in two main parts. First part will focus on a qualitative approach based mostly on “Resuming internationalization at Starbucks” from Richard Ivey School of Business, annual reports, several articles found mainly on Starbucks' news internet site, and a few other readings found on the Internet. Second part will focus on a quantitative approach, based on pure data analysis, to try to provide some hints about where Starbucks could expand. This part was made with public available data (WorldBank, OECD, ICO), and shall miss some real data from Starbucks, such as exact list of countries, entry modes and market/strategic analysis about the countries. Qualitative Study Over the 24 regions of the world, Starbucks has stores in 18 of them. If we get rid of the African continent, in which Starbucks exist in only 2 of its 6 regions, 2 regions are then only missing : Central Asia (all -stan countries), that can be explained by political problems and market opportunities, and Southern Europe, which will be covered in the quantitative part. That allows Starbucks to exist in 31.55% of the world's countries, reaching then 72.52% of the earth's population. Annex 1 shows the number of new countries reached per year, with the Return On Asset. If we get rid of the economic crisis, it shows that Starbucks needs to expand in 2 to 3 new countries per year, as reaching too many countries seems to have a bad impact on ROA, as maybe investments are too important for a single year. If we take a closer look at the number of stores (Annex 2 and 3), we also see that high values of ROA happened when number was increasing. And number of stores only decreased in US, so seems that Starbucks revenue is too much dependent on US market. Also in same years, number of own stores decreased whereas Licensed were still increasing. So revenue is highly correlated to own stores. To end with the ROA aspect, it is maximized with a store growth less than 20% a year. Starbucks should then modify its “Abroad Licensing” strategy, and should move to own stores. But due to lack of data, it's hard to judge this last point, as Starbucks is using 3 modes of entry : Own stores, Joint Venture and Licensing, but is only giving data about Own and Licensing in annual reports. Moreover, some new modes of entry, such as franchising should be an interesting strategy for Starbucks expansion. Regarding the market now, as coffee consumption is increasing, so Starbucks should ! The world consumption is expanding everywhere, which implies it allows to consolidate revenues in high consumption countries, and opens new markets, as it's even increasing in countries where coffee is not commonly drunk. About competitors, seems that Starbucks has only one real global international competitor, which is McDonald's. But because Starbucks is its coffee supplier, we can assume that Starbucks has no real international competitor. Moreover, as McDonald's is more widely expanded, Starbucks could use their international data, limited to where it uses its coffee bars. Another lack in this study, is that it is mainly based on Starbucks stores. But Starbucks is not only a coffee shop brand, but also a coffee suppliers to consumers, by doing direct distribution in grocery, drugstore, club and other sales channels. VIA Ready Brew and K-CUp Packs are only available in US, and therefore should be used in the internationalization process, to gain more countries and markets.

As a conclusion, Starbucks has to continue it's store internationalization, by reaching...
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