Starbucks began in 1971 as a roaster and retailer of whole bean and ground coffee, tea and spices with a single store in Seattle’s Pike Place Market. In 1996, Starbucks opened its first store outside of North American in Japan. Today they welcome millions of customers through their doors everyday and are currently operating in more than 50 countries. It is this move into the global market that we will be exploring; most notably its expansion in China and the Asian markets.
In April 2010, Starbucks CEO Howard Shultz said that China is setup to usurp Japan as its biggest market outside North America, as well as crack the potential lucrative Indian and Vietnamese markets, where it doesn’t yet have a presence. This move into the international markets was a necessary step following the retrenchment in the U.S., where they saw the closing of hundreds of underperforming stores and cutting nearly $600 million of costs.
Shultz stated that the company would plan its China growth carefully. “Over time there will be thousands of stores in China, but it’s a complicated market that requires significant discipline and thoughtfulness”. (Sanchanta, 2010) Despite its long presence in the Chinese market (Starbucks opened its first shop in Beijing in 1999), the company only has 376 stores on the China mainland, compared with 878 in Japan.
In Japan, the company has taken a similar strategy of cutting costs and overall sales for the current fiscal year ending on March 31 is forecast to have stayed flat at 96.4 billion yen ($1.03 billion) from the year before. But operating profit is forecast to rise at 12% to 6.1 billion yen, due largely to the cost cuts. Sales have also seen a tentative turnaround and the coffee chain plans to open 50-60 more stores in the country this year.
The challenge in the Japanese market has been keeping consumers loyal to the Starbucks brand which can cost three times as much as its competitors. To counter this problem, Starbucks Japan launched promotions such as offering customers a second cup of coffee for 100 yen if they purchase a coffee beverage earlier the same day. This strategy was so successful that the company extended the deal.
Starbucks has also worked over the years to customize its menu to cater to local tastes and bring costs down by procuring more ingredients locally. They have worked to revive recipes, focusing on items that would please the Japanese palate.
The next challenge for Starbucks in Japan and in Asia, say analysts, is fine-tuning marketing in a region populated by young people who are technically savvy.
Mr. Shultz said the company will continue to grow in the Japanese market, by adopting new store formats, such as drive-throughs, and introducing new products, such as its Via instant coffee. He states that “We are still at the embryonic stages of what Asia will be for the company”. (Sanchanta 2010). According to Starbucks.com, Starbucks Coffee International is “built on great global partnerships.” Starbucks’ Chief Executive Officer, Howard Schultz, “summed it up nicely when he said, ‘We remain highly respectful of the culture and tradition of the countries in which we do business.’” In Starbucks’ “search for new areas of growth following a deep retrenchment in the U.S. in the past year” (Sanchanta, 2010), they have turned their focus on increasing their presence in China. Although Japan currently has the most international Starbucks locations, Howard Schultz plans to “open ‘thousands of stores’ in China over time” (Sanchanta, 2010) and overtake Japan as its largest market outside of North America. Schultz understands the sensitivity associated with his plans to expand in China and has made the commitment to take the necessary time and expend the necessary money to research, study and acclimate to the Chinese market. Starbucks’ goal to grow from “376 stores on the China mainland” (Sanchant, 2010) to thousands of stores is a business risk that will be...
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