CASE 1-1 Starbucks-Going Global Fast Starbucks Coffee Tea and Spices opened for business in Seattle, WA, in 1971. You can still visit the original location. The original logo is a bit more spicy and evokes a seafaring tradition using the surname of the first mate in Herman Melville's classic Moby Dick. The original owners bought Peet's Coffee in Seattle and sold the Starbucks Coffee operation and brand name to Howard Schultz in 1987. At that point in time, coffee was the commodity most studied by marketers around the world. Profit margins were generally low as everyone "understood" how to market coffee. Then Schultz began to expand the offering to both a high-priced product and an attractive service, a friendly third place to meet beyond home and the office. While the fast expansion of Starbucks around the world slowed some during the 2008-09 Great Reces- sion, it has resumed since. The company now has more than 33,000 stores in over 80 countries. As far back as 1999 Starbucks was reviled by globalization crit- ics. The World Trade Organization held its international meetings in Seattle in 1999, and protestors specifically targeted the 6th Ave- nue and Pine Street location-one pundit opined that it was easier to break Starbucks' windows than attack a can of Coke. Still, the vast majority of stores are in the United States, with about 9,000 company-owned stores and another 6,000 licensed operations. The Chinese market dominates Starbucks' interna- tional sales with more than 4,700 stores, followed by Japan, Canada, the United Kingdom, and South Korea in that order. One of the first stores opened in China was in the Forbidden City in Beijing. Initially the Chinese government allowed that store placement, but a few years later the public forced its closure as being too intrusive, particularly for a foreign company. As with many other Western companies, however, 2022 also saw Starbucks' exit from Russia brought on by Putin's invasion of Ukraine. The company ended its 15-year presence in the country and announced it was permanently closing 130 stores in Russia. Starbucks now faces competition from large U.S. competitors such as McDonald's and its new McCafés, and in some regions even its old pal Peet's. In a 2005 bid to boost sales in its largest international market, Starbucks Corp. expanded its business in Japan, beyond cafés and into convenience stores, with a line of chilled coffee in plastic cups. The move gives the Seattle-based company a chance to grab a chunk of Japan's $10 billion market for coffee sold in cans, bottles, or vending machines rather than made to order at cafés. It is a lucrative but fiercely competitive sector, but Starbucks, which has become a household name since opening its first Japa- nese store, is betting on the power of its brand to propel sales of the new drinks. Also, introducing tea to the menu in 2015 caused a 7 percent increase in sales. Stores in Japan now number close to 1,700. Starbucks is working with Japanese beverage maker and dis- tributor Suntory Ltd. The "Discoveries" and "Doubleshot" lines are the company's first forays into the ready-to-drink market out- side North America, where it sells a line of bottled and canned coffee. It also underscores Starbucks' determination to expand its presence in Asia by catering to local tastes. For instance, the new product comes in two variations-espresso and latte-that are less sweet than their U.S. counterparts, as the coffee maker devel- oped them to suit Asian palates. Starbucks officials said they hope to establish their product as the premium chilled cup brand, which, at 210 yen ($1.87), will be priced at the upper end of the category. Starbucks faces steep competition. Japan's "chilled cup" market is teeming with rival products, including Starbucks lookalikes. One of the most popular brands, called Mt. Rainier, is emblazoned with a green circle logo that closely resembles that of Starbucks. Conve- nience stores also are packed with canned coffee drinks, including Coca-Cola Co.'s Georgia brand and brews with extra caffeine or made with gourmet coffee beans. Schultz declined to speculate on exactly how much coffee Star- bucks might sell through Japan's convenience stores. "We wouldn't be doing this if it wasn't important both strategically and economi- cally," he said. The company has no immediate plans to introduce the beverage in the United States, though it has in the past brought home prod- ucts launched in Asia. A green tea frappuccino, first launched in Asia, was later introduced in the United States and Canada, where company officials say it was well received. Starbucks has done well in Japan, although the road hasn't always been smooth. After cutting the ribbon on its first Japan store in 1996, the company began opening stores at a furious pace. New shops attracted large crowds, but the effect wore off as the market became saturated. The company returned to profitability, and net profits jumped more than sixfold to 3.6 billion yen in 2007, declined again to 2.7 billion yen in 2009, and increased again to 6 billion yen by 2013. In Japan, the firm successfully developed a broader menu for its stores, including customized products-smaller sandwiches and less-sweet desserts. The strategy increased same-store sales and overall profits. The firm also has added 175 new stores since 2006, including some drive-through service. But McDonald's also has attacked the Japanese market with the introduction of its McCafé coffee shops. Starbucks opened its first store in Africa in 2016, hoping to tap into an expanding consumer class, despite an overall weakness in the economy. It planned to open up just 12 to 15 stores initially, despite a capacity on the continent of 150 stores, according to com- pany estimates. In 2018, China was opening a new store every 15 hours. By 2022, store count in China surpassed 5,500, almost one-sixth of its global total stores. Shanghai now boasts the largest Starbucks store in the world. Starbucks is pushing "a coffee culture in China where the reward will be healthy, long-term, profitable growth for decades to come," CEO Kevin Johnson said. Meanwhile, in North America, Starbucks is struggling to maintain growth above inflation rates. QUESTIONS As a guide, use Exhibit 1.3 and its description in Chapter 1, and do the following: 1. Identify the controllable and uncontrollable elements that Starbucks has encountered in entering global markets. 2. What are the major sources of risk facing the company? Discuss potential solutions. 3. Critique Starbucks' overall corporate strategy. 4. What advice would you have for Starbucks in Africa? In China? Sources: Stanley Holmes, Drake Bennett, Kate Carlisle, and Chester Dawson, "Planet Starbucks: To Keep Up the Growth It Must Go Global Quickly." BusinessWeek, December 9, 2002, pp. 100-110; Ken Belson, "Japan: Starbucks Profit Falls," The New York Times, February 20, 2003, p. 1; Ginny Parker Woods, "Starbucks Bets Drinks Will Jolt Japan Sales," Asian Wall Street Journal, September 27, 2005, p. A7; Amy Chozick, "Starbucks in Japan Needs a Jolt," The Wall Street Journal, October 24, 2006, p. 23; "McCafe Debuts in Japan, Challenging Starbucks, Other Coffee Shops," Kyoto News, August 28, 2007; "Starbucks Japan Sees 55% Pretax Profit Jump for April- December," Nikkei Report, February 6, 2008; Alexandra Wexler, "Starbucks Opens First Africa Store," The Wall Street Joumal, April 22, 2016, p. B6; Sherisse Pham, "China Is Getting Nearly 3,000 New Starbucks," money.cnn.com, May 16, 2018; investor.starbucks.com, May 2022; see the most recent annual report at www. starbucks.com; Heather Haddon, "Starbucks to Exit from Russia," The Wall Street Journal, May 23, 2022, online.

CASE 1-1 Starbucks-Going Global Fast Starbucks Coffee Tea and Spices opened for business in Seattle, WA, in 1971. You can still visit the original location. The original logo is a bit more spicy and evokes a seafaring tradition using the surname of the first mate in Herman Melville's classic Moby Dick. The original owners bought Peet's Coffee in Seattle and sold the Starbucks Coffee operation and brand name to Howard Schultz in 1987. At that point in time, coffee was the commodity most studied by marketers around the world. Profit margins were generally low as everyone "understood" how to market coffee. Then Schultz began to expand the offering to both a high-priced product and an attractive service, a friendly third place to meet beyond home and the office. While the fast expansion of Starbucks around the world slowed some during the 2008-09 Great Reces- sion, it has resumed since. The company now has more than 33,000 stores in over 80 countries. As far back as 1999 Starbucks was reviled by globalization crit- ics. The World Trade Organization held its international meetings in Seattle in 1999, and protestors specifically targeted the 6th Ave- nue and Pine Street location-one pundit opined that it was easier to break Starbucks' windows than attack a can of Coke. Still, the vast majority of stores are in the United States, with about 9,000 company-owned stores and another 6,000 licensed operations. The Chinese market dominates Starbucks' interna- tional sales with more than 4,700 stores, followed by Japan, Canada, the United Kingdom, and South Korea in that order. One of the first stores opened in China was in the Forbidden City in Beijing. Initially the Chinese government allowed that store placement, but a few years later the public forced its closure as being too intrusive, particularly for a foreign company. As with many other Western companies, however, 2022 also saw Starbucks' exit from Russia brought on by Putin's invasion of Ukraine. The company ended its 15-year presence in the country and announced it was permanently closing 130 stores in Russia. Starbucks now faces competition from large U.S. competitors such as McDonald's and its new McCafés, and in some regions even its old pal Peet's. In a 2005 bid to boost sales in its largest international market, Starbucks Corp. expanded its business in Japan, beyond cafés and into convenience stores, with a line of chilled coffee in plastic cups. The move gives the Seattle-based company a chance to grab a chunk of Japan's $10 billion market for coffee sold in cans, bottles, or vending machines rather than made to order at cafés. It is a lucrative but fiercely competitive sector, but Starbucks, which has become a household name since opening its first Japa- nese store, is betting on the power of its brand to propel sales of the new drinks. Also, introducing tea to the menu in 2015 caused a 7 percent increase in sales. Stores in Japan now number close to 1,700. Starbucks is working with Japanese beverage maker and dis- tributor Suntory Ltd. The "Discoveries" and "Doubleshot" lines are the company's first forays into the ready-to-drink market out- side North America, where it sells a line of bottled and canned coffee. It also underscores Starbucks' determination to expand its presence in Asia by catering to local tastes. For instance, the new product comes in two variations-espresso and latte-that are less sweet than their U.S. counterparts, as the coffee maker devel- oped them to suit Asian palates. Starbucks officials said they hope to establish their product as the premium chilled cup brand, which, at 210 yen ($1.87), will be priced at the upper end of the category. Starbucks faces steep competition. Japan's "chilled cup" market is teeming with rival products, including Starbucks lookalikes. One of the most popular brands, called Mt. Rainier, is emblazoned with a green circle logo that closely resembles that of Starbucks. Conve- nience stores also are packed with canned coffee drinks, including Coca-Cola Co.'s Georgia brand and brews with extra caffeine or made with gourmet coffee beans. Schultz declined to speculate on exactly how much coffee Star- bucks might sell through Japan's convenience stores. "We wouldn't be doing this if it wasn't important both strategically and economi- cally," he said. The company has no immediate plans to introduce the beverage in the United States, though it has in the past brought home prod- ucts launched in Asia. A green tea frappuccino, first launched in Asia, was later introduced in the United States and Canada, where company officials say it was well received. Starbucks has done well in Japan, although the road hasn't always been smooth. After cutting the ribbon on its first Japan store in 1996, the company began opening stores at a furious pace. New shops attracted large crowds, but the effect wore off as the market became saturated. The company returned to profitability, and net profits jumped more than sixfold to 3.6 billion yen in 2007, declined again to 2.7 billion yen in 2009, and increased again to 6 billion yen by 2013. In Japan, the firm successfully developed a broader menu for its stores, including customized products-smaller sandwiches and less-sweet desserts. The strategy increased same-store sales and overall profits. The firm also has added 175 new stores since 2006, including some drive-through service. But McDonald's also has attacked the Japanese market with the introduction of its McCafé coffee shops. Starbucks opened its first store in Africa in 2016, hoping to tap into an expanding consumer class, despite an overall weakness in the economy. It planned to open up just 12 to 15 stores initially, despite a capacity on the continent of 150 stores, according to com- pany estimates. In 2018, China was opening a new store every 15 hours. By 2022, store count in China surpassed 5,500, almost one-sixth of its global total stores. Shanghai now boasts the largest Starbucks store in the world. Starbucks is pushing "a coffee culture in China where the reward will be healthy, long-term, profitable growth for decades to come," CEO Kevin Johnson said. Meanwhile, in North America, Starbucks is struggling to maintain growth above inflation rates. QUESTIONS As a guide, use Exhibit 1.3 and its description in Chapter 1, and do the following: 1. Identify the controllable and uncontrollable elements that Starbucks has encountered in entering global markets. 2. What are the major sources of risk facing the company? Discuss potential solutions. 3. Critique Starbucks' overall corporate strategy. 4. What advice would you have for Starbucks in Africa? In China? Sources: Stanley Holmes, Drake Bennett, Kate Carlisle, and Chester Dawson, "Planet Starbucks: To Keep Up the Growth It Must Go Global Quickly." BusinessWeek, December 9, 2002, pp. 100-110; Ken Belson, "Japan: Starbucks Profit Falls," The New York Times, February 20, 2003, p. 1; Ginny Parker Woods, "Starbucks Bets Drinks Will Jolt Japan Sales," Asian Wall Street Journal, September 27, 2005, p. A7; Amy Chozick, "Starbucks in Japan Needs a Jolt," The Wall Street Journal, October 24, 2006, p. 23; "McCafe Debuts in Japan, Challenging Starbucks, Other Coffee Shops," Kyoto News, August 28, 2007; "Starbucks Japan Sees 55% Pretax Profit Jump for April- December," Nikkei Report, February 6, 2008; Alexandra Wexler, "Starbucks Opens First Africa Store," The Wall Street Joumal, April 22, 2016, p. B6; Sherisse Pham, "China Is Getting Nearly 3,000 New Starbucks," money.cnn.com, May 16, 2018; investor.starbucks.com, May 2022; see the most recent annual report at www. starbucks.com; Heather Haddon, "Starbucks to Exit from Russia," The Wall Street Journal, May 23, 2022, online.

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Transcribed Image Text:CASE 1-1 Starbucks-Going Global Fast Starbucks Coffee Tea and Spices opened for business in Seattle, WA, in 1971. You can still visit the original location. The original logo is a bit more spicy and evokes a seafaring tradition using the surname of the first mate in Herman Melville's classic Moby Dick. The original owners bought Peet's Coffee in Seattle and sold the Starbucks Coffee operation and brand name to Howard Schultz in 1987. At that point in time, coffee was the commodity most studied by marketers around the world. Profit margins were generally low as everyone "understood" how to market coffee. Then Schultz began to expand the offering to both a high-priced product and an attractive service, a friendly third place to meet beyond home and the office. While the fast expansion of Starbucks around the world slowed some during the 2008-09 Great Reces- sion, it has resumed since. The company now has more than 33,000 stores in over 80 countries. As far back as 1999 Starbucks was reviled by globalization crit- ics. The World Trade Organization held its international meetings in Seattle in 1999, and protestors specifically targeted the 6th Ave- nue and Pine Street location-one pundit opined that it was easier to break Starbucks' windows than attack a can of Coke. Still, the vast majority of stores are in the United States, with about 9,000 company-owned stores and another 6,000 licensed operations. The Chinese market dominates Starbucks' interna- tional sales with more than 4,700 stores, followed by Japan, Canada, the United Kingdom, and South Korea in that order. One of the first stores opened in China was in the Forbidden City in Beijing. Initially the Chinese government allowed that store placement, but a few years later the public forced its closure as being too intrusive, particularly for a foreign company. As with many other Western companies, however, 2022 also saw Starbucks' exit from Russia brought on by Putin's invasion of Ukraine. The company ended its 15-year presence in the country and announced it was permanently closing 130 stores in Russia. Starbucks now faces competition from large U.S. competitors such as McDonald's and its new McCafés, and in some regions even its old pal Peet's. In a 2005 bid to boost sales in its largest international market, Starbucks Corp. expanded its business in Japan, beyond cafés and into convenience stores, with a line of chilled coffee in plastic cups. The move gives the Seattle-based company a chance to grab a chunk of Japan's $10 billion market for coffee sold in cans, bottles, or vending machines rather than made to order at cafés. It is a lucrative but fiercely competitive sector, but Starbucks, which has become a household name since opening its first Japa- nese store, is betting on the power of its brand to propel sales of the new drinks. Also, introducing tea to the menu in 2015 caused a 7 percent increase in sales. Stores in Japan now number close to 1,700. Starbucks is working with Japanese beverage maker and dis- tributor Suntory Ltd. The "Discoveries" and "Doubleshot" lines are the company's first forays into the ready-to-drink market out- side North America, where it sells a line of bottled and canned coffee. It also underscores Starbucks' determination to expand its presence in Asia by catering to local tastes. For instance, the new product comes in two variations-espresso and latte-that are less sweet than their U.S. counterparts, as the coffee maker devel- oped them to suit Asian palates. Starbucks officials said they hope to establish their product as the premium chilled cup brand, which, at 210 yen ($1.87), will be priced at the upper end of the category. Starbucks faces steep competition. Japan's "chilled cup" market is teeming with rival products, including Starbucks lookalikes. One of the most popular brands, called Mt. Rainier, is emblazoned with a green circle logo that closely resembles that of Starbucks. Conve- nience stores also are packed with canned coffee drinks, including Coca-Cola Co.'s Georgia brand and brews with extra caffeine or made with gourmet coffee beans. Schultz declined to speculate on exactly how much coffee Star- bucks might sell through Japan's convenience stores. "We wouldn't be doing this if it wasn't important both strategically and economi- cally," he said. The company has no immediate plans to introduce the beverage in the United States, though it has in the past brought home prod- ucts launched in Asia. A green tea frappuccino, first launched in Asia, was later introduced in the United States and Canada, where company officials say it was well received. Starbucks has done well in Japan, although the road hasn't always been smooth. After cutting the ribbon on its first Japan store in 1996, the company began opening stores at a furious pace. New shops attracted large crowds, but the effect wore off as the market became saturated. The company returned to profitability, and net profits jumped more than sixfold to 3.6 billion yen in 2007, declined again to 2.7 billion yen in 2009, and increased again to 6 billion yen by 2013. In Japan, the firm successfully developed a broader menu for its stores, including customized products-smaller sandwiches and less-sweet desserts. The strategy increased same-store sales and overall profits. The firm also has added 175 new stores since 2006, including some drive-through service. But McDonald's also has attacked the Japanese market with the introduction of its McCafé coffee shops. Starbucks opened its first store in Africa in 2016, hoping to tap into an expanding consumer class, despite an overall weakness in the economy. It planned to open up just 12 to 15 stores initially, despite a capacity on the continent of 150 stores, according to com- pany estimates. In 2018, China was opening a new store every 15 hours. By 2022, store count in China surpassed 5,500, almost one-sixth of its global total stores. Shanghai now boasts the largest Starbucks store in the world. Starbucks is pushing "a coffee culture in China where the reward will be healthy, long-term, profitable growth for decades to come," CEO Kevin Johnson said. Meanwhile, in North America, Starbucks is struggling to maintain growth above inflation rates.

QUESTIONS
As a guide, use Exhibit 1.3 and its description in Chapter 1, and do
the following:
1. Identify the controllable and uncontrollable elements that
Starbucks has encountered in entering global markets.
2. What are the major sources of risk facing the company?
Discuss potential solutions.
3. Critique Starbucks' overall corporate strategy.
4. What advice would you have for Starbucks in Africa?
In China?
Sources: Stanley Holmes, Drake Bennett, Kate Carlisle, and Chester Dawson, "Planet
Starbucks: To Keep Up the Growth It Must Go Global Quickly." BusinessWeek,
December 9, 2002, pp. 100-110; Ken Belson, "Japan: Starbucks Profit Falls," The New
York Times, February 20, 2003, p. 1; Ginny Parker Woods, "Starbucks Bets Drinks
Will Jolt Japan Sales," Asian Wall Street Journal, September 27, 2005, p. A7; Amy
Chozick, "Starbucks in Japan Needs a Jolt," The Wall Street Journal, October 24, 2006,
p. 23; "McCafe Debuts in Japan, Challenging Starbucks, Other Coffee Shops," Kyoto
News, August 28, 2007; "Starbucks Japan Sees 55% Pretax Profit Jump for April-
December," Nikkei Report, February 6, 2008; Alexandra Wexler, "Starbucks Opens
First Africa Store," The Wall Street Joumal, April 22, 2016, p. B6; Sherisse Pham,
"China Is Getting Nearly 3,000 New Starbucks," money.cnn.com, May 16, 2018;
investor.starbucks.com, May 2022; see the most recent annual report at www.
starbucks.com; Heather Haddon, "Starbucks to Exit from Russia," The Wall Street
Journal, May 23, 2022, online.

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