Starbucks Corporation is a Seattle, Washington-based coffee company. It roasts and sells whole bean coffees and coffee drinks through a national chain of retail outlets/restaurants. Originally only a seller of packaged, premium, roasted coffees. The bulk of the company’s revenues now comes from its coffee bars, where people can purchase beverages and pastries inaddition to coffee by the pound. Starbucks is credited with changing the way Americans view coffee, and its success has attracted the attention of investors nationwide.
Starbucks has consistently been one of the fastest growing companies in the United States with over 1,000 retail outlets in 1996. Over a five-year period starting in 1991, net revenues increased at a compounded annual growth rate of 61percent. In fiscal 1996, net revenues increased 50 percent to $696 million from $465 million for the same period the previous year (see Exhibit 10.1). Net earnings rose 61 percent to $42 million from the previous year’s $26 million. Sales for Starbucks have been continuing to grow steadily, and the company is still a darling of investors. with a PE ratio of 58.
To continue to grow at a rapid pace,the firm’s senior executives have been considering international expansion. Specifically, they are interested in Japan and other Asian countries, where Starbucks had little or no presence. Japan, the world’s third largest coffee consumer after the United States and Germany, represented both a challenge and a huge opportunity to the firm. To explore what changes in Starbucks’ strategy wererequired. And the questions that might arise during expansion, this case looks at the firm’s entry strategy into Japan and the nature of the issues facing the firm during early 1997.
THE COMPANY BACKGROUND
In 1971, three Seattle entrepreneurs – Jerry Baldwin, Zev Siegl, and Gordon Bnwker started selling whole bean coffee la Seattle’s Pike Place Market. They named their store Starbucks, after the firstmate In Moby-Dick. By 1982, the business had grown to five stores, a small roasting facility, and a wholesale business selling coffee to local restaurants. At the same time, Howard Schultz had been working as VP of US operations for Hammarplast, a Swedish housewares company in New York, marketing coffee makers to a number of retailers, including Starbucks. Through selling to Star-bucks, Schultzwas introduced to the three founders, who then recruited him to bring marketing savvy to the company, Schultz, 29 and recently married, was eager to leave New York. He wined Starbucks as manager of retail sales and marketing.
A year tater, Schultz visited Verona, Italy for the first time on a buying trip. As he strolled through the piazzas of Milan one evening, he was inspired by ET vision. Henoticed that coffee was an integral part of the romantic culture in Italy: Italians start their day at an espresso bar, and later in the day return with their friends. (For a history of the coffeehouse, see Exhibit 10.2.) There are 200,000 coffee bars in Italy and about 1,500 in Milan alone. Schultz believed that given the chance, Americans would pay good money for a premium cup of coffee and astylish, romantic place to enjoy It. Enthusiastic about his idea, Schultz returned to tell Starbucks’ owners of his plan for a national chain of cafes styled on the Italian coffee bar. The owners, however, were less enthusiastic and did not want to be in the restaurant business. Undaunted, Schultz wrote a business plan, videotaped dozens of Italian coffee bars and began looking for investors. By April1985 he had opened his first coffee bar, 11 Giornale (named after the Italian newspaper), where he served Starbucks coffee. Following 11Giornaiess immediate success, Schultz opened a second coffee bar in Seattle, and then a third in Vancouver, in 1987, the owners of Starbucks agreed to sell to Schultz for $4 million.
Convinced that Starbucks would one day be in every neighbourhood in America,...