Starbucks in France International Marketing 08/02/2010 INSEEC Business School Laure Brumont

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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A _ Cultural analysis

1) Introduction : a short profile of the company, the products, the

foreign countries…

“Wake up and smell the coffee -- Starbucks is everywhere. The world's #1 specialty coffee retailer,

Starbucks has more than 16,600 coffee shops in about 60 countries.”1 Now really well integrate in

the beverage industry, Starbucks Company is specialized in coffee based beverage, drip brewed

coffee, coffee beans, others cold and hot drinks as smoothies, hot chocolate or special teas,

snacks and others items as mugs, coffee makers and thermos2. Because of its permanent

expansion and growth will, the company intend to develop an horizontal diversification strategy

through Starbucks entertainment division and Hear Music. This strategy permits to the company

to develop its portfolio with CDs, books and films. This horizontal diversification is completed by a

vertical one; the company starts to develop its own production and in parallel Starbucks-brands

are now available in grocery store as Monoprix in France.

The differentiation strategy of Starbucks is based on a strong company culture and the

corporate communication is principally based on fair trade policies, environmental consideration

and sustainable business3.

The Starbucks growth the last 20 years was spectacular4. Indeed, in this short time period, the

company create 16 635 shops in 69 countries all around the world5. Particularly present in United

1 Hoovers , 2010. Starbucks Corporation, Company description. Starbucks corporation. Available at:

http://www.hoovers.com/company/Starbucks_Corporation/rhkchi-1.html [Accédé Janvier 29, 2010]. 2 Starbucks Coffee Company, 2008. Company Fact Sheet, Available at: http://www.starbucks.com/aboutus/Company_Factsheet.pdf [Accédé Janvier 29, 2010] 3 Starbucks Coffee Company, 2008. Company Fact Sheet, Available at: http://www.starbucks.com/aboutus/Company_Factsheet.pdf [Accédé Janvier 29, 2010]

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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States with more or less 11 000 shops there, Starbucks pains to integrate the French Market since

the start of its implementation attempt. “Too expensive”, “ bad atmosphere” “symbol of

globalization”: Frenchies are skeptic in front the Worldwide Giant6. For our cultural analyze, lest

try first to understand more about this company before to analyze the French behavior.

2) Brief discussion of the company’s relevant history

The Starbucks history is punctuate by expansion phases, diversification attempts and

communication crisis. Create in 1971 in Seattle to sell high quality beans coffee and equipment,

Starbucks has been influenced by Italian coffee culture and start completing its initial offer

proposing in 1987 expresso to drink in situ . This change wasn’t possible until the first honors sold

Starbucks to their partner Schultz, because of their risk avoidance. Indeed, the mix between

beverage business and beans/coffee equipment sale wasn’t viewed as a rational idea and it could

lost the customer. When Schultz’s bought Starbucks in 1987, he quickly began to expand the

concept and in 1992 the Starbuck company became a public one. After its first geographical

expansions in Japan, UK and all around the world, Starbucks started to purchase competitors

companies as Torrefazione Italia or Coffee people developing at the same time partnership with

Barnes & Noble in US or Fnac in Brazil for example.

In 2007, the expansion took another dimension and accelerates considerably. Russia, Argentina,

Bulgaria, Portugal, Algeria and a lot of others countries had seen Starbucks intrusion on their

territory. However, the first signs of resistance appear in China where Starbucks shop closed in

4 Appendix n°1: Starbuck growth until 2007 5Appendix n°2: Starbucks world presence 6 Cypher22, 2005. Starbucks m'a tué - Think different. Ciao, pour les gens qui ont un avis à donner. Available at: http://www.ciao.fr/Starbucks_Paris__Avis_880640 [Accédé Janvier 29, 2010].

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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2007. The Starbucks profits decrease considerably in 20077 because of the massive investment but

benefices appears to be constant. Even if this financial statement appears to be positives,

Starbucks is now in a difficult situation as much because of its strategic changes, often non

understood by customer than for its brand image crisis. Indeed, victim of its own contradiction in

regards to values, the brand image start to decrease. The financial crisis contributed to increase

the difficulties because of the decrease of buying power of customer. The high price level of the

products, the lack of confidence in the brand communicated values and the strategy radical

changes which loose everyone, push customer to avoid more and more Starbucks and the long

terms results of this attitude could be really dangerous for the company as the fall of Starbucks

securities in Stock Exchange Market reveals it8.

3) Brief discussion on cultural elements & Executive summary of the

major points to have a Glance at the critical points

The Coffee is part of the France cultural symbol and coffee is the most consumed hot beverage in

France with a coverage rate of 87%9 which represent around €1700 millions turn over just in

French Market. In comparison to the Mondial market, France is an huge market and is on rank 5

for coffee consumption10.

This mass consumption product, loose 40 000 tons of consumption during the last 5 years, since

2006 it start de growth up again (+3,26%) and the average French consumption per year is now

7 Appendix n°3: Profit and revenue evolution for Starbucks 8 Appendix n°4 : Recession indicator for Starbucks’ products Appendix n°5: Stock Market Chart Starbucks Securities over 10 years 9 2000. France: Coffe market. Faqs.org homepage. Available at: http://www.faqs.org/abstracts/Business-international/FRANCE-COFFEE-MARKET-FRANCE-TF1-VIDEO-IS-N1-A-REVIEW-OF-VIDEO-MARKET.html [Accédé Janvier 30, 2010]. 10 Caféologie. Tout sur le café. Available at: http://www.toutsurlecafe.fr/index.htm [Accédé Janvier 30, 2010].

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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around 5kg of coffee per year. This consumption increasing came because of the fast reactivity of

professional who proposed innovative products as coffee in caps, completed with an aggressive

communication around the link between quality, test and origin.11

The French “café noir” drunk in terrace is a symbol of French cultures as much as the baguette, the

wine or the cheese. French peoples generally drink it “black” without any additive as milk,

chocolate or additional syrup. Indeed, our customer habits analysis in part B, will develop more

about this point but to introduce Starbucks difficulties to penetrate French market this

consideration was necessary.

One of the main difficulties in French coffee market for Starbucks come first because of the “café

noir” tradition. Moreover, people prefer to drink it sit somewhere than “on the way”. Finally, the

bad price appreciation and the non perceive advantage of the products by French peoples limit

the Starbucks power of market entrance .If we try to analyze the French Coffee market in general,

it know some difficulties because of important societal changes:

- “New style of life entailing meal disintegration and in particular breakfast which remains the

privileged moment of consumption

- Competition the other products over this privileged moment (fruit juice, chocolate milk) but also

over the other moments of break (tea and infusions).

- Evolution of the tastes of the young towards sweeter and easy to use.

- Negative ideas generally accepted on the coffee effects on the health.”12

11 Caféologie. Tout sur le café. Available at: http://www.toutsurlecafe.fr/index.htm [Accédé Janvier 30, 2010]. 12 Caféologie. Tout sur le café. Available at: http://www.toutsurlecafe.fr/index.htm [Accédé Janvier 30, 2010].

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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Appendixes

Appendix n°1: Starbuck growth until 2007

Appendix n°2: Starbucks world presence

Appendix n°3: Profit and revenue evolution for Starbucks

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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Appendix n°4 : Recession indicator for Starbucks’ products

Appendix n°5: Stock Market Chart Starbucks Securities over 10 years

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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B_ Market Audit

As we introduce it before, the French market is a difficult one to penetrate for Starbucks for

various reasons. We will now go more in depth in our French market analyze presenting more

precisely the product before to analyze more precisely the French market itself.

1) The product:

a. Evaluate the product as an innovation as it is perceived in the market

The six principles of Starbucks are stated as 13:

“Provide a great work environment and treat each other with respect and dignity.

Embrace diversity as an essential component in the way we do business.

Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of

our coffee.

Develop enthusiastically satisfied customers all of the time.

Contribute positively to our communities and our environment.

Recognize that profitability is essential to our future success.”

This corporate communication reveals that Starbucks tries to develop high quality product,

ecologically friendly and with a good service quality. Starbucks product communication is focus on

perfection14 and it appears to be a daily challenge for the company.

13 Starbucks Corporation, 2010. Starbucks official Website. Starbucks Coffee Company. Available at: http://www.starbucks.com/aboutus/ [Accédé Février 1, 2010]. 14 Appendix n°1: Perfect product advertising by Starbucks Company

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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More honey in USA, less sugar in France, more cinnamon and muscade in South America, more

soya milk and tea varieties in Asia, the Starbucks offer can change in order to satisfy countries

tastes but recipes stays more or less the same with a large common base.15

The Starbucks last product innovation concerns the distribution channels. Indeed, Starbucks start

to open its market accepting to create derivate products under its brand name for partner’s shops.

The company develop hermetic bags for grounded coffee et coffee bottles16 to permit the fine

supermarket Starbucks coffee sale for example. In France, Monoprix is one of the distributor’s

partners17.

This new offer permits to Starbucks to be closer to its customer extending its target and its

visibility on the market.

b. Major problems and resistance to product acceptance

One of the major problems of Starbucks products in France stays the price and in comparison to

others brands the distribution products stays expensive. As an example you can pay €4,36 for 1kg

of Monoprix coffee and more than €9 for the Starbucks one.

More over, the strong tradition of the “café noir” in situ, pushes French persons to avoid coffee

with additives as syrup, honey, cinnamon or anything else. Coffee sold in bottles are generally

mixed with milk and perfumed and made to be drink on the way which is not really common in the

French consumption.

15

Starbucks Odessa, 2009. Starbucks Menu . Available at:

http://www.mchodessa.com/import/StarbucksMenu.pdf [Accédé Février 1, 2010]. 16 Appendix n°2 : New Starbucks products is coffee in glass bottle 17

Nicolas et Arnaud, 2009. Le café Starbucks débarque chez Monoprix. Starbucks Blog. Available at:

http://www.starbucksblog.fr/2009/03/le-cafe-de-starbcuks-debarque-chez.html [Accédé Février 1, 2010].

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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The last important point, concern the new entrants in the market. The fact is that Starbucks start

to be a saturated brand and the innovative and aggressive competitors came in a bad moment for

Starbucks now in the mature phase of its product life cycle. The French culture is the one of the

“café bar” and is used to the cozy place where you seat to drink your coffee and these traditional

places are biggest local competitors for Starbucks in France.

2) The Market

a. Describe the market in which the product is sold

As we already explained it, the actual context is an attractive market with low entry barriers with

more and more applicants. Taking advantage of its strategic advance, Starbucks try to be proactive

developing its diversification and trying to develop its sustainable advantage. Its differentiation

strategy comes to fight against others competitors proposing lower price products. The

monopolistic competition is now founding its balance and in France the giant war between

MacDonald’s and Starbucks, appears to be the major coffee market stake of this start of century18.

b. Product in market context

i. Power of Suppliers:

“We always figured that putting people before products just made good common sense. So far, it’s been

working out for us. Our relationships with farmers yield the highest quality coffees.”19 This kind of

communication focus on quality induces an high level quality in all the supply chain levels and to

be coherent Starbucks must develop and save its good suppliers relationship to both develop high

quality products. Controls must be applied to preserve the brand level. So suppliers have an

18 Appendix n°2 : MacDonald’s Mc Cafe aggressive advertising 19 Starbucks Corporation, 2010. Starbucks official Website. Starbucks Coffee Company. Available at: http://www.starbucks.com/aboutus/ [Accédé Février 1, 2010].

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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important power in front of Starbucks and the company must take care of them to insure its

quality exigencies and to keep its own standards.

Coffee is one of the largest traded commodities in the world, with oil and gold. Because of its non

integral vertical integration Starbucks is directly affected by international context in terms of

production of the coffee beans they purchase. “The bargaining power of suppliers to the specialty

coffee industry would be exerted by either an increase in the price of the beans which are used in

the production process, or by a threat of decline in the quality or quantity of the coffee beans

themselves. An over-populated market could also give the suppliers more bargaining power.

Starbucks needs to be aware of supplier power and potential price increases”.

ii. Power of Buyers/Customers:

A buyer group is powerful if the industry’s product does not save the buyer money20 This could be

an advantage for Starbucks as its coffee products are higher in price and considered a luxury

brand. Starbucks is much more concerned with the quality of their product versus price. However,

this power of buyers definition is subject to controversies and the common definition is more

complex. Indeed, the common definition of buyer bargaining power (Wilkinson definition) refers

to the pressure consumers can exert on businesses to get them to provide higher quality products,

better customer service, and lower prices. Starbucks must take care of its price policy, because in

comparison to competitors they are really high and customer could avoid consumption for price

reason and exert pressure on the business.

20 Pearce & Robinson, 2007, Business week, Strategic management, 32 (3), 164-171

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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iii. Available Substitutes:

This power of buyers will be increase with the massive entrance of substitute’s products.

Starbucks must be aware of that point. Moreover if we consider the actual economical crisis we

easily understand that customer will prefer less expensive alternatives than the luxury Starbucks’

products. This effect could alter Starbucks current pricing strategies. In this way, as more

substitutes become available, the current pricing model would become more elastic since

customers have more alternatives and more desirable products for cheaper prices. Potential

substitutes include all the hot and cold beverages, bottled water, healthy water/juice drinks,

cakes, sandwiches and at home espresso machines.

iv. Current Competitors:

While companies like McDonalds and Dunking Doughnuts appear to be the most obvious

competitors, McDonalds is clearly Starbucks top competitor in France. The fast food chain can

really compete with Starbucks in terms of sandwich items and coffee related products with

cheaper price. This competitor is probably the most dangerous one because he already has a

massive distribution channel, liable customer and cost effective structure that permits to propose

a really low price policy more adequate to actual population needs21.

c. Market Size

Starbucks Market is a really profitable business22 with espresso beverage that constitutes more

than 80% of the total profit. Now on rank 6 on the worldwide fast food ranking23, Starbucks still

have difficulties to penetrate the French market nevertheless frenchies are big coffee drinkers.

21 Appendix n° 4: World Map concerning Starbucks and MacDonald’s 22 Appendix n°5: Volume of sales vs contribution margin 23 Appendix n°6 : Top 10 restaurant Chain around the world

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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3) Executive summary based on the market analysis summarizing

opportunities

After a gorgeous growing in 2007, The French director of Starbucks France, wants to create more

than 150 stores in France until 2013 developing for example partnerships with train station or

shopping mol. One of the major opportunities will be in this sense, to develop the co-branding to

introduce step by step the brand in all the French society.

Moreover, the partnership with automatic distribution machine could be a great opportunity as

we know that they are used or by young people (targeted localization at schools, cinema, sport

place, etc) who really prefer mixed coffee with milk and with flavours or by business man/woman

who need to find variation to the classical “black coffee”24.

To support this new target choice, Starbucks must adapt an upstream communication around

energetic aspect as around healthy one. Indeed, French market study reveals that the coffee non

healthy image damage a lot the market and it is a necessity to fight against this cliché.

As the French director explains it on its 2007 annual report, the shop expansion appears to be

necessary too. We must be careful about this point because as we explain it before development

costs are massive and the return on investment must be precisely calculates to be sure of a

pertinent break even point. Moreover, the products must be adapted to the French customers and

more precisely the snack offer. Starbucks must still expend salads and sandwiches as it start

already doing it. Communicate about the healthy aspect of this kind of food could based the

24

LMDA, 2010, Analyse quantitative du marché des distributeurs automatiques, Le magasine de la distribution automatique blog. Available at: http://www.lemondedelada.com/marche.php [Accédé Février 1, 2010].

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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company in a better communication corporate. Just to remember French Menu it’s now the

unique Starbucks menu based a lot on food and the French specificity appears to be clearly here

because while others countries shops make 5% of its total profit on food, French shops make 25%.

We will finish our opportunities proposal underlining the potential of coffee caps. As Nespresso

did it why Startbucks does not develop its own dose/caps machine system with all the coffee

variation that it proposes in its shops? The caps coffee: instant coffee or expresso one permits to

stay in the cultural behavior of French customer and to keep as a possibility the traditional “café

noir”. In a way warrant of tradition, this strategy will give credibility to the Starbucks Company

who will be able after to introduce step by step its other products25.

25French Coffee Dose market well organize in: Tout sur le café, 2009, Cafeologie, Le marché français 2007, Available at: http://www.toutsurlecafe.fr/ecconomie/p11.htm [Accédé Février 1, 2010]

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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4) Appendixes

Appendix n°1: Perfect product advertising by Starbucks Company

Appendix n°2 : MacDonald’s Mc Cafe aggressive advertising

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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Appendix n°3 : New Starbucks products is coffee in glass bottle

Appendix n° 4: World Map concerning Starbucks and MacDonald’s

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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Appendix n°5: Volume of sales vs contribution margin

Appendix n°6 : Top 10 restaurant Chain around the world

Volume of Sales vs. Contribution Margin %

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Espresso

Drinks

Whole

Beans

Drip Coffee Pastries Blended

Beverages

Other

Beverages

Serveware Packaged

Food/Tea

Media Brewing

Equipment

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Dollar Volume Sold Product Contribution Margin %

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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C_ Marketing Plan

1) Marketing objectives

Reflex about marketing objectives in France for Starbucks Company induces first global overview

about what happen for Starbucks. Even if we can not talk about financial crisis for the company,

Starbucks is now subject to an existential crisis. As we already evocate it, Board directors are

actually scared about loosing the company culture going into a massive distribution, distribution

indispensable that is to be coherent to the actual growing strategy. Trying to don’t lost its

personality, the company is now shared between returned on the initial values and the artisanal

friendly aspect that made the brand reputation or still managing the company around profitability

and shareholders satisfaction. Our assumption here is that the company already loose too much of

its personality as the destroyers of the company appear to claim it (cf Anti-globalization activist

website: www.ihatesstarbucks.com). The automatically grounded beans (really symbolic change),

the big turnover, and the cost saving around furniture and decoration appears to confirm this idea

of a personality loose.

Moreover, the brand image decrease more and more because of multiple scandals about little

suppliers treatment and non ethical behavior of the company.

If we add to all these considerations the concurrency problem and the specific problem to French

market, Starbucks implementation there appears to be a real challenge.

2) Product adaptation or modification

In the first place, Starbucks musts adapt its product to extend its target. As we explained it,

automatic distributors and supermarket could be pertinent distribution channels to introduce se

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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French market. In parallel of this strategy another opportunity must be considerate concerning

coffee caps and espresso machine. These two company projects as we already developed it, could

permit a soft but secure integration to the French society.

In the second place, Starbucks must understand that its corporate communication must be

changed. Indeed, we can understand that the growing process is preferred by the shareholders

but this strategy appears to be a medium term process. Indeed, if for a short term or a medium

one, attract of novelty will permits to maintain the economical balance, for a long term such a

strategy could be catastrophic. The Starbucks differentiation strategy is based on its quality

tradition, its values and its friendly atmosphere. The growing need induce the sacrifice of these

characteristics and the discredit of the brand which seems to be less and less trustable in the

customer point of view. Passion appears far away and business is unfortunately too much close.

Using this analyze we can hardly advice to adapt the product to the French market but the most

important will be to develop an adequate corporate communication who will support the new

marketing plan. The concrete actions could be:

- Symbols must be reintroduce,

- staff must be better manage: application of the Human resources University of Bath model,

which is focus on people and performance model (work life balance, training, team

working, job security, empowerment, and in the same time performance management)

- Furniture improvement, return to the first comfortable sofa, peaceful music, perfectly

clean places, soft floor, etc.

It is sure that these changes have a high price but the return on investment will be much more on

and will allow Starbucks to lead in a more and more aggressive market and to develop its own

sustainable advantage. We will advice to the board director to focus its investment on that better

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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than on growing the business. These changes will permit to keep the same level of price without

giving the feeling of a worth of price for customer. Indeed, price promotion cannot be acceptable

in Starbucks case because of the company image which is based on quality. Promotion in this case

could damage the brand image more than the contrary.

3) Executive summary: major points of marketing plan

To resume about our marketing plan, the product himself must be adapted to the French market,

using cultural difference as an advantage and going to geocentric strategy (more “food” choice in

store, coffee caps to stay in the “café noir” culture, partnerships with local brands, etc). With this

adaptation, the French market will be more flexible and more open to the second phase which is

focus on the target extension around young people (High School, College, University and leisure’s

places automatic machines) and workers (automatic machines at work).

Concerning a more global point of view which will necessarily influence the French market,

services must be developed to legitimate the high level price. Moreover this strategy will permit to

improve the brand image. One of the key points for Starbucks is now really to stays focus on its

values, on its artisanal roots and on its respectful behavior. Communication corporate must be

developed massively and the actual advertising must be change. Indeed, if we want to valorize the

artisanal and healthy aspect of coffee we cannot use all advertising even if they have a perfect

esthetic26 and we will prefer some other advertisings maybe less fashionable but friendlier, more

positive and that are finally, closer to values of the Starbucks Company27.

26

Appendix n° 1 : Starbucks coffee as a medicine advertising 27

Appendix n°2 : Starbucks coffee as a smile advertising

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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Appendixes

Appendix n° 1 : Starbucks coffee as a medicine advertising

INSEEC Paris, IBS 1, International Marketing, Starbucks in France Laure Brumont, Master 2, Tripartites, 8 February, 2010

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Appendix n°2 : Starbucks coffee as a smile advertising