Foreign Market Expansion Plan of Starbucks - Case Study Example

People around the world enjoy spending time in a place they can their own, a place they can enter and feel a warmth atmosphere to hand out and relax with a nice hot drink to read a book, watch a movie online or get some business done their laptop while downloading their information needs through high-speed wireless connections. This place is already right around the corner if are a US resident and soon it will be just around the corner of the international crowd at greater scales, this place is called Starbucks. This paper analyzes the coffee maker Starbucks by providing a background of the company, a SWOT analysis and an international overview of the firm and recommending a target location for Starbucks to penetrate the market and further increase its international penetration. Company Profile Starbucks is the worlds leading retail beverage chain who specializes in premium coffees since the company was founded in 1972. The US based firm has 12,240 stores 37 countries worldwide that generated $7.8 million dollars of which $564 million were net income in 2006 (Annual Report 2006: Starbucks, 2007). The company has utilized an organic growth business model that has allowed the company long term growth including 15 consecutive years of 5% yearly sales growth. People go to Starbucks because it offers an eccentric comfortable atmosphere created by the company’s employees. Starbucks offers a variety of the best tasting top quality coffees in the world. The clients are enticed to stay around the stores and hangout to enjoy some of the company’s other products and services such as coffee merchandise, fresh foods, consumer and entertainment products which include high speed wireless internet access (Starbucks). The company serves over 40 million customers on a weekly basis across its international network of locations (Annual Report: Starbucks 2006, 2007). SWOT The strengths of the company include its brand recognition, its superior supply chain operations, Starbuck’s customer focus and its green product strategy. Out of these four characteristics the company supply chain superiority and green strategy gives the company an advantage to compete on a global level. The company has a very strong corporate responsibility strategy which is instill in the company company’s culture throught the entire enterprise. The comapany is commited towards sustainable agriculture and production practices that protect the environment. The green strategy of the company benefits them worldwide since environmental issue are a common concern among all earthlings since we live in one planet and protecting the atmosphere and natural resources of the planet benefits all of us and especially the future generations of humans. The weaknesses of the company include the possibility of saturation of the brand in the US, its high prices and competition from low quality or substitute products. The greater weakness in the international level is the company’s price structure. The United States is a develop country in which the people enjoy an affluent income stream represented by a income per capita of above $35,000 per resident (CultureGrams, 2007). In other international locations where the national economies are struggling paying $4 to $7 for a cup of coffee is an absurd proposition. The company has opportunities to expand into other markets. Starbucks started by offering free wi-fi access to its customers and forming an alliance with Apple’s itunes brand to spark download mucis sales in its starbuck’s facilities. The company currently only offers lunch menus in about 30% of its facilities. All starbucks café should offer lunch alternatives such as sandwishes and pastries to its customers. The company has the opportunity to further expand its operation, but its plan of 40,000 is not necessarely the only expansion alternative. The company could reinforce its corporate empire and grow by acquiring other businesses either in similar lines of business or in other types of endevours. A good idea would be to sell some of Starbucks recipe’s in the retail supermarket business as prepared drinks that only need microwave heating before serving them. Starbucks faces threats from various competitive factors associated with substitute products of its primary core revenue producing sector which is premium coffee drinks and other premium hot drink products. Starbucks had to diversified its products offering to include lunch and pastries because the entire restaurant industry realized the potential of the premium hot drink beverage product and the industry was already capitalizing on the extra revenue and higher gross margins associated with the sales of the type of products Starbucks offers. Target Location Starbucks is a company with an ambitious plan of expanding its horizon to eventually have 40,000 stores worldwide, half in the US and the other half in international locations. The company in 2006 expanded into two new international market, Brazil and Egypt. The expansion into the South American nation of Brazil was the 2nd South American location targeted by Starbucks. South America is one of the closest neighbors of the United States, thus based on geographical proximity it is a logical expansion heaven. Brazil was chosen as a location due to its immense population of 180 million and the fact that the country is one of the largest coffee producers in the world. The other Starbucks South American location is Peru. A country Starbucks has yet to established operations in is the South American nation of Argentina. Argentina is one of richest country’s in the region with real gross domestic product per capita of $13,298 (Country Insight, 2007). To put this figure in perspective the real GPD of Brazil is $8,195 and Peru’s real GDP is $5,678 (CultureGrams: Brazil & Peru, 2007). Argertina’s economy is 62% larger than Brazil and 134% larger than Peru. Appendix A shows a map of Argentina and its location within the South American continent. The map illustrates the proximity between Argentina and the other two locations within the South American continent Starbucks already established themselves in. They are relatively close implying that logistics and distribution into Argentina would not cost the company extra cost associated with exporting to a remote location. Argentina has nearly 40 million people living in the country. Coffee drinking and premium coffee demand is on the rise in Argentina. The market for hot drinks s is expected to grow between 12% and 15% in a one year span (Euromonitor International, 2007). Gourmet cofee drinks such as the variety of hot drinks products offered by Starbucks are becoming mainstream in Argentina’s urban life and the nation’s higher disposable income is allowing residents to affort these subtle luxuries which make a person’s life more enjoyable. Implementation plan & mitigation strategies To implement the expansion plan into Argentina some premilinary steps must take place proior to make the full commitment to expand into the region. One of the first steps is to perform a survey among Argentinian resident to learn what would be reaction and acceptance of the residents towards establishing a Starbucks in the country. The questionnaire / survey can be should be perform using various mediums including online, mail and face to face gathering of th e survey data. A full viabilitity analysis has to perform on the region to determine the internal demographic composition of the country to locate the best city and precise location to open the first Starbucks in Argentina. The prices of distribution channels in the area have to be studied as well as the different vendors in this field to select the best company or companies to realize busineess with. The company’s plan to take advantage of Brazil’s coffee production should be restucture to include business with the Southern farmers of Brazil in order to optimize the supply chain distribution towards the Argentinian market. Possible mitigation plans for potential problems in the Argentina market include the possibility of lack of acceptance of the coffee due to the amount of Argertinians who prefer Tea over coffee. Starbucks could expand its menu to include premium tea offering as well as its tradional products. The company can also include other items to the item in this market with some cheaper products in order to bring higher levels of traffic into the store just try out the products. Once a person tries a Starbuck’s hot drink they will come back for more since its taste is enlightening. Conclusion Starbucks is a company with a tremendous history of providing its customer with a unique product that people demand. The company has been able to sucessfully implement an organic business model that has enabled the company to convert the comapany into a single Café into a 12,000+ international chain restaurant. The company is a global player with thousands of internatinal facilities across over 30 countries which plans to achieve a full earth habitation of local Starbucks customers around the world. One of the location the company plans to target in 2008 is the Argentina market. References Annual Report: Starbucks 2006 (2007). Availble from [Accessed 7 December 2007]. Country Insight (2007). Argentina. Available from Read More