Saturday, June 21, 2003

Starbucks runs into problems going international Based on the concept of Italian espresso bars, Starbucks in less than twenty years has created its own new category. Starting with one store in 1983, it expanded to 272 stores in 1993, and to over 6,000 locations in 2002. Aside from placing a shop on very other city block in major cities, Starbucks has grown by alliances with companies like Albertson’s supermarkets, Marriott and Sheraton/Homewood Hotels, and Nordstrom department stores. It also has allied with companies like Dreyer’s Ice cream, Kraft, and Pepsico. In the last few years, it has looked outside North America to fuel its uncanny growth. In fact, Starbucks growth has been so phenomenon that it has, along with McDonald’s, a become a poster child for anti-globalism Here are some of the typical online vituperations: Once again, millions of people dependent on coffee production have been suffering in 2001 the consequences of market failure, while the main preoccupations of the Western media are whether or not the affluent consumer will get cheaper coffee, or the welfare of giant transnationals like Starbucks and Nestle. * The Bush doctrine offers more freedoms for corporations, backed up by the US military machine. But the hunt for market power, and the monopolization of society delivers us a strange kind of freedom. We [have] choices between MacDonald’s and Starbucks, Nike and Reebok, Gap and Levis, Coca-Cola and Pepsi.  And so on.*  And so on. In response, Starbuck’s has made great efforts to buy at fair prices from organic coffee farms and contribute to charitable causes to appease anti globalists. Some groups have commended the company for its efforts, though others are skeptical. But the anti-globalists may have less to worry about than they thought. A recent story in Business Week (June 9, 2003, “For Starbucks, There’s No Place Like Home”) reveals that Starbuck’s international move is turning out to be a bust. There are over 1,500 international stores now, but they are net money losers. Japan, the largest overseas Starbucks presence, has reached a capacity, and is now losing money. Starbucks has closed its stores in Israel, and exiting joint ventures in Switzerland and Austria.  In Britain and Germany, growth is stalled. The big reason, according to Business Week, is local competition. In all of these countries, once the concept of a coffee bar catches on, there spring up local versions with lower prices that take business away from the costly Starbucks. There’s no indication that this is fueled mostly by anti-Americanism (though Starbucks stores, like MacDonald’s, have been targets of anti-war protests). It seems to be a rare case of real-world limits on multinational growth, and the interesting thing is that it’s based not on protectionism, but on local preferences. Starbucks is restructuring joint ventures and rethinking its expansion plays. It’s reported that the company wants to have 10,000 stores worldwide within a few years. It will be fascinating to watch whether the poster child for globalism fails internationally.   5:31:37 PM

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