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Starbucks Germany Market-Entry

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This deck focuses on the strategic elements of Starbucks entry into the German market, and was done as part of my MBA in 2001.

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Starbucks Germany Market-Entry

  1. 1. Taking the Starbucks Experience into Germany Presented by: Andrea Bouwman Brian Hill Ernst ter Meulen Nicole Seitz December 12, 2001
  2. 2. Starbucks kommt nach Deutschland. - Frankfurter Allgemeine Zeitung, 4 October 2001
  3. 3. The Alliance <ul><li>Signed in October 2001 between Starbucks Coffee International and KarstadtQuelle AG Group </li></ul><ul><ul><li>Starbucks: W orld’s leading retailer and roaster of specialty brand coffee products </li></ul></ul><ul><ul><li>KarstadtQuelle AG : One of Europe’s largest retailers, operating more than 210 Karstadt and Hertie department stores throughout Germany. Four principal business segments: retail, mail order, real estate and services. </li></ul></ul><ul><li>Opening of individual Starbucks retail locations </li></ul><ul><ul><li>First scheduled for Berlin in Spring 2002 </li></ul></ul><ul><ul><li>Goal: Up to 1,450 locations </li></ul></ul><ul><li>Offer Starbucks products and services within selected Karstadt department stores </li></ul><ul><li>82% owned by KarstadtQuelle AG ; 18% owned by Starbucks </li></ul><ul><li>All German outlets will be branded as Starbucks </li></ul>
  4. 4. Starbucks Industry Landscape <ul><li>RIVALRY WITHIN INDUSTRY: </li></ul><ul><li>Coffee beverage sales -- restaurants, independent coffee shops, coffee shop chains, street carts </li></ul><ul><li>Whole bean coffees -- specialty coffees sold through supermarkets, specialty retailers and specialty coffee stores </li></ul><ul><li>SUPPLIERS: </li></ul><ul><li>Strategic relationships with key suppliers to ensure quality of products and fluid pricing; Vertical integration </li></ul><ul><li>Coffee beans: Trade on negotiated basis at a substantial premium above commodity coffee bean prices </li></ul><ul><li>Paper/plastic products: Dependent upon paper and plastic resin costs </li></ul><ul><li>Fluid milk: Company obtains competitive prices through bidding and negotiations </li></ul><ul><li>SUBSTITUTES: </li></ul><ul><li>Water </li></ul><ul><li>Juices </li></ul><ul><li>Soft drinks </li></ul><ul><li>Alternative beverages </li></ul><ul><li>Alcoholic beverages </li></ul><ul><li>POTENTIAL ENTRANTS: </li></ul><ul><li>Supermarkets / food outlets for whole coffee beans </li></ul><ul><li>“ Gourmet” coffee shops / coffee bars from an already-established retail chain </li></ul>Starbucks Competitive Advantages Winning Criteria: Quality, Service Qualifying Criteria: Cost, Flexibility <ul><li>BUYER POWER: </li></ul><ul><li>Choose among retailers primarily on the basis of product quality, service and convenience, and to a lesser extent on price </li></ul><ul><li>Importance of brand name, location when making choices </li></ul>High Medium High Medium
  5. 5. Starbucks Competitive Advantage Level of Competitive Advantage Starbucks Relative Strength Low High High Low 1 2 3 4 5 6 7 8 9 10 11 12 13 Importance 14 15 16 17 18 Competitive advantage is achieved through the ability to educate customers, the strength of the Starbucks brand and the high level of service that form the “Starbucks experience.”
  6. 6. Starbucks International Expansion Strategy 1 st Target Switzerland Austria France Italy Germany Japan India South East Asia NZ/ Aust. US UK High Low High Market potential (estimated) Coffee quality and culture Latin America Scandinavia ***Current Target
  7. 7. KarstadtQuelle Strategic Landscape <ul><li>German Retail Market </li></ul><ul><ul><li>Extremely tight margins </li></ul></ul><ul><ul><li>Fierce competition </li></ul></ul><ul><ul><li>Likelihood of stagnation and consolidations </li></ul></ul><ul><li>KarstadtQuelle Core Strengths </li></ul><ul><ul><li>Top locales (derived from its real estate division) </li></ul></ul><ul><ul><li>Strong customer relations </li></ul></ul><ul><ul><li>High operating competence </li></ul></ul><ul><ul><li>Brand equity within the German market </li></ul></ul><ul><ul><li>Assessing business opportunities </li></ul></ul><ul><li>KarstadtQuelle Strategic Focus </li></ul><ul><ul><li>Pursue attractive, high margin-yielding opportunities </li></ul></ul><ul><ul><li>Provide a lifestyle-oriented qualitative upgrade to its department store segment </li></ul></ul><ul><ul><li>Implementation of new concepts through the use of partnerships and cooperative efforts with other global players </li></ul></ul><ul><ul><li>Differentiate itself through innovation </li></ul></ul>
  8. 8. To Align or Not to Align? <ul><li>Starbucks Perspective </li></ul><ul><li>Activity:  </li></ul><ul><li>Fast market entry into Germany </li></ul><ul><li>Local knowledge </li></ul><ul><li>KarstadtQuelle Perspective </li></ul><ul><li>Activity: </li></ul><ul><li>Diversify its portfolio </li></ul><ul><li>Lifestyle/ experience marketing </li></ul>  Strategic Importance of Activity HIGH Ally Invest & Make Make MEDIUM Ally Ally Make LOW Buy Buy Buy   LOW MEDIUM HIGH   Competence compared w/ best in market Fast market entry into Germany and Local Knowledge Diversify Portfolio Lifestyle/Experience Marketing
  9. 9. Complimentaries <ul><li>Starbucks </li></ul><ul><li>HAS: </li></ul><ul><li>Strong global brand </li></ul><ul><li>Coffee retailing expertise </li></ul><ul><li>Strong supplier network </li></ul><ul><li>NEEDS: </li></ul><ul><li>Quick entrance into German market -- major strategic continental European market </li></ul><ul><li>High-traffic locations </li></ul><ul><li>Localized knowledge </li></ul><ul><li>KarstadtQuelle AG </li></ul><ul><li>HAS: </li></ul><ul><li>Prime retail space in German locales </li></ul><ul><li>Knowledge of local German market </li></ul><ul><li>Catering / Gastronomy business experience </li></ul><ul><li>NEEDS: </li></ul><ul><li>Portfolio diversification into potential growth areas </li></ul><ul><li>Drawing younger, brand-oriented consumers to its locales </li></ul><ul><li>Development of a specialized outlet for the growing German coffeehouse segment </li></ul>
  10. 10. Partner Selection
  11. 11. Joint Venture SWOT Analysis T <ul><li>Karstadt has no experience with international alliances </li></ul><ul><li>Different Standard Operating Procedures </li></ul><ul><li>Compatibility (Service-Orientation) </li></ul><ul><li>German perception of American products and services of Starbucks </li></ul><ul><li>Unequal alliance control (82% Karstadt/18% Starbucks) </li></ul><ul><li>Offers local specialities </li></ul><ul><li>Cross-Selling potential </li></ul><ul><li>Brand known by target group </li></ul><ul><li>Large retail infrastructure </li></ul><ul><li>High Margins </li></ul><ul><li>No Starbucks in Karstadt stores initially (phase 2) </li></ul><ul><li>Starbucks raises KarstadtQuelle´s image (phase 2) </li></ul><ul><li>Growing coffee culture (market potential 162 litres/yr.) </li></ul><ul><li>Coffee Specialities gaining popularity </li></ul><ul><li>Fragmented coffe shop market in Germany </li></ul><ul><li>Increasing disposable income </li></ul><ul><li>Trend towards higher individuality (invite for drinks outside home) </li></ul><ul><li>EURO has a positive psychological effect on prices (looks cheaper than before) </li></ul><ul><li>Established competitors </li></ul><ul><li>Opening hours restrictions (especially for stores inside Karstadt) </li></ul><ul><li>Low traffic on Sundays (ie: Frankfurt Zeil, Cologne Hohe Strasse) </li></ul><ul><li>Price issue/sensitivity to cup of coffee prices </li></ul><ul><li>European coffee tastes </li></ul><ul><li>In-home coffee machine sales </li></ul>W S O
  12. 12. Recommendations <ul><li>Recruitment </li></ul><ul><ul><li>Hire managers who have cross-cultural, international experience </li></ul></ul><ul><li>Headquarters </li></ul><ul><ul><li>Establish Starbucks Germany HQ outside of Essen </li></ul></ul><ul><li>Cross-managerial/ employee training </li></ul><ul><ul><li>Management of Starbucks Germany spends considerable time in an American Starbucks store </li></ul></ul><ul><ul><li>Management from Starbucks International in Seattle should experience working in a German Starbucks store </li></ul></ul><ul><ul><li>Rotate an international project team in Seattle </li></ul></ul><ul><ul><li>Implement an exchange program for front-line baristas </li></ul></ul><ul><li>Branding </li></ul><ul><ul><li>Adapt product offerings & store design to European tastes and standards </li></ul></ul><ul><ul><li>Market Starbucks as an international brand versus American brand </li></ul></ul><ul><ul><li>Differentiate brand from competitors </li></ul></ul><ul><li>Operational Adaptations to the German Market </li></ul><ul><ul><li>Low traffic Sundays: Create Starbucks as a distinct destination for patrons </li></ul></ul><ul><ul><li>Competitors, substitutes: Work to demonstrate that Experience can not be attained at home or another setting </li></ul></ul><ul><ul><li>Price point sensitivity: Highlight value and uniqueness of high-end products, store atmosphere </li></ul></ul><ul><ul><li>European coffee tastes: Add a traditional European coffee to product line </li></ul></ul>
  13. 13. Success Determinants <ul><li>IPO of Starbucks Germany </li></ul><ul><li>Increase of KarstadtQuelle Stock Price </li></ul><ul><li>Profit of Starbucks Germany </li></ul><ul><li>Marketshare of Starbucks Germany </li></ul><ul><li>Entry of Starbucks into Other EU Countries </li></ul><ul><li>Spillover of Starbucks Germany HR Policies into KarstadtQuelle </li></ul><ul><li>Product Development </li></ul><ul><li>Brand Extensions </li></ul><ul><li>Expansion of Starbucks Germany Strategies to Other Starbucks Locations </li></ul>Hard Soft
  14. 14. Q & A http://www.brianlhill.com/starbucks

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