Franchising would seem a natural entry mode for Starbukcs, but the chain sometimes owns the shops even abroad. What could be the explanation? Franchising has been part of the growth strategy for almost every restaurant chain in the world, including McDonald's, Dunkin' Donuts, Subway, and KFC. Franchising allows chains to open more locations, faster and with fewer costs for the company. 1 It's a system that has allowed McDonald's to open more than 37,000 locations 2 and Subway to open more than 44,000 restaurants worldwide. 3 And there are more than 62,000 frachised 7-11 shops around the World. 4However, despite having more than 24,000 locations worldwide, Starbucks has refused to franchise its standalone stores. Starbucks built a company-owned business strategy. 5To understand why Starbucks does not consider franchise, we need to understand the disadvantages of giving franchise. Here are a few key disadvantages: 6Decreased net receipts. You’ll make less than that of a company-owned store since you’ll only collect a royalty, which is a small percentage of the unit revenue. 7Independence of franchisees. The franchise owners aren’t your employees, and you don’t have direct management control. 8Difference in required business skills. You may have a different management style than the franchise owners. 9Costs can be high. The upfront investment to franchise your business can be substantial. 10As I said before, Starbucks built a company-owned business strategy. This strategy gave them a chance to benefit from their partner’s entrepreneurship. They took advantage of stock options to encourage entrepreneurship, which worked well. 11 For example Frappuccino was developed by one of their store managers. They've gotten big, but They've stayed small-keeping their intimacy with their staff and customers. But if they were franchised they might not have the kind of local owners that have innovative minds 12There are a lot of advantages to the company-owned model. Starbucks created universal company values. They read the marketplace and turned on a dime. As a company-owned business, they did that. But if they are a franchised company, it is hard to made quick adjustments because there's an extra level of people in the business that they have to basically pass all the decisions through. And that can make these kinds of transitions harder. 13Being company-owned also allowed them to find significant new revenue sources without having to worry whether they might compete with your franchisees' businesses. They've created a major new revenue sources by selling bags of Starbucks coffee, bottled Starbucks coffee drinks and Starbucks ice cream in supermarkets. But imagine if they were a franchise. It would be difficult to sell products in supermarkets because most franchisees probably would see that as competition and they would not like it. In a franchise situation, there are a lot of prohibitions on territoriality and exclusivity.

1. Illycaffè The Starbucks Threat
Huseyin Tekler

2. illycaffè
Identity & Values
140
countries in which illycaffè operates
100,000
retailers serving illy coffee
236
illy stores worldwide
22
new single-brand stores opened in 2016
1,269
employees as of 31 December 2016,
at the consolidated level, + 8% compared to 2015
460,387
million Euros in overall turnover (+ 5.3% compared to 2015)
Key numbers of stakeholders
SOCIETY BUSINESS EMPLOYEES AS
OF 12/31/16
ILLYCAFFÈ SPA - Parent company Parent company: roasting and
distribution (Trieste)
822
ILLYCAFFÈ S.P.A. NIEDERLASSUNG
ÖSTERREICH
Branch: distribution (Vienna - Austria)
ILLYCAFFÈ S.P.A. - NIEDERLASSUNG
DEUTSCHLAND
Branch: distribution (Munich -
Germany)
ILLYCAFFÈ S.P.A. VESTIGING
NEDERLAND
Branch: distribution (Rotterdam -
Netherlands)
ILLYCAFFÈ SPA ASIA PACIFIC BRANCH Marketing and retail Asian area (Hong
Kong - China)
ILLYCAFFÈ SPA SUCURSAL EN ESPANA Branch: distribution (Barcelona - Spain)
ILLYCAFFÈ SPA DWC BRANCH Marketing and retail (United Arab
Emirates
and Middle East)
ILLYCAFFÈ FRANCE SAS Distribution (France, Belgium and
Luxembourg) 46
ESPRESSAMENTE FRANCE S.A.S. Lease retail management (France) 32
MAGIC L’ESPRESSO SL Espresso machine manufacture (Spain) 18
ILLYCAFFÈ NORTH AMERICA INC. Distribution (U.S.A. and Mexico) 97
ESPRESSAMENTE ILLY AMERICAS INC. Franchising development (United
States) 3
ILLY ESPRESSO CANADA INC. illycaffè subsidiary North America:
distribution (Canada) 3
ILLY CAFFÈ SAN FRANCISCO LLC Indirect subsidiary: lease retail
management
(San Francisco)
23
ILLYCAFFÈ SHANGHAI CO. LTD Distribution (China) 61
ILLYCAFFÈ SUD AMERICA L.T.D.A. Distribution (Brazil) 23
EXPERIMENTAL AGRICOLA DO BRASIL
L.T.A.
Green coffee intermediation and green
coffee research 13
MITACA SRL Production of capsule systems for
espresso coffee (Milan) 67
ESPRESSAMENTE RETAIL LONDON LTD Franchising development (UK) 23
Main companies of the illycaffè Group The list does not
shows ancillary services undertakings (e.g. Real estate) that have
no employees.

3. The history of illycaffè and the
stages of sustainability
1932 1934 1974 1996 1997
19921933 19881965 1999
199
1
THE FIRST
PATENTSubmission of
application to
patentthe process
of pressurization in
Italy (issued in
1934). The patent
was issued in
Germany, in 1933.
ILLETTA
Francesco Illy invents
“illetta”, the prototype of
modern coffee
machines, and the
pressurization process:
a revolutionary method
for preservation of food.
COFFEE PODS
First company in
the world to launch
coffee pods on
the market for the
preparation of
café-like high-quality
coffee, also for
domestic use.
PRIZE FOR
QUALITY COFFEE
First Edition of the Illy Prize
for Quality Coffee in
Brazil. Since its first edition,
the Prize initiative has
always been coordinated by
Anna Illy.
THE LOGO
The artist James
Rosenquist designs the
new illy logo.
ISO 9001
illycaffè is the first
coffee company in the
world to be certified
under the
ISO 9001 framework
for the quality
management system.
ILLY ART COLLECTION
The Illy Art Collections are
created, an artistic
reinterpretation of the white
espresso cup designed by
Matteo Thun.
QUALITÉ FRANCE
illycaffè obtains the “Qualité
France” Certification (issued
by Qualité France SAS)
for the high sustainability
and quality of illy products.
ILLYCAFFÈ
Francesco Illy
founds illycaffè.
DIRECT TRADE MODEL
illycaffè starts a direct
contact with its growers to
purchase coffee,
stimulating quality
improvement through
economic surplus.
THE HEADQUARTERS
IN TRIESTE
illycaffè inaugurates the
head office in Trieste
and the first laboratory
site. The headquarters
in Trieste is presently
still the only illycaffè
production plant
in the world.
AROMALAB
Aromalab is the laboratory
created by illy to foster the
research on the chemistry of
coffee with the intent to
identify chemical
compounds able to build up
the aroma of blends of
coffee and to evaluate the
quality of green coffee and
roasted coffee.
WATER AS PRIMARY GOOD
illycaffè improves the cultivation
and processing techniques of
producers reducing water
consumption.
UNIVERSITÀ DEL CAFFÈ
illycaffè establishes the
Università del Caffè (University
of Coffee), a center of
excellence
to foster the promotion and
dissemination
of knowledge about the
culture of quality coffee,
from the bean to the cup.
2002
PROJECTS IN GUATEMALA
llycaffè launches a new
programme in
Guatemala to foster micro-
entrepreneurship and training
of coffee growers.
SENSORYLAB, TECHLAB
AND BIOLAB
illycaffè creates three new
laboratories to carry out
research into all the possible
issues relating to coffee.
2003
ESPRESSAMENTE ILLY IS
CREATED
illy opens a chain of franchised
cafés, to let people experience
and appreciate the genuine taste
of Italian-style coffee worldwide.
ISO 14001 ENVIRONMENTAL
CERTIFICATION
illycaffè obtains new certification
for the high efficiency of its
environmental
management system and for the
control
of the environmental impact of the
industrial process.
LOW EMISSION ROASTING
FACILITY
illycaffè introduces a new roasting
facility in Trieste, based on a
novel system with ultra- low
emission of fumes during the
coffee roasting process.

4. 2004 2006 2007
EMAS AWARD
illycaffè's commitment to
the improvement of the
environmental impact of
industrial processes is
recognized at international
level.
INITIATIVES IN ETHIOPIA
Through the support and
endorsement of the
International Coffee
Organization, illycaffè
launches a project in
Ethiopia
in cooperation with the
United Nations aiming to
demonstrate that, upon
treatment after harvesting,
the quality of Ethiopian
coffee can be comparable
and competitive with the
best coffee blends in the
world.
BRC - BRITISH RETAIL
CONSORTIUM
illycaffè obtains BRC
(British Retail Consortium)
certification and increases
its commitments in the
certification of safe food
and products.
FOOD SCIENCE LAB
illycaffè founds the Food
2010
ILLY ISSIMO
illy issimo is launched on the market: a new
ready-to-drink line of espresso-style coffee
beverages, the result of a joint venture with
The Coca Cola Company.
FONDAZIONE ERNESTO ILLY
The Foundation is established in honor of
Ernesto Illy in order to give continuity to the
teachings and knowledge of Ernesto Illy, to
whom the Foundation
is dedicated.
OXFORD UNIVERSITY
In cooperation with the Environmental
Change Institute of Oxford University,
illycaffè supports a research project
on the sustainability of coffee cultivation and
production.
ATLANTIC RAINFOREST IN BRAZIL
illycaffè starts a partnership with Istituto
Terra (Earth Institute) for a reforestation
project in a large area of the Atlantic forest
region of Brazil.
AWARD IN BRAZIL
illycaffè launches the “Sustainable Conduct
Award” initiative in Brazil
2012
ILLYSHOP AND
ILLYTECA
illyshop: single-brand
boutique shops offering
the entire catalogue of
illy products
commercially available.
ILLYTECA
is a retail point in which
all the products,
technologies and
accessories relating
to all five proprietary
brands of the illy Group
are available.
2015
WORLD'S
MOST
ETHICAL
COMPANIE
S
illycaffè is
included in
the World’s
Most Ethical
Companies
list for the
second
consecutive
year.
2008 2011 2013
2014
WORLD'S
MOST ETHICAL
COMPANIES
illycaffè is the
only Italian
company
selected to be
included in the
list of the most
ethical
businesses in
the world
for the year
2013, drawn up
by the
Ethisphere
Institute.
20162014-20152005
EMAS ENVIRONMENTAL
CERTIFICATION
illycaffè continues its efforts to
improve environmental impact
in cooperation with EMAS in
order to foster increase in the
environmental efficiency of
industrial activities.
ERNESTO ILLY SCIENCE
PRIZE
For Trieste's candidacy for Expo
2008, illy enters into
a partnership with TWAS -
The Academy of Sciences
for the Developing World,
launching a Science Prize
dedicated to researchers
from developing countries.
EXPO 2015
Illy was selected by the Expo
Steering Committee as Official
Coffee Partner: illy was exclusively
in charge of the Coffee Cluster at the
Exhibition, with the responsibility of
formulating and managing
the content and event of the cluster,
hosting and valorizing the
participation of the ten countries
representing coffee producers.
The selection of illy to cover this
prestigious role was recognition for
the company's excellence, passion,
innovation and commitment to
sustainable development.
1st SUSTAINABLE
VALUEREPORT
illycaffè launches a
sustainability communication
initiative addressed to all its
stakeholders managing
and communicating its
commitment to sustainability to
them.
GLOBAL COMPACT
illycaffè becomes part of the
United Nations Global Compact
initiative
CARBON FOOTPRINT
In collaboration with the Italian
Ministry of the Environment,
illycaffè launches a project
to calculate its carbon footprint
over the entire life cycle of its
products.
ICRT -
INTERNATIONAL
CONSUMER
RESEARCH & TASTING
illycaffè achieves the
highest score among all
coffee roasters analyzed
in the independent
enquiry led by the
international consortium,
for commitment to social
and environmental
responsibility towards
coffee farmers
IPERESPRESS
Oillycaffè launches the new
system of coffee capsules
called “Iperespresso” on the
market.
ISO 17025
AromaLab and
SensoryLab of illycaffè
are recognized
and accredited by
Accredia – Italian
Accreditation System.
IFS CERTIFICATION
illycaffè obtains the IFS
(International Food Standard)
certification, confirming the
commitment of the company to
ensure high quality of standards
for food safety.
a prize dedicated to coffee growers
reaching high sustainability standards.
ERNESTO ILLY
INTERNATIONAL COFFEE
AWARD
An award is created for the
best coffee selected from the
ones grown in the regions
that make up the unique
illy blend and it involves all
farmers the company works
with. It is also a tribute to
Ernesto Illy, a visionary
leader, always interested in
scientific research.

5. Sao Paulo - Brazil
Santiago - Chile
New York - U.S.A.
Johannesburg - South Africa
Barcellona - Spain
Paris - France
Londra - UK
's-Gravendeel - Holland
Munich - Germany
Athens
Greece
Riyadh
Saudi Arabia
Dubai - United Arab Emirates
Cairo - Egypt
Istanbul - Turkey
Riga - Latvia
Tallin - Estonia
Seul - South Korea
Tokyo - Japan
Jakarta - Indonesia
Bangkok - Thailand
Kuala Lumpur
Malaysia
Shangai - China
Trieste - Italy
Budapest - Hungary
Mexico City - Mexico
Vienna - Austria
23
Highlights
25operating branches
around the world
202,173people trained since 2000
more than 22,173 trainees in 2016:
1,134 producers; 16,178 professionals;
4,556 consumers; and 305 online trainees
Università del Caffè

7. The Heritage Behind the Brand
• 1971, Single Store in Pikes
Place Market
– Howard Shultz steps into store for
the first time in 1981. Joins a year
later.
The name, inspired by Moby
Dick, evoked the romance of the
high seas and the seafaring
tradition of early coffee traders.

8. Original Inspiration
European
Coffee
House
Culture
“coffee as
art”
Café Florian in Venice, Italy

9. Facts
Type Public
Industry Restaurants (Genre- Coffeehouse)
Founded Pike Place Market in Seattle, Washington (March 30,
1971)
Founder(s) Jerry Baldwin, Gordon Bowker, Zev Siegl
Headquarters Seattle, Washington, U.S.
Area served Worldwide
Key people President & CEO Kevin Johnson
Chairman Howard Schultz

10. Facts. Fiscal Year 2017 Highlights
Revenue
Consolidated net revenues of $22.4 billion grew 5% versus the prior year.
Operating Income
GAAP operating income of $4.1 billion declined 0.9% compared to the prior year. Non-
GAAP operating income grew 7.8% to $4.4 billion
Earnings Per Share
GAAP Earnings Per Share of $1.97 grew 3.7% versus the prior year. Non-GAAP EPS grew
11.4% to $2.06 per share
Employees 149,000 (2011)
Brands: Starbucks Coffee Company, Ethos water, Evolution Fresh, Hear Music,
La Boulange Bakery, Seattle's Best Coffee, Tazo , Teavana,
Torrefazione Italia
SEATTLE; November 2, 2017 – Starbucks Corporation (NASDAQ: SBUX) today report

11. (13 November 2013). "Starbucks Fined $2.8B in Grocery Dispute, and More" (Video upload). The Wall Street Journal. Retrieved 16 November 2013.
Tamara Rutter (15 November 2013). "2 Reasons Mondelez Doesn't Need Starbucks". Daily Finance. AOL Inc. Retrieved 16 November 2013.
Jargon, Julie (November 13, 2013). "Starbucks Defeated, Fined $2.8 Billion". The Wall Street Journal. pp. B1–B2.
Partnerships
Apple in 2006 Apple adds Starbucks
Entertainment to iTunes Store
MSNBC in June 2009 Morning Joe program
“brewed by Starbucks”
Kraft Foods in 1998 Starbucks products to be sold in Mondelez Grocery
Stores
Breaking!! November 2013: Starbucks to pay $2.8 billion fine to Kraft
spin-off Mondelez International for its premature unilateral
termination of the agreement.
Starbucks claimed that Kraft did not sufficiently promote its products and
offered Kraft $750 million to terminate the agreement. Kraft declined, but
Starbucks proceeded anyway.

13. Coffee Wars
• Starbucks tests drive-through windows and introduces
breakfast sandwiches to their menu.
• McD added espresso and flavored coffee to its menu, which
it marketed as "specialty coffee," and sold for 60 cents
cheaper than Starbucks.
• Starbucks began using television commercials in November
of 2007.
• McD created "UnsnobbyCoffee.com" and billboard
advertisements in Seattle that said "Four bucks [for
espresso] is dumb.”
• Schultz was reinstated as CEO of Starbucks, and re-focuses
on educational and artful coffee experience and customer
service
March 2007 Consumer Reports ranked
Starbucks behind McDonald's Premium Roast.
The magazine called Starbucks coffee "strong,
but burnt and bitter enough to make your eyes
water instead of open"

14. 2013 Coffee Consumer Trends Reports
June 20, 2013 HIGHLIGHTS
• 83% of Americans had one coffee/espresso drink in the past year (up
5%)
• 63% of American adults consume coffee daily (same as 2012)
• 75% of American adults consume coffee weekly (up slightly)
• 76% of Hispanic-Americans drink coffee daily (up 13%)
• 12% of American Adults own single-serving coffee (up significantly from
2012)
• 81% of American adults aware of single serving coffee (up significantly
from 2012)
• Consumer Ages:
• 18-24 at 41% (down 9%)
• 60+ at 76% (up 5%)

15. What are the Starbucks CSA and FSA ?
How do these advantages explain the
chain`s success in US

16. Firm specific advantages
Tangible Resources
• more than 27000 retail locations worldwide
• 5 roasting plants in US and the Netherlands – 24
“co-manufacturers” in US, Canada, Europe, Asia,
Latin America .
• Advanced coffee and beverage making machines.
• High-quality beans for use and sale in-store.
• Drinks/formulas, especially seasonal drinks.
• “Channel development”: Starbucks branded
merchandise.

17. Intangible Resources
• Roasting techniques, other in-store beverage
processes.
• Method of serving customers, “order fulfillment
process”.
• Brand identity, reputation, readily identifiable.
• Large, identifiable, overall satisfied customer base.
• Fair trade contracts with bean farmers.
• Image as a socially aware and green company .
Human Resources
• Superior‫ــ‬ employee relationship – employees
called “partners”.
• Health insurance plans, “bean stock,” etc. offered
to employees.
• Employees enjoy working at the company.
• Very low turnover (13%).
• Training programs for employees.

18. Now Starbucks are breaking into Asian’s market
and the followings are some CSAs of Starbucks
especially on Asian’s market.
1. Compared to the European market with a long-
history tradition and more districts, Starbucks have
gained more applause in Asian Areas, because its
fashionable icon.
Country SpecificAdvantages

19. 2. Starbucks carry out some innovative rules to cater to
the local meets of the Asian markets’ customers. For
example, Starbucks mooncakes have been produced.
After brought in to the Taiwan’s market, Starbucks
mooncakes became hot sales and new booking were
ordered very popularly. Because of the success,
Starbucks is planning to launch more new products
including mooncakes and other traditional snack of
special taste, high materials, and with fashionable
package, as the first choice to the festival present in
local areas.
3. Starbucks is trying its utmost to build the most
classic atmospheres and offer the high class services to
customers.

20. How internationally mobile is the
Starbucks concept? Any barriers to
entry?

21. *In the 1990s, Starbucks entered a lot of countries.
It began expanding internationally in Asia, the
Middle East, Europe, etc.
*Starbucks was successful overseas, however,
there were some barriers to entry. Startup costs
were high in many countries.
*The reason for this is because the countries did
not want foreign countries taking over.
*Another barrier to entry included the cultural
differences and the resistance that came with the
differences.

22. Franchising would seem a natural
entry mode for Starbucks, but the
chain sometimes owns the shops
even abroad. What could be the
explanation?

23. 7-11*
McDonald's * Subway*
* https://www.entrepreneur.com/franchises/topbrands

24. The Disadvantages of Franchising
• Decreased net receipts
• Independence of franchisees
• Difference in required business skills
• Costs can be high

25. • There are no middle man
between company and
costumer.
• Ease of driving new products
to the market
Starbucks built a company-
owned business strategy.

26. What does Schultz think?
"We don't franchise our stores, So much of what we've succeeded in is based
on the values and culture of the company, and I never believed we could do
that in the franchise system where the people weren't working for the
company."1
"I always viewed franchising as a way to get access to capital, because you're
using other people's money to grow, essentially. And we were dealing with a
premium product -- something that can be hard to learn, that you have to
explain to the customer, that requires an educated staff. It would have been
hard to provide the level of sensitivity to customers and knowledge of the
product needed to create those Starbucks values if we franchised."2

27. Why doesn't Starbucks franchise?
• The risk of losing Starbucks culture.
• Risk of losing the direct interactions between
company and customers.
• Easy to Manage.
• Chance to benefit from partner’s
entrepreneurship.
• Losing high profitability opportunity in long
term.

28. Do Illy and Starbucks compete or
not? How likely are they to
compete in the future?

29. - Dunkin’ Donut
- McDonald
Starbuck’s main competitors

30. Illy’s Strategy of penetrating America:
Backdoor
- Working together with local cafes
- Serving only Illy coffees
- Bringing in their own Coffe Barista
- Own Know Hows and equipment
- Own artwork and recipes
- Own training

31. Evaluation of the Backdoor strategy
- Low Investment
- No expenses compared to Starbucks
- Expansion of brand
- Focus less on coffee shop
- Focus more on grocery store
- Experience in grocery store sales

32. Illy vs Starbucks
- Little to none
- Might fear local coffee brands
- Dunk in’ Donut & McDonald

33. If you were Andrea Illy ,
what strategic plan would you
develop ?

34. • I would set up a branch which is
mainly responsible for selling our
company products in the US because it
will supervise the the distribution of
their firms goods and have easy access
to the exporters staff to place orders
or seeking help and advice , it can also
recruit some local staff who are very
familiar with the local condition.
• Trying to understand more about the
local tastes and
• market needs to make exporting
coffee more suitable the local people
and offering better service .

35. • Focusing in a specific Type of coffee ,
ex; espresso
• Will give me an absolute advantage
a better reputation and fewer
management issues , Fewer capital
costs and less customers confusion .
• Targeting the right markets . Areas of
business and line of its product .
• Understanding the ethics and cultural
segments .

36. • Illy Coffee entered the US market
mainly through the B2B And
Starbucks dominates the retail market
of the US . So I think we can
cooperate with Starbucks .
• Illycaffee and Starbucks are both have
strong background , so I think
cooperation will conquer the
disadvantges of two parties and come
into a win- win end , this would let
Illycaffee syncretize in the us market
more quickly and better .

37. Conclusion

38. References
1. https://www.wnycstudios.org/shows/heresthething/about
2. https://www.entrepreneur.com/article/311377
3. https://www.entrepreneur.com/franchises/topbrands
4. https://www.statista.com/statistics/266465/number-of-starbucks-stores-
worldwide/
5. https://www.wnycstudios.org/shows/heresthething/about
6. https://www.entrepreneur.com/article/311377
7. https://www.entrepreneur.com/franchises/topbrands
8. https://www.statista.com/statistics/266465/number-of-starbucks-stores-
worldwide/