Starbucks-CASE- Study

Marketing Principles (Royal Melbourne Institute of Technology Vietnam)

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Starbucks-CASE- Study

Marketing Principles (Royal Melbourne Institute of Technology Vietnam)

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M A N A G I N G A C R O S S C U L T U R E S

S T A R B U C K S C A S E S T U D Y

Lessons from Success and Failure for the Future

Your team is to act as a consulting organisation that

specializes in intercultural management; provide

expertise on how the organisation can better facilitate

communication, management and effective

interactions across borders with other organisations

(suppliers, collaborators, subsidiary) or customers.

Your team has been asked to improve the performance

of the case study organisation or provide a solution to a

problematic situation (such a situation may have been

reported on in the press). You will create a 4000 word

report outlining the background to the case, analyzing

the case (particularly from the perspective of

intercultural management) and finally highlighting 4-5

key recommendations that you argue will improve the

organisations performance in this area.

Your research will analyse factors that have led to any

issues or difficulties in the past, and provide a structured

argument leading to recommendations for changes to

practice in the future. Referencing of peer review

materials is required to provide evidence for your claims

and recommendations, and to inform your analysis and

discussion throughout.

TEAM

Truong Nguyen Thanh Vy s3462020

Kim Kyeong Beom s3653049

Yu Chun Chen s3635541

Sean Caricola s3690145

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Table of Contents

STARBUCKS CASE STUDY ............................................................................................................................. 1

EXECUTIVE SUMMARY .................................................................................................................................. 2

INTRODUCTION ............................................................................................................................................ 3

Company Background ............................................................................................................................. 3

Competitive Advantage .......................................................................................................................... 3

SUCCESS IN VIETNAM .................................................................................................................................. 5

Winning Formula ........................................................................................................................................ 5

FAILURE IN AUSTRALIA ................................................................................................................................. 7

Australian Consumer Culture Overview ................................................................................................. 7

Marketing Failures ...................................................................................................................................... 8

Strategic Failures ........................................................................................................................................ 9

NEW MARKET: ITALY ..................................................................................................................................... 9

PEST Analysis ............................................................................................................................................. 11

Recommendations .................................................................................................................................. 12

REFERENCES ................................................................................................................................................ 12

E X E C U T I V E S U M M A R Y

Starbucks is one of the world’s leading global coffee brands and has been changing the way the world drinks

coffee outside of home and work. The global expansion of this brand has been increasing rapidly, and it has

opened stores in many countries such as Japan, Latin America, Russia, Australia and Vietnam. The brand’s

footprint has grown to reach more than 75 countries worldwide and is expected to continue to grow

significantly in 2018. The purpose of this report is to analyse how cultural differences have affected Starbucks’s

way of doing business in Vietnam and Australia.

By demonstrating how it achieved success in Vietnam’s nuanced coffee market, the report focuses on

statistical and empirical research to extrapolate how Starbucks adapted and localised itself to be aligned

with Vietnam’s cultural heritage and consumer preferences. Meanwhile, the report explores how brand

arrogance and lack of cultural awareness led to its dramatic retreat from Australia, another country with an

equally nuanced and famous coffee culture. The inherent lessons supplied by Starbucks’ Vietnamese and

Australian forays serve as a basis for analysis and caution when entering a new market, such as Italy. This

report will iterate why Starbucks and other global business must not neglect cultural differences when

attempting to enter foreign markets, and that international expansion is not a one-size-fits-all scenario. What

works in one place may not necessarily work in another. Large corporations must endure to

think global and

act local

- observation, cultural awareness and ethnography may save years and generate profit for

Starbucks in the future.

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I N T R O D U C T I O N

Company Background

Starbucks is one of the world’s most recognisable brands – the American global coffee company from

Seattle, Washington, has more than 24,000 retail stores across 70 countries with nearly 15,000 of them in United

States. As of 2016, the number of stores reached more than 25,000 (Successstory, 2017). In 2012, Starbucks’ s

revenue reached over 13 billion USD with more than 149,000 employees worldwide (Successstory, 2017). The

company was established in 1971 and rapidly became one of the largest coffee houses in the world. The

company’s main product is coffee which has more than 30 blends and single-origin premium coffees. Besides

that, Starbucks offers handcrafted beverages such as freshly brewed coffee, hot or iced espresso beverages,

smoothies, juice and teas. Starbucks is also not only popular for offering fresh food such as sandwiches,

pastries and snacks but also offers local cultural-inspired products such as books, music, gifts and accessories

based on local availability.

Figure 1. Number of Starbucks stores worldwide from 2003 to 2016.

Competitive Advantage

Brand Identity

It is believed that Starbucks has changed the way the world drinks coffee. Starbucks strives to be known as

the “third place” between work and home where people can go to relax, listen to music and enjoy a cup of

coffee as well as to experience the inviting ambience. In additional, the company has a holistic approach to

gathering customer insights by engaging in casual and informal chats with customers in order to capture their

mood, experience with the store and receive feedback from customers. The company’s mission “To inspire

and nurture the human spirit- one person, one cup and one neighbourhood at a time” clearly focuses on the

customers’ experience across all its stores and its products. Moreover, Starbucks has a unique brand

promotion strategy. Unlike most other competitors which advertise their products on billboard, newspaper,

magazines or by means of celebrity endorsements, Starbucks launched a global brand campaign called

“Meet me at Starbucks”. The campaign captured a day at Starbucks through a mini documentary format,

occurring in 59 different stores in 28 different countries by coordinating with all the customers involved. The

campaign was very successful by aligning the core values and philosophy of the customer with those of the

company.

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Human Resource Management

Starbucks has an effective human resource policy for its employees as it considers them as partners.

According to Martinrol (2017), Starbucks has a training program for their baristas and employees. A barista is

required to be friendly and remember the name of the customer and their favourite drink for the next visit.

Furthermore, the employees are required not to wear perfume or cologne. As De Wit and Meyer (2010)

highlighted, Starbucks not only offers stock options for its employees, it also provide free healthcare insurance

for full time and part-time employees. Additionally, the company also offers opportunities for their US

employees to complete an online bachelor’s degree. This ensures their employees are empowered, satisfied

and reduces the level of employee turnover at Starbucks.

Differentiation strategy

Backed by its access to vast resources and capacities, the company employs a focus on differentiation in a

niche market segment in order to deliver high value and high quality of their products, by charging a

premium price to the customers. This strategy differentiated Starbucks from other competitors and helped

leverage a competitive advantage, as per figure 2 below:

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S U C C E S S I N V I E T N A M

Overview

Starbucks entered the Vietnamese market in 2013 by opening one store in the city centre of Ho Chi Minh City.

After three years, its market share has soared to being number two among chain cafes in Vietnam with 9.1%

market share. (Table 1) In 2017, the number of Starbucks stores in Vietnam (Starbucks 2017) reached twenty-

eight and is still growing.

Vietnam is the largest Robusta coffee producer and number two coffee exporter worldwide (Workman 2017).

Moreover, Vietnam already had its own coffee culture and cafes prior to the arrival of Starbucks. However,

due to an influx in western culture, Vietnamese young people’s needs for western culture experiences and

engagement has increased. Starbucks was able to set the stage for success by meeting their needs. From

now on, we will scrutinize the factors which made Starbucks successful in Vietnam.

Winning Formula

First, Starbucks brings a Western atmosphere as well as high quality products. Especially, Vietnam has many

young people who have been influenced by western culture and are receptive to new experiences. (Figure

3) Starbucks knew that leveraging its international appeal would engage successfully with the large young

population of Vietnam.

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Second, Starbucks showed respect towards the local culture by selling localized coffee and goods.

Vietnamese coffee is very specific, in that it has strong flavour and a creamy taste. Starbucks launched

Vietnamese coffee which is called Café sua da in Vietnam and Asian Dolce latte. This exclusive menu shows

its adaptability and humble attitude, which led to Vietnamese people feeling as though their needs are

respected by the company. Also, Starbucks developed special cups adorned with the Ao Dai, a Vietnamese

traditional symbol, which subsequently became a popular souvenir for tourists. Third, Starbucks entered the

market slowly with just one store in Ho Chi Minh City. Typically, Starbucks employs a saturation strategy by

entering new markets with hundreds of stores to choke out competition. However, Starbucks entered the

Vietnamese market in partnership with a Hong-Kong-based investment company, Maxim Group, and

prioritized market research into location and distribution strategies before entering the market. (Reuters 2013)

Starbucks targets young people in Vietnam and generated demand by means of scarcity. With large queues

in their flagship store, Starbucks slowly began increasing its number of cafes. Lastly, Starbucks did not neglect

training baristas. Usually, Vietnamese local coffee chain’s baristas are unskilled ones, but Starbucks trained

them to maintain their international quality standards. This was possible because it increased stores slowly, not

spreading itself too thin by growing too fast. Also, it showed a clear long-term vision and it lowered the

employee turnover rate. In conclusion, the success of Starbucks in Vietnam was possible because of the

respect for the local culture and market research as well as cultivating international atmosphere and quality

standards.

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F A I L U R E I N A U S T R A L I A

Australian Consumer Culture Overview

Coffee is deeply rooted in Australian culture, as a result of immigration that has shaped the nation over the

last century and brought flavours and rituals from abroad. This is a profound contrast to Asian markets where

consumers generally drink tea, and where cafes are a relative novelty.

In the 1950s, Italian and Greek immigrants arrived in Australia and brought their stove-top coffee makers with

them in their luggage. As a result of community demand, they began roasting beans and birthing Italian-style

coffee shops where immigrants could meet and socialize (Wheeler, 2010).

Australia’s coffee culture was so deeply established and mature, that Italy’s world-famous Lavazza coffee

company decided to export to Australia over a decade before considering the US and UK markets.

Culturally, Australia has very intermediate uncertainty avoidance as per Hofstede’s cultural dimensions – this

relatively high figure (when compared with the US), provides a basis for understanding the Australian coffee

palate. Australians are less likely to be open to new experiences when compared to their American

counterparts, which explains why Australians tend to drink three types of coffee, as per figure 1:

As can be deduced from the image, the majority of Australians have two clear preferences when drinking

coffee: the Latte and the Flat White. Whereas the primary drink of choice in the United States pre- Starbucks

was the bitter, drip-style ‘Americano’, coffee culture in Australia is nuanced, deeply rooted, and culturally

difficult to uproot. The Australian palate, and the Australian relationship with coffee, would be difficult to

shake up for any corporation.

The result today is that there are over 6500 independent cafes across Australia generating about $4 billion

annually mainly from coffee sales. These independent cafes act as community hubs, each adapting their

product offering and culture to match the suburb or neighbourhood in which they are situated. The following

figure outlines Australia’s consumer preferences:

Figure 4. Coffee sold per state according to Inside Small Business

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Marketing Failures

The above section clearly demonstrates the nuances and idiosyncrasies of the Australian coffee culture,

especially when compared to the less mature coffee markets in Asia where Starbucks has found greater

success.

With regards to the marketing mix, Starbucks relied too heavily on brand perception and awareness and

primarily failed to consider the implications of a well-established consumer culture. Their failure to innovate

and localize their offering is what ultimately led to their great retreat (Mescall, 2010)

Distribution

: Starbucks entered the market with a saturation strategy, by opening an immense quantity of

locations at once in order to choke out small competition and monopolize the market quickly. Whereas it

generated demand by scarcity in Vietnam, it adopted a fundamentally opposite strategy in Australia – which

led to a failure to create enthusiasm around the brand. Additionally, this ‘invasion’ on the Australian

community was perceived as boisterous and overly American. Australia, as per Trompenaars’ dimensions, is

an achievement based society rather than ascription based, and therefore does not react well to large

corporations “banging their chest” (Trompenaars, 1997).

Price & Product

: The specialty micro-roasting coffee industry in Australia set the bar extremely high prior to

Starbucks’ arrival. At a moderately high price point, Starbucks failed to position itself against its competitors by

demonstrating that their unique selling point isn’t the coffee, it’s the experience. Consumers simply couldn’t

rationalize why they were spending more on a product that was perceived as inferior.” Starbucks customers

failed to identify the “difference” in Starbucks experience and couldn’t justify paying a premium price

compared to the other brands” (UNSW, 2010). In addition, unlike in Asian markets, Starbucks did not localize its

product offering to match the preferences of Australians, who generally prefer Lattes, and whom

subsequently failed to appreciate the convoluted vocabulary and offering provided by Starbucks (i.e.

“grande skinny mocha Frappuccino”).

Promotion

: Starbucks relied on brand awareness and didn’t pursue any above-the-line advertisement

strategies in Australia. At the time, it was the fastest growing coffee chain in the world and perhaps this led to

complacency and arrogance. As such, their promotion strategy was to “build it and they will come”, by

bringing in nearly 100 cafes with large and imposing signage: which further cemented Australian disdain for

their perceived American presumptuousness.

Service

: By expanding too rapidly, Starbucks spread itself too thin and subsequently didn’t pay enough

attention to the hiring process. In order to keep costs low, it hired students and low-skilled workers rather than

people who culturally fit the company and are passionate about coffee. Whereas by contrast, many

independent café owners work behind the bar as well, thus providing passion and expertise in every cup.

Starbucks failed to create the sense of artisanship which Australians have become accustomed to in their

café experience.

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Strategic Failures

Strategically, Starbucks made a wide range of errors that, when compounded with its marketing failings, led

to its stunning retreat from the land down under.

First and foremost, it relied on brand power and implicit consumer perceptions.

Abroad, it has enjoyed its status as the epitome of American coffee culture. However, not all societies

respond or engage with American culture as positively as others. Therefore, Starbucks was fairly unknown in

Australia at the time of its arrival, and its overreliance on brand power led to it slipping through the cracks into

anonymity. By failing to research the market and gauge consumer perceptions, they demonstrated a lack of

respect for cultural differences. In addition to completely overestimating their brand strength, they also made

mistakes in identifying their market segment. “They targeted premium coffee drinkers but their product failed

to impress the very market segment they targeted” (UNSW, 2010).

Secondly, their rapid expansion caused them to spread themselves too thin.

The resulting overhead costs meant that they had very little time to become profitable, and as such were

forced into the hugely embarrassing closing of over 60 cafes in recent years. The implication in terms of HR is

also massive, because the unsustainable expansion also meant that the hiring process didn’t receive the

delicate attention it required. In a country of coffee connoisseurs, Starbucks failed to hire the correct people

and train their baristas into being knowledgeable professionals, further hindering their strength in Australia. The

impact of their expansion also harmed their reputation, as many Australians also took a “moral stance against

the American mega-chain's invasion” (Mescall, 2010).

Thirdly, Starbucks relied on an ownership model rather than a franchise model.

This meant that it became responsible for enormous overhead costs, and while it allowed for more

management control, decisions were being made entirely in Seattle. Local franchisees would’ve shared the

cost burden and also helped create a more Australian coffee experience at Starbucks.

Finally, it can be surmised that by underestimating the impact and implications of local culture, Starbucks

failed to understand its target market and embarrassed itself in Australia. The result today is that they have

accumulated losses of $143 million, closed 60 cafes and let go of 700 employees.

N E W M A R K E T : I T A L Y

So far, the report has examined two countries with similarly nuanced coffee cultures, Vietnam and Australia,

and Starbucks’ subsequent performances in both nations, with strikingly polarised outcomes. Moving forward,

Starbucks should carefully draw on lessons from previous experiences, both negative and positive. These are

very important case studies for Starbucks when deciding to enter another coffee giant: Italy. In 2016,

Starbucks announced that they are going to open first Starbucks in Milan, Italy. Entering into a new country

should be a routine process for Starbucks; however, this time is different. Starbucks is going to enter another

country that is famous for its coffee culture around the world, with a huge existing market and numerous

independent coffee shops. Starbucks’ must demonstrate maturity and intelligence in their next move. Hence

why the CEO of Starbucks Howard Schultz commented on the way they are going to Italy, by saying “Now

we’re going to try, with great humility and respect.” This is very an important attitude especially when

compared to the arrogance they demonstrated in Australia.

In the 1980’s when Howard Schultz went to Italy, he became enthralled by the atmosphere of cafes in Italy

and the coffee lifestyle, which served as inspiration when bringing this concept to the United States and

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serves as the foundation for Starbucks’ inception. However, it does not guarantee they will fit into the Italian

coffee industry. Starbucks still need to understand there are many differences between Italy and other places

they have successfully expanded to. Food is part of Italy’s lifestyle: they prefer “slow food / fast coffee”. Italian

coffee culture is deeply rooted in the country’s history and psyche – there is even an association to protect

historic cafes. The figure below from Telegraph Travel demonstrates Italy’s coffee consumption per capita. It

also indicates that Italy has high consumption when compared with other countries in the area.

Figure 5. Coffee consumption per capita adapted from Telegraph Travel

When preparing to enter the European market, the strategy shouldn’t be to imitate local cafes, but it should

consider European heritage and coffee culture. The habits of coffee are an essential part of life in Italy. In

order to understand the European market, Starbucks had previously invested in Switzerland before moving to

Italy. As an effective taste test market in Europe, Switzerland is a country that combines many different

Europeans, including Italians, French and Germans, thus the market acceptance in Switzerland can be a

more accurate litmus test for other European countries.

Different tastes and challenges in Italy for Starbucks can be expected. Italians prefer smooth and simple

coffee. They like to have a cup of espresso in the morning instead of a cappuccino, and most of them would

balk at the thought of a ‘Frappuccino’, Starbucks’ hallmark drink. Therefore, Starbucks may not be able to

enter the market without adjusting the menu to suit the local palate, as they did in Vietnam. Another

challenge relates to prices. A cup of coffee in Italy usually cost less than $1.5 which is much cheaper than any

coffee item in Starbucks. Therefore, in the Italian market, Starbucks needs to overcome spending habits and

tastes. Another challenge is that Italian prefer independent cafes: according to Euromonitor’s survey for Italy,

there are more than 58,000 independent cafés and only 900 chained cafes there. Independent cafes are

smaller and have their own style with unique tastes and personal relationships with their patrons. Any

independent cafe reflects the needs of its community, as most of the customers are living in the

neighbourhood or working nearby. Starbucks need to know how to differentiate themselves but still maintain

their core philosophy.

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Figure 6, USDA Foreign Agricultural Service

PEST Analysis

To have a better understanding of the Italian market, the team has done a PEST analysis.

Political

Italy has a relatively stable political paradigm - they also encourage foreign investors to invest locally. Also

since Italy is one of the members of the Organization for Economic Co-operation and Development, and as

such they have signed trade agreements with other countries to avoid double taxation.

Economical

Currently, Italy is facing high unemployment with 11% and 35% for youths. Therefore, it is a good time for

Starbucks to invest in Italy to create more job opportunities. Italy is also very famous for its tourist industry.

Tourists visited Italy contributed almost 5% of GDP, and 15% of employment.(

https://www.wttc.org/-

/media/files/reports/economic-impact-research/countries-2017/italy2017.pdf)

600 cups of espresso are drunk

in Italy per capita in each year.

(

https://gain.fas.usda.gov/Recent%20GAIN%20Publications/The%20Italian%20Coffee%20Market%202010_Rom

e_Italy_12-3-2010.pdf)

Social

As mentioned before, Italy is famous all over the world for its cafe

culture. Therefore, they emphasise

professional knowledge for barista. Baristas in Italy have extensive coffee knowledge that extends beyond just

brewing coffee. Another interesting social aspect in Italy is that 75% of the coffee consumed by Italians was

drunk at home.

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Technology

Considering the long history and maturity of coffee culture in Italy, Starbuck has less technology concerns as

the existing infrastructure and supply is abundant.

Recommendations

Based on the above analysis, Starbucks should pursue a differentiation strategy in order to avoid competing

with local cafes directly. Starbucks needs to "tell a story," demonstrating that it is a high quality international

brand with cultural awareness and respect that aligns its values with Italian culture.

Areas of special consideration will be: human resources, products, distribution and target market. In human

resources, when Starbucks hire people, they have to choose people with passion that fit the company’s

culture as well as that of the Italian coffee market. Also Starbucks needs to invest more in training their baristas

to help them become real expert rather than just people who know how to make a cup of coffee. For

products, the team recommends that Starbucks should consider localized products that match the

consumer’s palate, using local premium Italian coffee beans in an effort to demonstrate the pursuit for quality

and local flavours. Also, they should consider serving smaller sizes of coffee. For the branding, Starbucks should

focus on promoting the relaxed atmosphere, which is a stark contrast to the freneticism of busy Italian cafes.

The target market for Starbucks in Italy should be students or office workers who want to meet or do their work

somewhere beside home or the office. Another potential target market would be tourists, since there are

many people visiting Italy every year. Italy receives a massive influx of tourists from the US, Japan and China,

which are Starbucks’ biggest markets. When considering distribution, Starbucks’ should invest in locations near

tourist attractions as this would guarantee footfall from tourists looking for a familiar experience. Starbucks

does not need to open many stores, only a few that are iconic and well positioned, so that they can create

demand by scarcity to generate appeal and exclusivity.

R E F E R E N C E S

Starbucks, company information, Starbucks viewed 3rd Dec 2017 <

https://www.starbucks.com/about-

us/company-information

Martinroll, 2017, The Secret to Starbucks’ Brand Success, Business and Brand leadership, viewed 6 Dec 2017

https://martinroll.com/resources/articles/strategy/secret-starbucks-brand-success/

Starbucks Corporation SuccessStory, 2017, successtory, viewed 3rd Dec 2017,

https://successstory.com/companies/starbucks-corporation-45

De Wit, B. and Meyer, R., 2010,

STARBUCKS IN US: TOO MUCH COFFEE SPILLING ALL OVER

, page 749, Strategy:

Process, content, context

. Cengage Learning EMEA, viewed 3rd Dec 2017.

Money control, Starbucks opens 100th store as it completes 5 years in India, image

http://www.moneycontrol.com/news/business/starbucks-to-open-100th-store-as-it-completes-5-years-in-

india-2419603.html

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Euromonitor , 2017 Cafe/Bars in Vietnam, Country report, viewed 2nd Dec 2017, Passport database

Starbucks, 2017, homepage, Starbucks Corporation, viewed 2

Dec 2017,

http://en.starbucks.vn/store-locator/search

Workman, D 2017, ‘Coffee export by country’ posted 6

Nov 2017, viewed 6

Dec 2017,

http://www.worldstopexports.com/coffee-exports-country/

The World Fact Book, homepage, CIA, Washington D.C., viewed 6

Dec 2017,

https://www.cia.gov/library/publications/the-world-factbook/geos/vm.html

Reuters 2013, Starbucks to open first outlet in Vietnam in early February, REUTERS, viewed 7

Dec,

https://www.reuters.com/article/us-starbucks-vietnam/starbucks-to-open-first-outlet-in-vietnam-in-early-

february-idUSBRE90203620130103

Mescall, J 2010, ‘Starbucks in Australia: Where did it go wrong?’, The Drum, ABC, Retrieved 05 December 2017,

http://www.abc.net.au/news/2008-08-07/32188

Inside Small Business, 2015. Coffee Consumption in Australia. Available at:

https://insidesmallbusiness.com.au/latest-news/coffee-a-national-obsession-which-where-when-and-how-

much

, accessed on 3 December 2017.

UNSW 2010, ‘Marketing Lessons: Whatever Happened to Starbucks’, Business Think,Business School, UNSW,

Retrieved 05 December 2017, https://www.businessthink.unsw.edu.au/Pages/Marketing-Lessons-Whatever-

Happened-to-Starbucks.aspx

Trompenaars, F., Hampden-Turner, C. (1997) Riding the Waves of Culture.

Donna Wheeler, 2010, ‘Caffeination: Australia’s Coffee Culture’, BBC Travel,

Retrieved 05 December 2017, < http://www.bbc.com/travel/story/20100803- caffeination-australias-coffee-

culture>

Starbucks Set to Rock Italy's Cafe Culture By Jennifer Askin April 30 2017

http://abcnews.go.com/Business/story?id=88256&page=1

With Humility and Respect, Starbucks Turns its Eye Toward Italy,

February 28, 2016

https://news.starbucks.com/news/starbucks-announces-it-will-open-stores-in-Italy-in-2017

Starbucks brought Italian cafe style to America. Can it bring American coffee to Italy? By

Jena

McGregor

February 29, 2016

https://www.washingtonpost.com/news/on-leadership/wp/2016/02/29/starbucks-move-into-italy-is-a-grande-

test-and-shot-for-its-brand/?utm_term=.d7d52222fc5a

Travel & Tourism Economic Impact 2017 Italy, World Travel &Tourism Council, 2017

https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2017/italy2017.pdf

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The Italian Coffee Market 2010, USDA Foreign Agricultural Service 2010

https://gain.fas.usda.gov/Recent%20GAIN%20Publications/The%20Italian%20Coffee%20Market%202010_Rome

_Italy_12-3-2010.pdf

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