International Business Strategy: Starbucks Corporation

International Business Strategy: Starbucks Corporation

“We’re not in the coffee business serving people.

We’re in the people business serving coffee." Howard Behar, President of Starbucks International

STARBUCKS Expansion intoSão Paulo, Brazil

Introduction and Company Overview Starbucks Products and Ventures Why Expand into Brazil? Starbucks’ Expansion Philosophy Mode of Entry Finances Conclusion

Introduction and Company Overview Starbucks Products and Ventures Why Expand into Brazil? Starbucks’ Expansion Philosophy Mode of Entry Finances Conclusion

Introduction

• Starbucks strives to become the most recognized and respected coffee retailer in the world

• Expansion of international operations is key to furthering Starbucks’ position in the coffee industry

Company Overview

Starbucks History:

• Founded 1971 in Seattle, WA• Named after first mate in Moby Dick• Early on roasted and sold coffee beans• 1980s began selling coffee by the cup

Company Overview

Starbucks History:

• 1987 - Howard Schultz bought Starbucks• Schultz introduced the “Starbucks Experience”• 1992 - 165 locations nationwide• 1996 - International expansion began

Company Overview

Starbucks Today:

• $6.4 billion in revenue• Serving over 35 million patrons• More than 7,500 shops in the US• Operating 3,000 plus shops in 36 foreign countries

Introduction and Company Overview Starbucks Products and Ventures Why Expand into Brazil? Starbucks’ Expansion Philosophy Mode of Entry Finances Conclusion

Starbucks Products

• STARBUCKS stores offer regular and decaffeinated coffee beverages, teas, pastries, muffins, and other breakfast foods

Starbucks Ventures

Starbucks DuettoTM VisaEthosTM Water

Starbucks Frappuccino® Starbucks ice cream

Introduction and Company Overview Starbucks Products and Ventures Why Expand into Brazil? Starbucks’ Expansion Philosophy Mode of Entry Finances Conclusion

Why Expand into Brazil?

• Strong coffee culture

• Favorable political climate

• Large Economy

• Other American corporations’ success

Strong Coffee Culture

• Coffee has been harvested since the early 1700’s

• “Café Mana” – Morning Coffee

• Largest producer of coffee beans; twice as much as the 2nd runner up - Vietnam

• Soon to be the 2nd largest consumer – behind the U.S.

Favorable Political Climate

• Democratically elected President

• Strong diplomatic ties with the U.S.

• Current president’s focuses on economic expansion and encourages foreign investment

Large Economy

• Largest economy in South America

• GDP approximately 620 billion and growing

• 5th most populated country in the world

• Over 186 million people

American Corporate Success in Brazil

• Coca Cola – 1940’s

• McDonald’s – 1960’s

• Most American Corporations outside U.S.

Introduction and Company Overview Starbucks Products and Ventures Why Expand into Brazil? Starbucks’ Expansion Philosophy Mode of Entry Finances Conclusion

Starbucks’ Expansion Strategy

• Wheel and Hub expansion method

• São Paulo will be the hub

• Spoke out into the rest of Brazil and beyond

Introduction and Company Overview Starbucks Products and Ventures Why Expand into Brazil? Starbucks’ Expansion Philosophy Mode of Entry Finances Conclusion

Mode of Entry

• Foreign Direct Investments

• Licenses

• Joint Ventures

Mode of Entry

Joint Venturing with

Mode of Entry

• World’s second largest retailer

• 7,000 stores internationally

• Creator of hypermarket

• 99 hypermarkets in Brazil

Mode of Entry

Carrefour has:

•Strong brand name recognition

•Readily available resources

•Massive distribution network

Mode of Entry

• Targeted Hypermarket locations in São Paulo

1. Downtown district2. Main business district3. Cultural District4. Shopping District

• Focus on working professionals

Introduction and Company Overview Starbucks Products and Ventures Why Expand into Brazil? Starbucks’ Expansion Philosophy Mode of Entry Finances Conclusion

Finances• Carrefour 50% <> Starbucks 50%

• $350,000 loans•Retrofit coffee shop in hypermarket

•Equipment and beginning inventories

• $100,000 infusion to sustain early operations

FinancesCritical Assumptions:

• Sustain growth of 20% per year - 1st five years

• Brazilian inflation hovers around 6-7%

• Capital obtained at 10% for 7 years

• Equipment life at least 5 years

FinancesCoffee Shop Setup

DESCRIPTION COST Notes

Building retrofit labor $89,000 Approx 40 man-weeks labor

Materials $91,000 Includes walls, bathrooms, plumbing, and counter construction

Furniture and displays $58,000 Tables, chairs, couches, displays cabinets, etc.

Equipment $76,000 Coffee/espresso makers, utensils, pastry warmers, ovens, etc

Setup inventory $36,000 Coffees, filters, supplies, pastries, etc

Operating capital $100,000 50% investor, 50% Starbucks

TOTAL $450,000

FinancesBreak-Even Analysis

Break-even Point = $18,200

-$100

-$50

$0

$50

$100

$150

1 2 3 4 5

YEAR

Net

Ear

nin

gs

(in

$10

00s)

Finances 

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011REVENUE

Beverage Sales $ 184,900 $ 235,193 $ 299,165 $ 380,538 $ 484,045

Foodservice and other $ 11,094 $ 14,112 $ 17,950 $ 22,832 $ 29,043

TOTAL SALES $ 195,994 $ 249,304 $ 317,115 $ 403,370 $ 513,087

Cost of Goods Sold $ 30,960 $ 39,381 $ 50,093 $ 63,718 $ 81,049

Gross Margin $ 165,034 $ 209,923 $ 267,022 $ 339,652 $ 432,038

Operating Expenses $ 254,160 $ 242,384 $ 253,021 $ 264,509 $ 276,386

Income before Taxes $ (89,126) $ (32,461) $ 14,001 $ 75,143 $ 155,652

Income Taxes (38%) $ - $ - $ 5,320 $ 28,554 $ 59,148

Net Earnings $ (89,126) $ (32,461) $ 8,681 $ 46,589 $ 96,504

Finances• Project Losses in Years 1 and 2

• Break-even in Year 3

• Profit Margin Projections• 14% in Year 4

• 22% by Year 5

Introduction and Company Overview Starbucks Products and Ventures Why Expand into Brazil? Starbucks’ Expansion Philosophy Mode of Entry Finances Conclusion

Conclusion

• Most respected coffee retailer in the world

• International expansion is key to success

• Brazil is the next market to enter

• Partner with Carrefour

• Projected strong profitability by Year 5

Questions?