Starbucks Coffee Company was founded in 1971 in Seattle, Washington State. It was established by three entrepreneurs Jerry Baldwin, Professor of English, Zev Siegel, professor of history and Gordon Bowker, writer. The name Starbucks comes from "Starbo," a nineteenth century mining camp of Mount Rainier, recalling the character of Herman Melville novel, Moby Dick (Clark, 2007). This paper will try to shed light on the expansion of Starbucks Coffee Company in France.
Impact of Global Macro Environmental Variables
There are several global macro environmental factors which can influence the success of Starbucks in France, some of which will be discussed in this report.
In 2004, the first Starbucks store opened its doors in Paris. Since then, the specialty retailer of coffee has grown to offer the Starbucks experience to more than 10 million consumers in 53 coffee shops in Paris and Lyon. The company has 900 employees, including 200 staff supervision. However, since beginning, Starbucks has not managed to get the expected returns and it seems that the formula of the brand does not appeal to Parisians.
The high price of coffee (€4 to €8) is not appropriate for most of the customers. 80% of coffee at home, consumed before 14 hours. So, except on weekends, Starbucks in France experiences deserting chairs in the afternoon. In France, the giant also faces a competitor which does not exist in other countries, the "neighborhood bistro".
In addition to that Starbucks success attracts many lusts. The company has always counted many competitors such as Peet's or The Coffee Bean & Tea Leaf in the United States. But recently, the major fast-food chains like McDonald's, Burger King etc. starting to open up their own Coffee shops. The main competitors in France are Mc Quick Coffee and Mc Café. The success of Starbucks differentiates Starbucks Coffee including more affordable prices (between €2 and €3 on average against €4 to €8 at SC, smaller, served in a real cup of coffee.
Thus, so far Starbucks compensated losses of failure in France (4.1 million loss in 2008) by the huge profits made by the United States, but since 2009 the activity flexes in the United States, 600 shops were closed which is 70% of shops opened less than two years ago and saw a drop in earnings of €210 million (28%) in 3 years (Michelli, 2012).
Starbucks’ customers are much younger and more feminine than in traditional cafes. It has modern and mobile customers aged between 25 and 45 years. These clients can come to a "coffee break" in these stores. However, the family values and coffee tradition of France is different, that is Starbucks feels difficulty to create customer loyalty among Parisians.
Unlike other brands, some of which are direct competitors, as McDonalds, Starbucks does not offer franchise agreement. However, the desire to keep total control on all brands and therefore maintains the same quality but also optimum appears to be a more explicit reason. In fact, grant a franchise is to take the risk of calling the reputation and brand image in foreign hands that could deteriorate the more or less important.
Yet the siren known brand make exceptions if this is actually profitable. In fact, Starbucks has partnered with several other companies to include locations in places which otherwise would have remained unattainable. This combination allows Starbucks to locate in a new country by reducing the risk since the initial investment is less. It may be noted here that Starbucks uses only 1% of its budget for advertising and communication to make themselves known. In comparison, advertising budget of its competitors is generally 10%. Starbucks relies primarily on word-of-mouth to make themselves known; but this strategy does not prove fruitful in France.Starbucks in foreign territory is a green island. It is a comfort zone where the customers can spend hours; nevertheless, it does not work in France.
Since its arrival in France in 2004, the American chain practiced tax evasion to avoid paying income tax. However, the economic results revealed that the group has a turnover of over 72 million Euros in 2011, up 12% compared to the previous year. In 2004, during the first year, the turnover of Starbucks Coffee in France was 4 million. Despite this dynamic, the company said in 2004 not to make profits in France and displayed losses in 2011 amounted to €2.5 million. A surprisingly poor financial situation found in several subsidiaries in Europe, including the UK. This observation has led the media to investigate and it is discovered that the company had not paid corporate taxes in fifteen years. To do this, Starbucks uses tax optimization, a common practice of large international companies, which amounts to the legal tax avoidance. The French subsidiary used the same springs for ten years to avoid taxes.
This is for a company to establish subsidiaries abroad and their charge a number of services. If the price of these services is artificially increased, we can get rid of tax revenue and provides the chance to Starbucks to transfer part or all of the company's profits to countries with the most attractive tax. However, the transfer prices are supposed to be set according to the principle of full competition, that is to say, they should not be greater than the average market price. This check is the responsibility of the French tax authorities. But some transfer pricing are not estimable, such as when they are on the mark. Thus the French subsidiary would repay 6% of its sales to its parent Starbucks EMEA, located in the Netherlands, for the use of the mark.
The artificial inflation of prices can partly understand why the French subsidiary displays 39.5 million Euros of external loads, slightly more than half of its sales. Finally, Starbucks Coffee France pays nearly $ 74 million of charges, allowing it to declare a deficit of EUR 2.5 million in 2011.
Politics, has affected the success and growth of any business by affecting the decision-making processes as revealed by the studies of decision-making. France is a politically stable country which is distinguished by a governance model based on development. The advantages offered by the environment of France are political and social stability, which is essential to any development, a favourable geographical environment, which gives access to a huge market and enormous potential.
Thus, as far as the political situation of France for Starbucks is concerned, it is positive for Starbucks. The main raw materials used by Starbucks that are critical to its operation are coffee beans, fresh milk and whipped cream. However, high taxation imposed on the farmers has increased the raw material cost for Starbucks and this is one of the major reasons why Starbucks coffee is so expansive.
The eating out market of France is a market of diversity, both in places and types of restorations from around the world with highly specialized segmentation. It is also a highly concentrated market dominated by commercial chains, with the presence of large companies and groups with support and financial resources to support major developments. The budget of eating out has been increasing continuously and despite the difficult passage of recent economic meltdown this sector began to show signs of recovery in early 2010. The market for food service in France in 2008 represents a market of 72 billion, or 3.7% of the productive activity of France. These 72 billion correspond to the consumption of almost 9 billion of benefits (Simon, 2010).
Thus, in other words, the economical condition is very favourable for Starbucks coffee. However, various food scandals that hit France and Europe in recent years have their share of responsibility for the legitimate concerns of a growing number of consumers. With a sense of timeliness, the market for Starbucks Coffee is riding the wave of suspicion that affects its market position.
The image of the company is critical to ensure proper functioning of its product. As majority of consumers see in Starbucks a charismatic brand able to sell a quality product or at least to pretend to be a quality product while providing a place welcoming enough to make customers want to stay. If the company continues its strong branding in France, it will keep a trademark which distinguishes its competitors and maintain its identity in the minds of its customers (Schultz & Dori, 2009).
In addition to its "coffee shops", Starbucks wants to touch more consumers to their home, with drinks sold in supermarkets, and, more recently, the arrival of a machine capsules before perhaps new launches. With this diversification Starbucks has entered into the dance machines and coffee pods, with the launch of its own system, called Verismo. This movement does not really aim to compete with Nespresso, but rather to provide an opportunity for patrons to enjoy Starbucks home typical drinks like Caffè latte.
The American brand and its short, long and flavored coffees are more than 17,000 "coffee shops" in the world, but do not intend to limit itself to the network. To disseminate its brand image positively, the chain decided to expand opportunities for meetings between the brand and consumers, in France, where the reputation of Starbucks remains largely developed, with a vast majority of Parisian location for the 76 locations.
With the democratization of the Internet, consumers can have a variety of information on politics, business strategy. They can also view the locations and new products that offer market participants.
Technological changes can provide better performance and better service. Starbucks is especially pay attention to the social influence. The influence of technology is the lowest since Starbucks operates in a priori sector having little exposure to technical developments. Of course the company derives profits from some innovations, but these changes do not affect the process of coffee processing in the raw state, the state of consumable beverage.
In addition, the brand seeks to attract more customers through a notion of ever greater ease and the establishment of a free and unlimited Wi-Fi access in many chain restaurants is meant to make the brand even more attractive.
The concept is the same: a selection of coffee and chocolate very important, available at all hours, consumables on or off the premises, in cardboard glasses that preserve heat. Mark the ark yellow even try to parry a major criticisms that are made to its direct competitor offering cheaper products.
The legal position is not very favourable for Starbucks, as the company found to be involved in tax evasion through tax optimization for which it has to pay the penalty.
Starbucks has to be careful in this regard because the customers of Starbucks coffee create lot of waster while France is much more sensitive about waste management than United States.
Impact of Culture
The group took more risks to settle in France. Firstly, the chains like Columbus were already present in the area since 1994. In addition, Starbucks locations are non-smokers, the French have a habit of drinking their coffee while smoking a cigarette. No French group was agreed to form a joint venture or a license with Starbucks. To settle in France, Starbucks had to form a joint venture with Spanish Grupo Vips (Behar & Goldstein, 2007).
The model of Starbucks is too American which is not suitable for the French market. The French love black coffee, strong and kind but Starbucks offers too many choices of coffee (Caramel Macchiato, Mocha White, Con Panna Frappuccino ... Vanilla or chocolate, with different sizes (large, medium, small). Americans eat at every 2 hours and drink coffee while walking; on the other hand, French focus on large meals and stay to drink coffee.
Custom of Starbucks is that every bartender asks the client's name, natural for the Americans, the French mind that familiarity. More anecdotally, France is the only country where the Starbucks replace its ceramic mugs for coffee drink served on site with simple cardboard cups normally reserved for takeaway because customers had a bad habit of "starting with the mug”.
Thus, it is all about the French culture that is hard to accept the American model. In France people coffee in small quantities; this is what French people call the espresso or Express Paris. Starbucks, offers mugs of various sizes with the smallest is the size of a hiking water bottle. The concept of takeaway coffee is also struggling to pass, the Anglo-Saxon love to drink their coffee anywhere, in the elevator, bus, subway, in the street, while the French prefer sitting and discussing at the same time.
The design of Starbucks chairs, although sympathetic, failed to dethrone the traditional local cafe. One of the advantages of Starbucks was to be a non-smoking place. This advantage is ironically partly smoked with the law banning smoking in bars.
One of the successes of Starbucks is to have transformed the contradiction of “third place” marketing bonanza. Starbucks set up an atmosphere of "third place" scale. Art highlighted (the term "art" is certainly somewhat usurped), music, new ingredients in France, newspapers and prestigious journals: the consumer is connected with the art world, politics, business, and can engage in conversation (Fifield, 2007).
The objective of Starbucks, through the Third Place concept, was to create a close link with the consumer who feels "almost like home." Including this new experience around the consumption of coffee, product development and pricing, as well as dissemination of coffee consumption to the people who previously were not fond of it, seems a good marketing strategy of Starbucks under French culture. The coffee culture is very strong in France and if Starbucks is able to "educate" some consumers and awaken their taste for coffee then it will compete in the market.
How to identify the potential of the Market
With the advent of web 2.0 a new wave of corporations like Google, Digg, Facebook, YouTube has emerged whose business model entirely depend on the collective intelligence of the users of Internet and which can be used to understand the marketing potential of a new market. This new trend of technology not only influences the consumers but it also affects the enterprises. Different scholars have shown that collaborative work and the level of tacit interaction has significantly increased (Beardsley, Johnson & Manyika, 2006).
The communication ventures that have been explored by the diverse applications provided by Web 2.0 particularly pose rampant development and progress in the sector of social media which have facilitated the promotion and fostering frontiers (Reactive, 2007) that actually facilitate interactive information sharing, interoperability through which a large number of different and diverse units that are under operation in an organization are able to consolidate their functions in the form of a single unit and entity and a centralized design that has been made for user convenience. In addition to this other prominent examples that can also be considered an outcome of the applications provided by social media include the communicative ventures that can be explored with the help of blogs, mashups and folksonomies. It has been estimated that people who are posting comments and contents on web are growing at a steady and rapid pace.
O’Reilly (2005) is of the opinion that after amalgamating its operations with the dynamic nature of social media, the use and application of web 2.0 has also increased extraordinarily since it has become a pivotal marketing tool for small and large scale entrepreneurs who intend to advertise their products and services with the help of social media websites like Facebook, twitter and Linkedin. However on the flip side there are also some disadvantages that need to be considered in the entire scenario (Zeervas, 2007).
The marketing activities of companies and communication have gradually getting pace, all of which claim that a user would be the center of all the activities. Certainly, this indeterminacy of the term helped to establish its use. From this point of view, the merit of the social media is its vagueness. It is a true "potluck" that everyone can contribute, even if these contributions are different, even in opposition. The fact is that a virtual world is trying to fit into the category of social media. This desire for assimilation to social media is also a desire to defend the image of the economic actor, not only from users but also from investors and other financial players.