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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 into São Paulo, Brazil. Introduction and Company Overview
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“We’re not in the coffee business serving people. We’re in the people business serving coffee." Howard Behar, President of Starbucks International
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 EthosTM Water Starbucks DuettoTM Visa 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 district 2. Main business district 3. Cultural District 4. 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
Finances • Critical 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
Finances Coffee Shop Setup
Finances Break-Even Analysis Break-even Point = $18,200
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