How Starbucks Downsizing Affects Global Strategy
Starbucks, America’s most popular coffee, is attempting to become the World’s most popular coffee. The credit crisis in the United States has forced Starbucks to close 600 coffee shops across the United States. This economic downturn in the United States has pushed many companies to look to new international markets. At the same time Starbucks is closing stores in the United States it is opening 1,000 worldwide. Starbucks is now looking to Asia to expand. Americans experiencing the financial crunch are cutting back on luxury items; a four dollar coffee is one of the first items on the list.
Starbucks has over 16,000 stores worldwide, 11,000 of those stores are located within the United States. “Starbucks expects that within three years, more than 40% of its outlets will be outside the U. S. , compared with 29% today, with a planned 3,500 foreign openings from 2009 to 2011. ” (Matlack, 2008) Of the 11,000 stores approximately two-thirds of the stores are wholly owned by Starbucks and the rest are licenses or partnerships, meaning that Starbucks has more risk involved in the majority of stores in the U. S. While overseas the situation is reversed and Starbucks has less risk involved and Starbucks makes money even if the store is not. In 2009, Starbucks was forced to close 600 stores in the United States. This will cause 12,000 employees to be laid off the most in the company’s history. “Stores earmarked for closure are those locations identified by Starbucks as unprofitable at the store level and not projected to provide acceptable returns in the foreseeable future. (Waite, 2008) Not as many Americans can afford the expensive luxury that Starbucks offers causing the decline in profits. This decline has forced Starbucks to look abroad. Moving into the Chinese market has not been free of obstacles for the Seattle based company. Starbucks opened a store in the Forbidden City in 2000, and was forced to close in 2007 by an online campaign led by Rui Chenggang, an anchorman for China’s biggest TV network.
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Cultural differences need to be addressed moving into the Chinese market, which is a predominantly tea drinking society. Howard Schultz said the company was looking at new ways to tailor the menu to local tastes, as US fast food chains have done. It was also seeking to buy equity from Chinese partners. Starbucks first entered the Chinese market in the late 1990’s by partnering with mainland and Taiwanese food and beverage companies. (Yeh, 2006) Starbucks is also offering a new flavor coffee from a bean grown in the Yunnan.
Starbucks needs to flourish in the international market or face future losses in the United States. Sales are declining in the U. S. , but the companies profits are still largely from the area. If Starbucks can cater its product to the Eastern culture it can make a lot of profits in China. So many people live in China and don’t drink coffee. If Starbucks can create a desire with marketing and product placement the sales could sustain the company through the tough economic times in the United States.
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