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
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
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
Finances
Break-Even Analysis
$150
Net Earnings (in $1000s)
$100
$50
$0
1 2 3 4 5
-$50
-$100
YEAR
Break-even Point = $18,200
Finances
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
REVENUE
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?
