Can Starbucks Do Well In A Land That Gave Us Espresso?

by Trefis Team
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Starbucks (NASDAQ: SBUX) opened a Starbucks Reserve Roastery in Milan, its first store in Italy, 20 years after it established its presence in Europe. In the interim, it has grown to more than 3,100 stores in 40 countries across Europe, the Middle East, and Africa. Its Milan store, on the other hand, marks the first time the company has commenced operations in a country with the Roastery format, of which only two are present at the moment – in Seattle, where its headquarters are located, and in Shanghai. The company has also announced plans to open more cafes with licensed partner Percassi, beginning late 2018. The country presents a unique challenge to Starbucks as the coffee culture is very different from most other countries.

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Starbucks’ Goal To Elevate Its Brand

Starbucks, no doubt, has high expectations from its Roasteries, which are expected to drive the average spend per customer. Its Seattle Roastery, opened in 2014, still reports double-digit comps growth. Meanwhile, on its first day of operation, in December 2017, the Shanghai Roastery became the highest grossing Starbucks store in the world, averaging more than double the number of transactions of its Seattle counterpart, and with an average ticket of $29. In its second quarter conference call (period ended March 2018), the management reported that the customer traffic continued to exceed expectations, and that the average ticket was three times that of a typical Starbucks China store. In response to the exceptional performance of its Roasteries, the company decided to open additional stores with this concept – Milan, New York (expected to open in November), and one each in Tokyo and Chicago in 2019.

The Italian Conundrum

While a typical Starbucks coffee would cost roughly $2, the starting price for a cup of coffee at the Roastery is twice that, with prices going up to as much as $10 to $12. Even an espresso, which would go for a little over $1 in a regular Italian cafe, would be priced at double that. Starbucks coffee, made with a copious amount of milk, is also not the type that most residents would go for. Typical Italians also drink their coffee quickly at a bar, while it is the tourists who mostly occupy the tables. Given all these cultural differences, Starbucks is focusing on the local preferences, by excluding frappuccinos, and concentrating on espresso, made-to-order ice creams, and pizzas. The company is also hoping its cocktail bar will draw in customers. While it is a big risk entering the country, where it has to compete with more than 57,000 other cafes, the store may do well with younger Italians, as the company is a big enthusiast for making cafes where customers are encouraged to work and socialize. The place may also be popular with tourists. Although pretty unthinkable at the moment, given the success of Domino’s Pizza in Italy, Starbucks may actually end up doing well there.

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