Starbucks in Brazil Group 3 Lauren Fanuzzi, Sarah Greer, Edward Haddock, Jaime Lopez, Clarice Ma, Amer Syed, Saquiba Syed, Raymond Tenorio

Overview Premier roaster, marketer and retailer of specialty coffee in the world. Based in Seattle, Washington, Starbucks is the largest coffeehouse company in the world, with 19,435 stores in 58 countries.

Overview Starbucks purchases, roasts and sells high-quality whole bean coffees, along with handcrafted coffee and tea beverages and a variety of fresh food items, through company-operated stores. sells retail, wholesale and licensees their trademarks through other channels licensed stores, grocery and national foodservice accounts. Starbucks brand includes Tazo Tea, Seattle’s Best Coffee , and Starbucks VIA Ready Brew.

Specialty Eateries Industry Industry Competitors Specialty Eateries Industry

Market share

Global yet local Starbucks’ objective is to maintain them selves as one of the most recognized and respected brands in the world. To achieve this goal: Disciplined in the expansion of the retail store base, primarily focused on growth in countries outside of the US. Transnational Strategy - Leverage Local knowledge and resources focused on local needs and preference, global demands, and cross-border learning in overseas operation

Global yet local First introduced internationally via Canada 1996 first retail store in Toyko, Japan. 1998 Starbucks entered the U.K. market with an $83 million acquired UK-based Seattle Coffee Company, re-branding all 60 stores as Starbucks. 2003, Starbucks completed the purchase Torrefazione Italia 6,400 locations worldwide store in Peru and Guatemala 2006, Starbucks enters Brazil

Why Brazil Strong coffee culture Favorable political climate 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. 93% of the Brazilian population is regular coffee consumers Favorable political climate Democratically elected President, Strong diplomatic ties with the U.S. Current president’s focuses on economic expansion and encourages foreign investment (source: www.abic.com.br).

Why Brazil Large Economy- Largest economy in South America 2006 GDP (official exchange rate) was $943 billion 2011 est. GDP (official exchange rate): $2.518 trillion 5th most populated country in the world Over 186 million people https://www.cia.gov/library/publications/the-world-factbook/geos/br.html http://internationalbusiness.wikia.com/wiki/Brazil%27s_2006_GDP_Defined

Why Brazil Other American corporations’ success Coca Cola – 1940’s McDonald’s – 1960’s

Weaknesses Most obvious weaknesses for Starbucks market in Brazil would be that they do not exist No current research from the Specialty Coffee Association of America, or other coffee companies doing business in Brazil Starbucks is dealing with a country that is very traditional Weaknesses As with any new idea, one must consider both the obvious and the subtle areas of marketing vulnerability. One of the most obvious weaknesses for Starbucks market in Brazil would be that they do not exist. It is the South and Central American countries that provide Starbucks with coffee beans along with all the other specialty coffee companies in the United States. It is understandable that these countries are probably not the most likely for coffee companies, of other countries, to invest in their markets. The fact that there is no research from the Specialty Coffee Association of America, or other coffee companies doing business in Brazil can make it very expensive for Starbucks. A tactic to overcome this is to develop roasting and distribution processes in Brazil to avoid importing and exporting associated costs, thereby reducing costs while continuing the product offering of neighboring countries. Another weakness for Starbucks is dealing with a country that is very traditional. Researching a countries culture is one of the most important factors before “starting up shop.” What is the success rate of any other American beverage product in that country? Like many other South American countries, new products are foreign as well as expensive and Brazilians may not find themselves susceptible to change, or opt to purchase specialty coffees. Extensive and appropriate research that determines the appropriate Brazilian niche can combat this weakness.

Opportunities Building brand loyalty and adjusting the pricing structure to align with the culture Coffee is not the most popular beverage of the people, Guarana, a beverage produced from dried berries, water, and sugar is. Brazil manufactures one-third of the world’s coffee beans, shortened supply chain Brand/Customer loyalty will ultimately drive long-term, profitable customer relationships. Starbuck’s has identified and created opportunities around the world. Doing business in Brazil requires time and building relationships of trust. Since Brazil manufactures one-third of the world’s coffee beans, the supply chain can be shortened. Instead of shipping beans from Brazil and other South and Latin American countries to the United States, Starbucks should build its own roasting plant and distribution facility in Brazil. Despite it’s popularity, coffee is not the most popular beverage of the people. It is Guarana, a beverage produced from dried berries, water, and sugar. Brazilians have historically consumed their coffee, strong, thick, and simple. It will be an opportunity to introduce the various and sweeter tastes of Starbucks various coffee drinks to the Brazilian market. Coffee in Brazil has long been inexpensive and readily available at the price of pennies. Brazilians drink coffee at home, in restaurants, cafes, even in tiny villages. Thousands of coffee vendors line the streets of Rio de Janeiro, Sao Paolo, and other large cities. For example, Starbuck’s challenge is to convince an entire market that paying 3 to 4 dollars per cup is normal. Starbuck’s must change the Brazilian consumer’s perceptions of value. Building brand loyalty and adjusting the pricing structure to align with the culture, especially during the initial product offering, can achieve impact the perception of value. Regardless of the business, brand loyalty is the fundamental building block to ensure an organization’s long-term success. According to Starbuck’s Chairman Howard Schultz (2002), Starbuck’s understands the significance of building brand loyalty. It begins with a commitment to the business philosophy that your customers are precious. Customers are at the heart of the business and winning their loyalty is your first objective. The customers have many choices for beverages and will dictate what they want, why they need it, and how they want to do business with Starbucks. Success can only be gained by listening. Customer loyalty will depend on Starbuck’s ability to understand and cater to the needs of the Brazilian people. Brand loyalty will ultimately drive long-term, profitable customer relationships. Customer loyalty will depend on Starbuck’s ability to understand and cater to the needs of the Brazilian people.

Threats Starbucks must identify a pricing structure that is profitable, differentiates Starbucks from any other cup of coffee, and is still economical in the Brazilian marketplace. Finding the right unique product offering that is just similar enough to Guarana, is another task at hand to ward off potential threats. One of the last threats to anticipate is competition. Starbucks spent four years researching the market in Brazil -- the planet's No. 1 coffee producer and second-largest consumer after the United States -- before opening two locations last Thursday in an upscale mall in Sao Paulo. Price could be an issue. Italian-style espresso - generously consumed by Brazilians before work, during breaks and after lunch and dinner - costs about 68 cents. A Starbucks espresso in Brazil will cost $1.27. Once the Starbucks craze catches on, there is always the potential threat of copycats. Copycats coffee houses are no stranger to Starbucks history. Nonetheless, Starbucks almost always prevails.

Major Competitors Cafe do Ponto-sells 92 cups of coffee a minute at its 86 cafeterias Fran's Café - 80 outlets, serves a wide range of snacks plus premium beers at happy hour Santo Grao – sophisticated concept coffee cafe & bistro at standards set by Parisian and Buenos Aires establishments. Each has created their own coffee blends from the country's finest grains. Cafe do Ponto, Fran's Cafe and Santo Grao have one thing in common: Each has created their own coffee blends from the country's finest grains. Cafe do Ponto sells 92 cups of coffee a minute at its 86 cafeterias. [www.cafedoponto.com.br. Fran's Cafe meanwhile pours 900,000 cups of coffee a month at its 80 outlets. Its cafeterias Leadina the way through gastronomy also serve a wide range of snacks plus premium beers at happy hour. Guests can relax on chairs, tables or stools in these three cafeterias. [55] (11) 5056-0043. www.franscafe.com.br. Santo Grao, however, made the concept of enjoying coffee even more sophisticated by opening a cafe & bistro at standards set by Parisian and Buenos Aires establishments.

Decision Starbucks creating a presence in the Brazilian market place is ideal. The financial perspective, Starbucks coffee shops are sprouting on every street corner in our part of the world, it is inevitable that it will do the same around the world and especially, in Brazil. These benefits financially outweigh the risks. Overall Risk Factor Brazil, Vietnam, and Colombia account for more than 50 percent of world exports of green coffee. Starbucks creating a presence in the Brazilian market place is ideal. From a political aspect, the country has renewed leadership strength. Economically, foreign investment is increased. The new president’s goals are to keep inflation down and decrease the national deficit. Export is good. The Brazilian Real is low compared to the U.S. dollar. This is advantageous for Starbuck’s to fund business growth in Brazil. However, the devaluation of the Real also means that Brazilians will have a difficult time paying premium prices for Starbuck’s products. Sourcing beans and raw materials in Brazil will be financially opportune for Starbucks. From an economical and environmental perspective, Starbucks can help Brazilian coffee growers zero in on better premium beans in a ecologically improved environment. From a financial perspective, Starbucks coffee shops are sprouting on every street corner in our part of the world, it is inevitable that it will do the same around the world and especially, in Brazil. These benefits financially outweigh the risks.

Mode of Entry Joint-venture Cafes Sereia do Brasil Participacoes S.A., a Brazilian holding company First location in Sao Paulo, Brazil at high end shopping district, Shopping Morumbi - In Sao Paulo, the level of education tends to be much higher than in other regions of Brazil. Used Cafes Sereia's local leadership to control the operations They were able to leverage their existing revenue/client base for expanding Starbucks in the country About Cafes Sereia do Brasil Participacoes S.A. For approximately 30 years, Maria Luisa and Peter Rodenbeck, Cafes Sereia do Brasil Participacoes' principals, have been at the forefront of bringing and leading several international brands in Brazil. Prior to joining Outback Steakhouse Brazil as chief financial officer, Maria Luisa was actively involved in the hospitality industry with leadership positions at United Airlines and American Airlines. Peter is renowned for having successfully introduced McDonald's and Outback Steakhouse to the Brazilian market. Alsea S.A. de CV., a leading operator of recognized global brands in Latin America, is an equity holder in Cafes Sereia do Brasil (Starbucks Brasil). Alsea is the leading Mexican restaurant company operating Starbucks, Dominos Pizza, Burger King, Popeye's Chicken & Seafood Grill & Bar in Mexico with more than 800 locations. Together with Starbucks Coffee International, Alsea began offering the Starbucks Experience to customers in Mexico in September, 2002. Alsea's extensive experience in introducing global brands to Latin America includes bringing Dominos Pizza to Brazil and Burger King to Argentina and Chile. The company stock is traded in the Mexican Stock Exchange under the symbol ALSEA*.

Mode of Entry Maria Luisa Rodenbek-principal 30 yrs local experience, responsible for growing the brand and the operations in the country.    Peter Rodenbeck- principal Successfully introduced McDonalds and Outback Steakhouses to Brazilian Market Maria Lusia- was able to use her knowledge of the Brazilian market to expand starbucks, with their first stores in Sao Paolo.  Prior to creating Starbucks Brazil, Maria Rodenbeck also help to introduce other international retail brands into the market, two of which were McDonalds and Outback Steakhouse. For approximately 30 years, Maria Luisa and Peter Rodenbeck, Cafes Sereia do Brasil Participacoes' principals, have been at the forefront of bringing and leading several international brands in Brazil. Prior to joining Outback Steakhouse Brazil as chief financial officer, Maria Luisa was actively involved in the hospitality industry with leadership positions at United Airlines and American Airlines. Peter is renowned for having successfully introduced McDonald's and Outback Steakhouse to the Brazilian market.  By using local talent Starbucks was succesful in penetrating and expanding the Brazilian market.  The were very little expats used in the operational leadership team, most were local.  Starbucks Brazil had only one non-local oversight wich was the Starbucks Latin American President.

Transnational Strategies Transnational Strategy Financial Positioning Localization Management Social Operations strategy In order to open a new retail store in a new market (in this case, a new country), Starbucks Corporation first seeks an investor, usually within that country. This investor will need a sum of money that is sufficient enough to open up at least one retail store (can be anywhere from $10 million to $20 million), and is considered a ‘franchisee’ until a certain point of profitability. Once the retail store(s) start reaching acceptable profit margins, Starbucks Corporation buys the ‘franchise’ from the investor for a price well above his initial investment. There is no possibility for the investor to keep the retail stores as his franchise for this is prohibited by Starbucks Corporation. It is either great success (great profitability, ‘franchise’ buyout) or complete failure (little or no profitability, close stores) for the investor and the corporation. The corporation can wait two or more years in order to see sufficient profitability before it decides what to do. Source: Fiscal 2011 Annual Report

Financial Average 3 year till B/E/P buyout JV partner at 5th year or when profitable Starbucks acquired 100 % ownership of Cafés Sereia do Brasil Participações S.A., which operated 24 stores at the time throughout Brazil.

Positioning Actively involved within the community even before their stores opened in Brazil teamed up with Everybody for Education held a fundraising event to help build a local Brazilian school’s library Built personal relationships with community involvement Our report suggest that Brazilians are not very fond of globalization (and foreign companies) in general and American influences in particular. Has Starbucks done anything to overcome this liability of foreignness? Are they positioning themselves as an American brand, as a global brand, or as a Brazilian brand? How do their community involvement efforts in Brazil support their positioning? In order for companies to build a strong presence in Brazil, they need to invest time in developing relationships. According to the United States Department of Commerce, one of the best ways to enter Brazil’s market is to work with a qualified agent or establish a joint venture. Starbucks eased into the Brazilian market by forming a joint venture with Cafés Sereia do Brasil Participações S.A and created Starbucks Brasil. Starbucks also became actively involved within the community even before their stores opened in Brazil by teaming up with Everybody for Education and held a fundraising event to help build a local Brazilian school’s library. By forming a joint venture and building personal relationships with community involvement, Starbucks was able to overcome liability of foreignness.

Local Customization Offers items that are popular in Brazil “pao de queijo" (balls of bread with cheese in the dough) stronger, extra-roasted "Brazilian blend" coffee made from locally sourced beans tweaking the traditional cappuccino with a “doce de leite” (a traditional Brazilian cream made out of milk and sugar) Starbucks is positioning themselves as a global brand and adjusting to some Brazilian food/drink norms by customizing their menu to offer items that are popular in Brazil, such as “pao de queijo" (balls of bread with cheese in the dough), tweaking the traditional cappuccino with a “doce de leite” (a traditional Brazilian cream made out of milk and sugar), and a stronger, extra-roasted "Brazilian blend" coffee made from locally sourced beans. Starbucks have localized their traditional cappuccino with a "doce de leite" edition. Doce de leite is a traditional Brazilian cream made out of milk and sugar, not unlike caramel syrup. The objective fact that the taste of caramel syrup and doce de leite is identical when you mix it in a cappuccino is irrelevant, what Starbucks understood was the marketing value of doce de leite. This is a cream that most Brazilian where eating as kids and with which they had a lifelong relation. By linking the famous Starbucks Cappuccino with a traditional product, they created a true local touch to their product.

Functional structure: Management Structure Head of Brazil Marketing Operations Store Manager Assistant Manager Shift Manager Baristas Finance Functional structure: Implement concept of a “The Third Place” for customers to enjoy the Starbucks Experience with emphasis on quality products, great customer service and good music. Starbucks localized HR by hiring and training the friendliest staff from all the large coffee shop chains in Brazil. They are earning their investment in human resources back with the Brazilians loyalty to friendly service. This structure will ensure that Starbucks Corporation is in touch with all operations in Brazil and can easily monitor market penetration, from installation to development. In addition to simplifying monitoring, a functional structure will also ensure that the roles and responsibilities of each actor are clear: From the President who monitors the overall picture and adherence to Starbucks Corporation standards, to the Manager who monitors the standards in the day-to-day coffeehouse management, and to the sales person who understands that his main focus is customer satisfaction and high standards of services. The structure will have to support the activity, which is selling the concept of a “The Third Place” for customers to enjoy the Starbucks Experience with emphasis on quality products, great customer service and good music. As such, the activities in Sao Paulo will develop, in the first years, around 3 primary activities: Productions, Marketing and Sales, and Support Services under the direction of a President for Brazil, who is hired by the World Headquarters (Seattle) and trained for one year in Seattle, Washington, USA. Starbucks Sao Paulo will therefore have an administrative or support entity and a coffeehouse entity. Note that even though each position has its own set of responsibilities, all positions put the employees in direct contact with the clients, especially if there are many clients at once. Everyone works together to help each other out. Meaning that from time to time, the store manager is seen wearing an apron, taking the orders, preparing the drinks, and cleaning the lobby. And every once an awhile, Baristas will help the managers count the safe in order to have a second person witness. Similar to most Starbucks Operations – subject to change dependant upon future need from growth.

Social Conscience Human connection essential Experience extends well beyond Starbucks retail locations into the communities Community contributions Environmental contributions Create lasting economic improvement through job creation The Starbucks Experience is distinctive in that it provides partners (employees) and customers with daily inspiration through the human connection, innovative products and services, and a comfortable atmosphere. This experience extends well beyond Starbucks retail locations into the communities in which it operates. Joint Venture Partners- They are as passionate about operating a successful business while giving back to society by supporting various programs to benefit others as we are. while striving to improve the social, environmental and economic well being of its partners, coffee farmers, countries of coffee origin, and the communities which it serves. Starbucks demonstrates its long history of integrating a social conscience into all aspects of its business. http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-newsArticle&ID=860975&highlight=

New Corporate Structure (2011) New three-region organizational leadership structure to Accelerate Global Growth : China & Asia Asia Pacific China Americas North America South America EMEA Europe U.K. Russia Middle East Africa Source: Fiscal 2011 Annual Report and press release July 11, 2011

Growth 2008 2009 2010 2011

Growth of Locations

FY 2011

Starbucks Current Starbucks First Quarter Fiscal 2012 Results Consolidated net revenues reached a record $3.4 billion in Q1 FY12 16% increase over Q1 FY11. 9% increase in global comparable stores sales 72% growth in the CGP segment. Starbucks opened 241 net new stores globally, reaching 500 stores in both mainland China and Latin America. Global expansion of CGP --Over 100 million Starbucks- and Tazo-branded K-Cup® packs shipped in Q1 following the November 1st 2011 launch, will not be available for sale in Brazil until a later time

Future Opportunities March 2012 - Four months after acquiring Evolution Fresh, Inc., Starbucks Coffee Company announced the opening of the first Evolution Fresh™ store and the transformation of the brand’s look and feel to better reflect the pure, natural ingredients in each beverage and its strategic expansion and growth. Seattle’s Best Coffee, opens the doors of its new coffee drive-thru concept in Northlake, Ill. Designed to meet the needs of the more than 36,000 commuters in the suburban Chicago Starbucks Coffee Company announced the Verismo® the first at-home premium single cup machine Mar 06, 2012 Starbucks First European Concept Store to Open in Amsterdam Amsterdam, March 6, 2012 - Starbucks (NASDAQ: SBUX) proudly announces the opening of its first concept store in Europe in the center of Amsterdam on Friday, March 9. The store is located in the vault of the historic Amsterdamsche Bank, a landmark building on Amsterdam’s famous Rembrandt Square.   Spanning 430 square meters (4,50o sqf), it is the largest Starbucks store in Europe. With its radical design departure and ‘Slow’ Coffee Theatre, it offers a new experience for coffee, design and food innovation.   Jan 30, 2012 Tata Global Beverages and Starbucks Form Joint Venture to Open Starbucks Cafés across India MUMBAI, India, January 30, 2012 - Tata Global Beverages Limited and Starbucks Coffee Company (Nasdaq: SBUX) today announced a joint venture between the iconic international coffee brand and the 2nd largest branded tea company in the world. The 50/50 joint venture, named TATA Starbucks Limited, will own and operate Starbucks cafés which will be branded as Starbucks Coffee “A Tata Alliance.” The retail stores will be developed in cities across the country, beginning with stores in Delhi and Mumbai in calendar 2012. Jan 27, 2012 Starbucks Announces its Arrival to Costa Rica SEATTLE and SAN SALVADOR, EL SALVADOR; Jan. 12, 2012 – On May of this year, Starbucks Coffee Company (Nasdaq: SBUX), together with joint-venture partner Corporación de Franquicias Americanas (CFA), will open the doors of the first Starbucks in Costa Rica. This first store will be located in San Jose.

Take Aways An American corporation trying to sell coffee to Brazilians? However, Starbucks managed to win a market segment that was not facilitated by the existing coffee franchises like Fran's and Ponto Caffe. Brazil is well known as the land of coffee but Brazilians do not love coffee. However, The Brazilians way of drinking coffee fits well into Starbucks' highly milk and cream based product line. Starbucks was successful in localizing their traditional cappuccino with a "doce de leite" edition. Most Brazilian coffee shop chains you will find staff that couldn't care less about being friendly. Starbucks brought customer service and attention into Brazil. They are earning their investment in human resources back with the Brazilians loyalty to friendly service. Doce de leite is a traditional Brazilian cream made out of milk and sugar, not unlike caramel syrup. This is a cream that most Brazilian where eating as kids and with which they had a lifelong relation. By linking the famous Starbucks Cappuccino with a traditional product, they created a true local touch to their product.