Starbucks Expansion in China

Abstract

This case study revolves around Starbucks ability to launch an aggressive expansion in China, a coffee frontier steeped in nearly 5,000 years of tea, Starbucks location-scouting skills and marketing savvy will be put to the test. This case study involves three questions: 1) Should Starbucks continue its expansion in China? 2) Will the Chinese be persuaded to drink coffee instead of tea after 5000 years of no consumption of coffee? 3) Will Starbucks current marketing plan work in China without advertising?

Company Overview

The first Starbucks was opened in Seattle, Washington in 1971 by three partners—English teacher Jerry Baldwin, history teacher Zev Siegel, and wrier Gordon Bowker. The three were inspired by Alfred Peet, whom they knew personally, to open their first store in Pike Place Market to sell high-quality coffee beans and equipment.

Entrepreneur Howard Schultz joined the company in 1982, and, after a trip to Milan, suggested that the company sell coffee and espresso drinks as well as beans. The owners rejected this idea, believing that getting into the beverage business would distract the company from its focus. To them, coffee was something to be prepared in the home. Certain there was much money to be made selling drinks to on-the-go Americans, Schultz started the Il Giornale coffee bar chain in 1985.

In 1984, the original owners of Starbucks, led by Baldwin, took the opportunity to purchase Peet's. (Baldwin still works there today.) In 1987 they sold the Starbucks chain to Schultz's Il Giornale, which re-branded the Il Giornale outlets as Starbucks and quickly began to expand. Starbucks opened its first locations outside Seattle in Vancouver, British Columbia, Canada (at Waterfront Station) and Chicago, Illinois, United States that same year. At the time of its initial public offering on the stock market in 1992, Starbucks had grown to 165 outlets.

The first Starbucks location outside of North America opened in Tokyo in 1996. Starbucks entered the UK market in 1998 with the acquisition of the then 60-outlet Seattle Coffee Company, re-branding all its stores as Starbucks. By November 2005, London had more outlets than Manhattan, a sign of Starbucks becoming an international brand.

In April 2003, Starbucks completed the purchase of Seattle's Best Coffee and Torrefazione Italia from AFC Enterprises, bringing the total number of Starbucks-operated locations worldwide to more than 6,400. On September 14, 2006, it was announced by rival Diedrich Coffee that it would sell most of its company-owned retail stores to Starbucks.