What’s Brewing Overseas

By Gretchen Weber

May. 29, 2004

As president of Starbucks International, Martin Coles says that making sure that the customer experience translates appropriately across cultural lines is an unqualified must.

    “We’ll expand more slowly than we have to rather than over-expand and compromise the quality of the experience our customers get,” he says.

    Coles won’t reveal what Starbucks spends on employee development in order ensure top customer service around the world, but he will say that the efforts to recruit, train, compensate and retain employees overseas are so huge that together they compose one of the biggest expenditures in the multibillion-dollar company budget.

    Training, for example, typically includes flying new “partners,” as employees are called, to company headquarters in Seattle for intensive training and to other locations for store experience and an additional eight weeks of instruction. Whenever the company enters a new market, Starbucks brings new partners to Seattle for six to 12 weeks of training on topics ranging from business practices to how to produce and roast coffee, Coles says.

    This kind of commitment is, of course, expensive. That’s why some skeptics think that the Starbucks expansion overseas is unsustainable. Barry Sine, an analyst at H.D. Brous & Co., says he doesn’t think staffing will be a problem in overseas markets like China and Europe, but that the company has an uphill battle for customers.

    “Starbucks is an American imitation of a European concept,” Sine says. “To try to sell that back to the Europeans, that’s a real marketing challenge.”

    In Austria, proud capital of coffeehouse culture, the company planned to have 60 stores, beginning with one opening a month last year. But as 2005 begins, the total number in Austria is eight stores, all in and around Vienna. That’s down from 10; two didn’t make it.

    While Starbucks International has struggled for profitability since 1996, when the first 12 overseas stores opened in Japan, fiscal 2004 may have marked a turning point. Total international revenues were up 31 percent, pushing the balance to a slight profit for the first time. For now, the international expansion is going full steam ahead.

    Starbucks opened 413 new international stores in fiscal 2004, bringing the total number of Starbucks outside the United States to 2,437 locations in 33 countries as of October. Two months later, there were nearly 100 more international stores in countries as diverse as Chile, Turkey and Korea. Coles says that the long-term target of 15,000 international stores is attainable and cites China as the next big market and Europe as “an open book.”

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