Starbucks plots European growth

05 March 2012

AMSTERDAM: Starbucks, the coffee house chain, is transforming its strategy in Europe, recognising the unique challenges and opportunities provided by the region.

Michelle Gass, the firm's president for Europe, the Middle East and Africa, stated it has 1,700 stores across these areas today, a figure which will grow to be "significantly greater" in the future.

Despite the local financial crisis, Europe will be a major point of focus. "It's no secret ... this is the toughest part of the world to operate in given the macroeconomic challenges," Gass told the Financial Times. "There's a lot of fear out there so it's going to be tough."

"We will invest in the millions of dollars range and it will be significant. You go to Manhattan and on every block everyone is holding a Starbucks. How do we create that same impact?"

Starbucks currently has 760 stores in the UK, and it intends to open an extra 300 in the next five years. In Germany, the firm runs 150 outlets, with the long term aim of pushing this total above 1,000.

Its operating margins in Europe, the Middle East and Africa, however, stand at 6.5%, versus the 22% recorded in the Americas and 34.6% in China, the organisation's best global market on this measure.

"The big shift in strategy is that this is no longer about Starbucks being on the high street," said Gass. "It is about Starbucks innovating with new formats such as drive-through, airports and train stations. Customers want us in all these places. This is a sea change."

Among the other schemes implemented to date are launching a "light" espresso in France and a low-cost cappuccino in Greece, alongside adding two shots of espresso for the price of one to lattes in the UK.

The company has also unveiled a branch within a Novotel in Paris as part of its wider expansion plans. Developing its portfolio of food products is another core goal.

Brand building initiatives are equally set to have a key role, according to Gass. "We will spend some real money on marketing to make Starbucks bigger in Europe," she said.

Howard Schultz returned as chief executive of Starbucks in 2008 after the firm's fortunes had dwindled. Having redressed problems in America, Schultz is now turning his attention to Europe, and especially the instant coffee sector, led by Nestlé.

"In 2008 Starbucks' US business was not in good shape and there are similarities between where that was and where our business is in this region," he said. "Nestle has done a fantastic job with Nespresso and created a billion-dollar business - it is time that we heat up the competition."

Data sourced from Fianancial Times, Reuters & Sunday Telegraph; additional content by Warc staff