Coffee buzz

The double non-fat lattes have been flying out of baristas' hands in Starbucks since the company made a comeback in 2010, and the good numbers have led CEO Howard Schultz to talk about a worldwide expansion, even in Germany where the road has been rocky for the Seattle-based coffee giant.

After a series of tough years that saw the company close down outlets and lay off personnel, Starbucks is booming. It just recorded the most successful quarterly numbers in its history and its stock price is at a near all-time high.

Flush with success, the company is planning a European expansion that will see hundreds of new coffee shops opening their doors, the introduction of a type of instant coffee that has already hit the shelves in American and Asia, and a product line expansion that will include healthy foods.

The company's plans mean Germans will likely be seeing more of the green signs featuring the Starbucks siren on city streets.

"I hope what we can double or triple the number of our cafés in Germany," Schultz, who was recently in Berlin, told the Handelsblatt newspaper. "We're underrepresented here now."

It will be competing in a competitive market however, facing companies like McDonald's, whose McCafé has been successful, or Tchibo, a highly recognized name in Germany that has begun a drive to re-emphasize their core business of coffee and open a series of cafés.

"But if Starbucks doesn't make any mistakes, I can well imagine the market would like to see a certain expansion," Bonn-based franchising expert Felix Peckert told Deutsche Welle.

"A brand as strong as Starbucks still has real potential in Germany," he added.

Starbucks generates about 20 percent of its revenues from international markets. In July, it announced a reorganization to achieve its goal of generating half of revenues outside the US.

Tough road

But Starbucks has not had an easy time of it in Germany. Schulz gave interviews at the company's first store in Germany, at Berlin's Hackescher Markt, which opened amid great media fanfare in 2002.

Back then, the company said its goal was to have 200 stores in Germany by 2006. Today, in 2011, it has 150 across the country, fewer than the number in Manhattan.

"The competition here is very stiff," said Schultz. "But after ten years and 150 Starbucks cafés, we've managed to carve out a good place for ourselves."

The last published company numbers for Germany were not rosy. In 2008/2009, the company lost 20.7 million euros ($27 million) and had debts over just over 70 million euros.

There have been several theories around Starbucks' difficulties in the German market. Besides the stiff competition, there is the matter of price - many wondered if Germans were ready to pay a premium for Starbucks products, or if they would be attracted by the novelty of Frappuccinos, Chai lattes and Moccaccinos.

According to analyst Peckert, Starbucks' main business was always with to-go coffee, despite the overstuffed sofas and chairs on the premises.

While the image of the fast-walking American with a Starbucks to-go cup in hand has become so ubiquitous it is almost cliché, Germans preferred a different approach.

"Germans don't like to-go coffee so much, but rather prefer to sit down and drink it over an hour," said Peckert. "But if that sofa is occupied, then it doesn't work so well for the next customer."

On the other hand, Germans' taste for espresso drinks like those offered at Starbucks has shot through the roof. Espresso consumption has risen by a factor of ten since 2005, according to Holger Preibisch, director of the German Coffee Association. And despite relatively high prices for coffee drinks, Germans still see them as a good deal.

"Many people spend a good deal of time in cafés and use the free Internet connections available there," he told Deutsche Welle. "Therefore, they feel they're really getting their money's worth."

Tailored, and healthy, tastes

Perhaps learning from past lessons, Starbucks wants to tailor its offering more to local tastes and preferences. For example in China its products will be less sweet.

But in Germany, the company might buy baked goods from German bakers and sell foods that appeal to the German palate, Schultz said.

Starbucks plans on introducing a range of new coffee-related products to its cafes, and then later in supermarkets, he said. That is what the company did with its Via instant coffee in the United States – unrolling it first in cafés, and then putting it in some 70,000 supermarkets. Schultz said Via should be generating millions for the company in a few years.

The company is putting the emphasis on health and wellness and has not ruled out the possibility of going on a shopping spree if it sees a company it likes. With the parent company's $2 billion in cash reserves and debt-free status, the possibilities are many, Schultz said.

While Europe is set for an increase in frappuccinos, Asia is where the most intense action will be. Schultz said the biggest expansion will take place there. The first Starbucks is planned for India in 2012 and for Vietnam in 2013.

Author: Kyle James
Editor: Ben Knight