Starbucks Entering Brazil

Starbucks strives to become the most recognized and respected coffee throughout the world and they have worked hard to further their position in the coffee industry. In 1971, Starbucks started selling whole bean coffee in Seattle’s Pike Place Market. They named their store Starbucks, after the first mate in Moby Dick. Then, in 1982, Howard Schultz joined Starbucks as director of retail operations and marketing. After that, Howard Schultz travels to Italy, where he was impressed with the popularity of espresso bar in Millan. He also sees the potential to develop a similar coffee house culture in Settle. Next, in 1992, Starbucks has successfully completed initial public offering, with common stock being traded on the Nasdaq National Market under the trading symbol “SBUX’, which is total 165 stores. Next, Starbucks began to expand internationally in 1996 (Starbucks, 2009).

Starbucks stores provide a variety flavor of regular coffee and decaffeinated coffee such as coffee beverages, teas, muffins and other breakfast foods. Besides, Starbucks also has a proven track record of successful coffee-related and complementary products creation which are packaged coffee and tea, ready-to-drink (RTD) beverage, and premium ice-creams (Starbucks, 2013).

There are few reasons of why Starbucks choose to enter Brazil. First of all, one of the reasons that Starbucks entered into Brazil is due to the strong coffee culture in Brazil. The research has shown that Brazil coffee consumption rate is nearly approaching the coffee consumption rate in United States and this has proven that Starbucks is now ready for this new market (Aminata Ouattara, Daniele Albagli, Melissa Butz, Matvey Kostromichev, 2005/2006). Besides, Brazil is also known as one of the main coffee producers in the world, as well as the biggest harvests coffee and grower due to the rich soil and hot humid climate of Brazil. As in 2009, its global coffee production made up of 33% in the world as shown in Figure 1. In other words, it means that Brazil is the largest producer of coffee beans in the world followed by Vietnam as the second runner. To maintain local customers taste for dark and strong coffee, customers in Brazil’s can request for a strong, extra-roasted “Brazilian blend”. As a results, it may incurred the expansion in Brazil’s is the world number two coffee consumers (Murphy, 2008).

Furthermore, Brazil is one of the four largest emerging markets in the world. It is also known as the largest economy in South America in which its GDP is approximately 620 billion and growing. Brazil is one of the countries located in South America and it is ranked as 5th most populated country in the world where the total population is over 186 million of people. Hence, Starbucks can promote their business to different level of target market. Starbucks do not need to worry about the customers’ flow while entering into Brazil market.

2. Analysis

Gains of Starbucks Entering into Brazil

According to (Murphy, 2011), the growing rate of consumers drinking coffee is 39 percent from 2000 to 2009. Since the percentage of consumers who drinks coffee in Brazil keep increasing, Brazil could be the most important country to invest in coffee business like Starbucks. Besides, its economy keep continue to grow because of the upper and middle classes keep increasing so that it will affect consumers willing to spend money on specialty coffee (Lauren Roby, 2011).

Due to Brazil is the biggest harvests coffee and grower in every peak year, its harvest amount reached 55.9 million 60-kilogram (132-pound) bags in 2012 (Marvin G. Perez, Patricia Laya, 2012). Thus, it will results in the elimination of acquisition cost of coffee grains such as Robusta beans and Arabica beans as the beans itself came from Brazil (Marvin G. Perez, Patricia Laya, 2012) and this can also be shown in Figure 2. Besides, it can also make protection against low prices to avoid immoral tax because import taxes incurred will make Starbucks coffee in Brazil become more expensive. Thus, this protection enables Starbucks to compete against other competitors. Furthermore, it can help to decrease the transportation cost because the distance is within Brazil so that it may help Starbucks to save more costs. As a result, Starbucks in Brazil do not need to import coffee grains such as Arabica or Robusta beans because it harvest in its own country.

On the other hand, Starbucks itself do not pay any corporation tax, and thus consumers in Brazil can enjoy taste good coffee (Peter Campbell, 2012). The reason that Robusta coffee beans will affect Starbucks revenue to increase is because of the Robusta coffee plants are easier to grow so that they thrive at lower evaluations (Daniel Harrington, 2011). As a result, the sales of coffee will increase and this will in turn increase the revenue of Starbucks Company due to the cheaper taste good coffee beans and zero corporation tax.

Next, by entering into Brazil, Starbucks can help to enhance the district’s image. According to Brazil’s government, Starbucks are extremely pleased to welcome into the fashionable district of Ipanema at the place to be in Rio because Starbucks have a strong brand extensions. As a result, it will help to boots up Brazil’s economy and the district’s image (School, 2003).

Shortcomings of Starbucks Entering into Brazil

In contrary to the advantages gained by Starbucks, there are some problems faced by Starbucks while it entering into Brazil market. First of all, only the minorities of the Brazilian consumers are emphasize on the product’s quality, while the rest of Brazilian are more focus on the price of products rather than quality (Aminata Ouattara, Daniele Albagli, Melissa Butz, Matvey Kostromichev, 2005/2006). Due to the economic and culture of Brazilian, the consumers are more likely to purchase coffee in lower price from local coffee businesses rather than purchase the coffee that higher price like Starbucks. Besides, Starbucks may also involve in “price wars” since there are many competitors who provide a lower price for their products (Ouattara, Albagli, Butz, Kostromichev, 2005/2006). Hence, Starbucks need to spend additional time and effort in order to persuade Brazilian consumers to accept and adapt to the pricing of Starbucks’ products.

Second of all, there is only one local supplier, Brazil Ipanema Bourbon, therefore Starbucks may need to import other coffee grains from other countries into Brazil. This shortcoming may lead Starbucks to spend more money on importing the raw materials that Starbucks needs in their daily operations. Hence, it may incur higher cost or higher import rates in preparing their business.

Third of all, there is one barrier to adoption in Brazil in terms of Starbucks’ availability in Brazil. There are a lot of consumers’ complaints about the limited availability of Starbucks stores in Brazil which served as a purchase barrier for them. There are too few Starbucks stores available in Brazil and they wish that there would be more Starbucks stores available near where they live (Leonie Bulman, 2011).

Apart from this, since Brazilian consumers have a culture of smoking while they are enjoying a cup of coffee, Starbucks may lose its customers due to they are not allow its customers to smoke in its stores (Ouattara, Albagli, Butz, Kostromichev, 2005/2006). Smoking is prohibited even in countries with smoking cultures, saying it would interfere with its coffee aroma inside the stores.

In addition, Starbucks is facing high competition with local coffee business chain such as Café do Ponto and Fran’s café (Ouattara, Albagli, Butz, Kostromichev, 2005/2006). Since Brazil is a country which produces coffee grains, there would be a lot of local coffee business existed in the market for a long period. In other words, it means that the local coffee chains will have its regular loyal consumers and there are always a better alternative of specialty coffee readily available for Brazilian in Brazil. Hence, Starbucks is facing difficulties in competing with those existing local coffee chains.

Lastly, Brazil is counted as a new market towards Starbucks, so it may not understand well about the consumers’ need or demand for the products. Starbucks is hard to fulfill consumers’ need and demand if they take longer time to collect the information. Besides, they will tend to take long period to compete with the local competitors while they collecting and processing the data from consumers.

3. Recommendation

Starbucks has been doing greatly in expanding their business internationally. However, Starbucks encountered various shortcomings while entering into a promising new market, Brazil. In order to overcome the shortcomings and further support Starbucks’s strategic global expansion strategy in Brazil, its own opportunities and core competencies should be explored as much as possible. Starbucks possesses its own unique environment and atmosphere that cannot be imitated by other competitors. So, Starbucks should stick to its core and not straying too far from it by providing a consistent quality, service and value to its consumers.

One of the Starbucks’s competitors is McDonald’s McCafe. McDonald has been so successful in Brazil due to the adoption of their localization or cultural adaptation strategy. McDonald has successfully tackled their competitors by localizing its offerings in Brazil. For example, McCafe has contributed a larger part in McDonald’s sales and its menu choices tend to vary from one country to another. In Brazil, extensive coffee menu is available at McCafe and it not only includes traditional drinks such as espresso, but also serves coffee drinks featuring whipped cream and chocolate as well as cold drinks whereas in Argentina, McCafe draws heavily on Italian coffee specialties like lattes (Mary Tabion, 2009). In conjunction with this, Starbucks should adopt this cultural adaptation strategy by adapting Starbucks products to Brazilian cultural pattern. Changes can be made to suit the preferences of Brazilian for dark and strong coffee as Brazilian coffee is low in acidity and exhibits nutty, dark bittersweet cocoa characteristics. Starbucks should practice customization for local taste of Brazil instead of standardization in their products offering. This would in turn generate a different coffee experience that is consistent with Brazilian’s own culture and tradition. Starbucks can also consider to adapt their price level to local market since Brazilian emphasize more on product price rather than product quality. It can be done by offering products at a much more economical price without reducing its quality.

At functional level, since Brazil was widely known for producing huge volumes of cheap, mass-processed arabica coffees that often found their nameless way into supermarket cans (Kenneth Davids, 2002), Starbucks should emphasize more on its marketing strategy in terms of advertising in order to compete with all those local coffee business chain such as Café do Ponto and Fran’s café. To date, Starbucks has spent nearly zero costs on the advertisement while its brand is the best in the coffee industry (Zhiwu Chen, 2009). Even though globalization and the familiarity of the brand of Starbucks might make Starbucks an exception in advertising, it might still be replaced by other competitors such as McDonald. Thus, instead of making better products and building its brand by promoting the drinks cup-by-cup, Starbucks should invest more funds in advertising such as organizing some road shows, distributing brochures or even distributing packages of Starbucks instant coffee to customers to increase their awareness and attention. Besides, social media such as Facebook can also be used by Starbucks to advertise its products as well since popularity of Facebook is rising in Brazil as refer to figure 3. This can be done by delivering free packages of Starbucks products through Facebook to consumers.

Other than that, since there is only one local supplier of Starbucks in Brazil, Starbucks Brazil may put more effort in emphasizing supplier development and improvement at farm level. This can be done by helping the coffee growing community by giving technical assistance or sets of programs to local farmers that have small farms in Brazil. The selection of small farms must conform to a comprehensive set of measurable standards of Coffee and Farmer Equity (C.A.F.E.) practices which encompass four categories include product quality, economic accountability, social responsibility and environmental leadership (Rudolf Schuba, 2010). In addition, Starbucks Brazil may also look for procurement coordinator in Sao Paulo, which is the biggest city in Brazil. The local procurement coordinator will be responsible to manage and measure the suppliers in order to justify the cost over the value obtained.

Apart from this, Starbucks encountered availability problem in Brazil as shown in figure 4 and this would act as a purchase barrier for consumers. In order to overcome this purchase barrier, Starbucks should take initiatives to increase its total number of coffeehouses in Brazil to satisfy consumer’s demand. Other than that, Starbucks could consider to emphasize more in distributing their coffee products to supermarkets while at the same time analyzing a way to minimize the risks of selling them at supermarket. The quality of the coffee should be well maintained and the taste must be consistent inside each packages. By using this approach, Starbucks’s products could be found easily at all places in Brazil as demanded by consumers.

At corporate level, Starbucks in Brazil should adopt innovation strategy in conjunction with differentiation strategy and focus strategy in order to extend its scope of operations to compete with competitors. Starbucks may need to review its current business model and strategy to better satisfy its consumers. Instead of positioning itself as a high end product, Starbucks could try to diversify its product base. Innovations can be created through introducing new types of coffee or other complementary products such as integrating a new product line of fruit, vegetables juices as well as healthy foods which would in turn serve as an added value to both consumer and company in Brazil. This may serve well for those consumers who are more conscious in health.

Last but not least, there is one shortcoming mentioned that most of the Brazilian consumers have a culture of smoking while they enjoying a cup of coffee, thus Starbucks may lose its consumers due to they do not allow their consumers to smoke in its stores (Ouattara, Albagli, Butz, Kostromichev, 2005/2006). One way to overcome this problem is by referring it to the scenario happened in Starbucks Philippines. Due to its adoption of non-smoking policy, Starbucks in Philippines has experienced a significant drop in their sales. Thus, Starbucks in Philippines has chosen to amend their compliance to non-smoking ordinance act and design a smoking table for selected stores nationwide effective in August 6, 2011 due to negative consumer’s feedback received about their non-smoking policy. In this way, Starbucks in Brazil can use and apply this similarly in its stores to overcome the problem. For instance, Starbucks in Brazil can provide designated smoking tables in appropriate areas at majority of their stores and at the same time they must ensure that the air quality and purity are still being maintained. To be more accurate, smoking “tables” are provided, but not smoking “areas”.

4. Conclusion

In conclusion, Starbucks possesses a strong stand in coffee industry and is a strong company in a growing industry. Starbucks choose to further expand their business in Brazil is because of the strong coffee culture in Brazil and the researcher has proven that their coffee consumption rate is relatively high. In the meantime, Brazil also known as one of the biggest harvest coffee and producer in the world due to their rich soil and hot humid climate. Therefore Starbucks start to promote their business to different level of target market in Brazil. Due to their biggest harvests coffee and grower in every peak year in Brazil, they have elimination of acquisition cost of the coffee grains such as Robusta and Arabica beans. Thus, the elimination of acquisition cost of coffee grains will make protection against low prices to avoid some import taxes incurred and save transportation cost to import coffee grains which is grown in Brazil. With this protection, it enables Starbucks to compete with other competitors in Brazil. Besides, Starbucks also do not need to pay any corporation taxes that will increase the revenue of Starbucks company buy selling the cheaper taste good coffee beans and received zero corporation tax.

However, it cannot be denied that there are several shortcomings of Starbucks entering into Brazil. For instance, the Brazilian culture is not emphasize on the quality of coffee but emphasize on the price of product, high competition with local coffee chain, there is only one local supplier to provide the coffee grains, therefore Starbucks may need to import other coffee grains from other countries, the availability of Starbucks stores in Brazil, smoking culture of Brazilian and so on. By using the recommendation such as possess its own unique environment and atmosphere such as providing consistent quality and services to value its consumers, Starbucks do not need to be afraid to be imitated by other competitors. Starbucks can also adopt cultural adaptation strategy by adapting to Brazilian cultural pattern. Social media such as Facebook can act as marketing tool for Starbucks to promote and advertise their products and increase their popularity. In corporate level, Starbucks Brazil should adopt innovation strategy in conjunction with differentiation strategy and focus strategy in order to extend its scope of operations to compete with competitors. Designated smoking tables can be provided and the number of Starbucks stores can also be increased in Brazil.

Thus, although Starbucks encountered some problems while venturing into Brazil, it is still manage to fit well in Brazil and we can foresee that Starbucks will continue to grow in international market.