Sunday, April 20, 2003

Starbucks taking its lumps as a U.S. icon

By Helen Jung
The Associated Press

SEATTLE - Having installed its chic coffee stores across much of North America, Starbucks Corp. is aggressively expanding overseas - and like other global retailing icons, is finding that international fame can carry a price.

Starbucks has been boycotted by anti-war protesters in Lebanon and criticized by New Zealand advocates seeking higher coffee prices for farmers. Faced with the possibility of terrorist attacks, the company has pulled out of Israel.

Such dissent overseas recalls some of the problems faced by McDonald's Corp., which has been targeted by everyone from anti-war demonstrators to vegetarians.

What some see as growth, others see as corporate colonialism. What some see as international expansion of Starbucks, others see as the outright hijacking of foreign cultures.

"It's very American ... and is seen as this very aggressive attempt to grow that business," said Greg Carpenter, a professor of marketing strategy at Northwestern University's Kellogg Graduate School of Management.

Nonetheless, Starbucks is ambitious and looking to international markets for growth.

The company has more than 6,400 stores throughout the world - 1,400 in 30 countries outside North America. Although Starbucks does not break out its sales from its international operations, revenues for "all other business units" - which includes overseas sales - were $482.7 million for fiscal 2002, up 31 percent from $369.1 million the previous year.

Starbucks' popularity has persisted even in an economic downturn and during the war - an undeniably impressive feat as other retailers are struggling, said Greg Schroeder, a research analyst with Fulcrum Global Partners.

"It's a phenomenal growth story - regionally, nationally and now the final stage is to become a global consumer brand," he said.

It gives the company confidence in its vision of a future with 25,000 stores, at least 10,000 of them in North America. Overseas, it projects 1,500 stores in Latin America, 6,000 in the Asia-Pacific region and a combined 7,500 in Europe, the Middle East and Africa.

The company plans to open at least 1,200 stores in the United States and abroad in its 2003 fiscal year alone.

Starbucks' international strategy - in which it forms joint ventures or licenses other companies to own and operate Starbucks stores - differs from its domestic approach, where the stores are largely company-owned. The idea is that an experienced local partner can help identify locations, sift through tax issues and give Starbucks stores more community appeal, said Peter Maslen, president of Starbucks Coffee International.

But operating in volatile political or economic situations could introduce a lot of risk for the company, experts said.

"It is typically the market leader that attracts the attention of these activists," said Prashant Malaviya, associate professor of marketing at INSEAD business school in Fontainebleau, France.

"Both because of people's political views ... but also in countries where there is not so much a political backlash but where they may have messed up."

Starbucks need only look at such iconic American companies as McDonald's to see the potential fallout. McDonald's has been targeted by anti-war protesters from Ecuador to South Korea. In 1999, a sheep farmer, Jose Bove, led a group of protesters and destroyed a McDonald's under construction at the time, near his farm in Millau, France.

The coffee retailer has already had its own setbacks overseas.

Starbucks, in a joint venture with an Israeli company, closed its six stores in Tel Aviv this month amid continuing conflict between Israelis and Palestinians.

"We knew that we were a target in Israel," said Joe Canterbury, Starbucks' vice president of business development and finance. Each time there was news of a suicide bomber in Israel, the company feared the target was one of its stores. "You start doing the math, and you realize, yeah, there's a risk."

Starbucks stores in Lebanon, owned and operated by its partner, retail giant Alshaya, are being boycotted by those who oppose the U.S.-led war on Iraq - despite the fact that Alshaya is Arab-owned, noted Gaby Azzi, a food and beverage manager for Alshaya, based in Kuwait.

"The bottom line is: 'The owner is such-and-such company,' " Azzi said, referring to the Starbucks name.

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