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Six Challenges Starbucks Must

Address To Succeed In Italy


Katie Sola ,
MAR 1, 2016 @ 12:01 PM 5,762 VIEWSThe Little Black Book of Billionaire Secrets
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Italys $10 billion cafe market is the biggest in the world. Thats a big pool
of potential customers for Starbucks, if they can overcome these six challenging
features of the Italian coffee market.

Independent cafes and bars make up 89% of the market

Starbucks SBUX -2.30% set the coffee world abuzz on Sunday


when it announced plans to open its first Italian store in the
city of Milan.
Jeremy Piper/Bloomberg

Starbucks CEO Howard Schultz says the Italian love for


coffee influenced him from the beginning. In a press release,
he recalled visiting a Milan coffee shop in 1983, and his desire
to replicate the shops sense of community, delicious coffee
and neighborly baristas in the United States. Since then,
Starbucks has expanded to countries as diverse as China and
Morocco, but theres never been an Italian store.
While Shultz drew inspiration from Italy, the Starbucks
approach to coffee is very different to Italian
cafe culture. Italians are certainly passionate about
coffee consuming 4.6% of the worlds supply but
they dont enjoy it the way Starbucks typically serves it:
from drip percolators, and in elaborate preparations
like the Frappuccino. They also favor making coffee at
home, and when they do go out for it, they drink
espresso shots and inexpensive cappuccinos while
standing at the bar.
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But despite those factors, Italys $10 billion cafe


market is the biggest in the world. Thats a big pool of
potential customers for Starbucks, if they can
overcome these six challenging features of the Italian
coffee market.
Italians mostly caffeinate at home. As of 2011, 75%
of the coffee consumed by Italians was drunk at home, a
number not atypical for European countries. Out-of-home
consumption has been decreasing, falling from 30.3%
in 1997 to 23.4% in 2011, a report by the U.S.
Department of Agriculture says.
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That said, the Italian cafe market is the biggest in the


world, with over $10 billion of retail sales in
2014. Those sales include all kinds of products sold at
cafes, not just coffee. Because Starbucks sells juices,
tea, food and snacks all contributing to its $19
billion in sales last year in addition to coffee, its
well positioned to take a larger slice of that market
than if it served only coffee.

Datawrapper, Katie Sola

They dont like chain cafes. Independent cafes and


bars make up 89% of the market , according to

a Euromonitor report Cafes/Bars in Italy obtained by


FORBES. The USDA report says that chains represented just
0.6% of Italian coffee consumption in 2011.
Thats notable given that chain consumption worldwide had
risen from 1.6% to 3.1% since 2006. The pie chart below
shows the very high number of independent
cafes versus chain cafes in Italy.
Will that be a problem for Starbucks? A 2014 YouGov
BrandIndex survey of the companys brand
perception found that Starbucks is most recognizable
at home in the U.S. and in the U.K., and less so in
European markets. However, its local impression score
in China a traditionally tea-drinking culture was
the highest among countries monitored.
Datawrapper, Katie Sola

They really dont like foreign brands. The


Euromonitor report Coffee in Italy notes that as of 2014,
with the exception of McDonald's MCD -0.60% all the main
players in Italy were domestic. This lack of international
players in Italy was due to the strong Italian tradition and
customs in food. Lavazza, an Italian brand, dominates coffee
sales with a 36.9% market share. The predominance of Italian
brands makes investing in cafes and bars very risky, the
authors write. To mitigate that risk, Starbucks has partnered
with the Italian company Percassi, which will operate the
new stores and figure out how to best serve Starbucks
coffee to Italians. The new Milan store is expected to
have a traditional Italian stand-up espresso bar.
Italians value experience in their baristi. Starbucks
is famous for supporting its baristas, and paying for tuition to
help them get online degrees. Americans think of cafe work
as a stepping stone to more permanent employment, rather
than a lifetime vocation. But its widely reported in the news
media andbooks about coffee that the average Italian
barista is 48 years old, and that crafting espresso is a valued
profession in Italy. (Though ubiquitous, the only
citation FORBES found for this statistic dates back to an
Italian coffee book in 1980.)

They dont pay Starbucks prices.A cappuccino at the


popular Pave Milano cafe costs 1.40 euros, about $1.52. Thats
less than half the price of a small Starbucks cappuccino, which
costs $4.01 at the branch near our Jersey City office. Italians
also dont favor large drinks like Starbucks 24 oz. Venti,
which commands an even higher price. Schultz says Starbucks
will be competitive on price with Italian cafes.
Pumpkin Spice Lattes and Peppermint Mochas
are drinks for kids. The author of the USDA report
wrote The various flavored coffees popular in the United
States are considered childrens drinks and are not available
on the Italian market. Starbucks is expected to adapt its
offerings for Italian tastes, as it has successfully done
in China. The company serves red bean
Frappuccinos andmooncakes in 2,000 Chinese stores,
and plans to open 2,500 more in the next five years.

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