How Starbucks Beat The Odds In Italy

Starbucks is the largest coffee companyin the world, with over 34,000 stores in 80 countries. In 2018, the chain opened in one of thecoffee capitals of the world: Italy. While Starbucks doesn't break outcountry-specific data in its earnings report, and declined our request for aninterview, the company does get some glowing reviews from locals. Everybody knows the brand and everybodyknows that it's good. I prefer Starbucks because it is cooler. There is something more even hip, a.

Little more American. Whenever you go inside, you smell thecoffee and you see the interior itself, you feel that you're in Milan. You feel you're in Italy. We know Starbucks. We know the quality. And when youtravel, sometimes you just need to stay in the comfortable option. Italy's $7 billion cafe market is thesecond biggest in the world. Coffee is built into the fabric of thecountry's culture, filled with.

Traditions, customs and rituals. A few other American brands have failedin Italy. So can Starbucks find success in thecountry that invented the espresso? CNBC went to Italy to find out. The Starbucks we know today was modeledafter Italian coffeehouses. But in its beginnings, the company usedto sell whole-bean coffee and tea from a few stores in Seattle. Ten years later, Howard Schultz, thecompany's marketing director at the time, took a trip to Milan and wascaptivated by the Italian coffeehouse.

Experience of making an espresso. When he returned to Seattle, hepersuaded the company to model Starbucks after Milan's unique coffeehouseculture. The concept took off, and in 1987, theoriginal founders sold the company to Schultz for $3.8 million. It wasn't until 2018 that Starbucksopened its first store in the country that inspired it, a 25,000-square-footroastery in Milan. It features an in-house coffee roaster,a bakery with a wood-fired oven and augmented reality configured walls.

It was the first Starbucks location tofeature an Arriviamo bar and the first to include an affogato station, whichis an Italian dessert made with ice cream and espresso. When Starbucks announced its formalplans to open in Milan in 2016, the company planted 42 palm trees in thehistoric Piazza del Duomo to revitalize the space in celebration. Locals protested and a few set fire toa cluster of the trees in the middle of the night. Matteo Salvini, leader ofthe Northern League, accused Starbucks of appealing to illegal Africanimmigrants.

In a statement, the company said “Ourintention for this project has always been to demonstrate our respect andgratitude to the city of Milan, which has so greatly inspired Starbucks overthe years.” To date, Starbucks has 20 locations inItaly, all owned and operated by its Italian licensee, Percassi. The firm manages stores across retail,food and beverage and cosmetics in over 23 countries. Percassi also franchises Victoria'sSecret stores across Italy. Italy remains a small portion ofStarbucks' portfolio.

Revenue from licensed stores accountedfor 9% of Starbucks total net revenue in the third quarter of 2022. In an earnings call in August of 2022,the company said, “Given the success we are enjoying in Milan, we are nowplanning to open in Rome and in Florence.” It took Starbucks 47 yearsto open shop in Italy. Coffee is very important inItalian culture. The Italian coffee market is worth$11.8 billion and about 14 billion espressos are consumed eachyear In the south of Italy, it's tradition tobuy two coffees, one for you and one for.

A stranger. There are other unwrittenrules and customs that can be harder for a large, international chain to abideby. Italians go to coffee houses forleisure. It's common to get a coffee quickly,drink it at the counter and leave. It's also personal and intimate. Many baristas know their customers byname. Unlike Starbucks, customers don'ttypically sit for a while or work on their laptops. And Starbucks is known for getting itscustomers names wrong.

When you go to a cafe in Italy, this isa moment of social exchange. This is a moment in which you want tospend time with your colleagues. Maybe you want to take five more mealsbefore going back to work after lunch. Or maybe it's the moment in which youjust want to drink a coffee, evoluo, a short espresso, not a jumbo mug ofcoffee. And you have a brief exchange with thebarista about how your soccer team did the day before and things likethat. The typical order at a coffee bar inItaly is much simpler than an average order at Starbucks.

It's custom to order a cafe, which is astrong shot of espresso. The consensus is that in the morning youwould have either an espresso. Otherwise for breakfast, anotherfavorite option is for the sugar cappuccino. After noon, you would not ask for acappuccino, for example. That is considered a sort of blasphemyby many people in Italy. Milan has some of the cheapest coffee inthe world, according to one study. The average for cappuccino is about€1.30 compared to €4.50 at Starbucks.

This was a big enough issue that evenan Italian consumer group filed a complaint in 2018. Despite the challenges, Starbucks hasbeat the odds in Italy and is even considering expanding. To ensure a smooth transition intouncharted territory, the company partnered with an Italian brand managerand other local businesses. Finding the best franchisees is just socritical because they are executing the business locally and they needto…they're so desperately needed to really execute the brand well, butthey're just difficult to find.

Starbucks worked with local craftsmenand Italian materials to adapt the design of its shop to fit the culture. The architecture echoes Milan'sextravagant use of colors, textures and materials with intense attention todetail. The chain also partnered with anItalian baker to adapt its menu to local tastes. Some believe the taste profileof Starbucks coffee is similar to that of Italian coffee. The chain's sources Arabica beans from30 countries around the world. It's a darker, smoother roast comparedto the typical American coffee, which is.

Often regarded as weak. When I went to the roastery in Milan, Iwanted to try it. I immensely enjoyed the coffee I hadthere. It was perfect. Also, the cappuccino was nice andcreamy. The temperature was perfect. It wasn't burned. It tasted precisely like an Italiancoffee should and I would say a good Italian coffee.

But not everyone agrees. Many Italian customers go to Starbucksfor the unique experience. There is a widespread view online thatStarbucks is seen as exotic to international customers. And in a high fashion city such asMilan, holding a Starbucks cup can give a sense of status. Tourism could be a big driver behindthe chain's sales. Tourists are more likely to shop atbrands they recognize. About 95 million tourists arrived inItaly in 2019.

Other brands have had a harder timefinding success in the country. Domino's, Ben & Jerry's and Haagen-Dazsall failed. One of the biggest missing pieces is toreally understand the competitive landscape. And the competitivelandscape in most of our European countries is not another chain. The company said it plans to open fivemore Starbucks locations in Italy by the end of 2022.

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