1. International Business Strategy: Starbucks Corporation

2. “We’re not in the coffee business serving people.
We’re in the people business serving coffee."
Howard Behar, President of Starbucks International

3. STARBUCKS Expansion into São Paulo, Brazil

4. Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion

5. Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion

6. Introduction
Starbucks strives to become the most recognized and respected coffee retailer in the world
Expansion of international operations is key to furthering Starbucks’ position in the coffee industry

7. Company Overview Starbucks History: Founded 1971 in Seattle, WA
Named after first mate in Moby Dick
Early on roasted and sold coffee beans
1980s began selling coffee by the cup

8. Company Overview Starbucks History:
Howard Schultz bought Starbucks
Schultz introduced the “Starbucks Experience”
locations nationwide
International expansion began

9. Company Overview Starbucks Today: $6.4 billion in revenue
Serving over 35 million patrons
More than 7,500 shops in the US
Operating 3,000 plus shops in 36 foreign
countries

10. Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion

11. Starbucks Products
STARBUCKS stores offer regular and decaffeinated coffee beverages, teas, pastries, muffins, and other breakfast foods

12. Starbucks Ventures EthosTM Water Starbucks DuettoTM Visa
Starbucks Frappuccino®
Starbucks ice cream

13. Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion

14. Why Expand into Brazil? Strong coffee culture
Favorable political climate
Large Economy
Other American corporations’ success

15. Strong Coffee Culture Coffee has been harvested since the early 1700’s
“Café Mana” – Morning Coffee
Largest producer of coffee beans; twice as much as the 2nd runner up - Vietnam
Soon to be the 2nd largest consumer – behind the U.S.

16. Favorable Political Climate
Democratically elected President
Strong diplomatic ties with the U.S.
Current president’s focuses on economic expansion and encourages foreign investment

17. Large Economy Largest economy in South America
GDP approximately 620 billion and growing
5th most populated country in the world
Over 186 million people

18. American Corporate Success in Brazil
Coca Cola – 1940’s
McDonald’s – 1960’s
Most American Corporations outside U.S.

19. Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion

20. Starbucks’ Expansion Strategy
Wheel and Hub expansion method
São Paulo will be the hub
Spoke out into the rest of Brazil and beyond

21. Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion

22. Mode of Entry
Foreign Direct Investments
Licenses
Joint Ventures

23. Mode of Entry
Joint Venturing with

24. Mode of Entry World’s second largest retailer
7,000 stores internationally
Creator of hypermarket
99 hypermarkets in Brazil

25. Mode of Entry Carrefour has: Strong brand name recognition
Readily available resources
Massive distribution network

26. Mode of Entry
Targeted Hypermarket locations in São Paulo Downtown district 2. Main business district 3. Cultural District 4. Shopping District
Focus on working professionals

27. Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion

28. Finances Carrefour 50% <> Starbucks 50% $350,000 loans
Retrofit coffee shop in hypermarket
Equipment and beginning inventories
$100,000 infusion to sustain early operations

29. Finances Critical Assumptions:
Sustain growth of 20% per year - 1st five years
Brazilian inflation hovers around 6-7%
Capital obtained at 10% for 7 years
Equipment life at least 5 years

30. Finances Coffee Shop Setup DESCRIPTION COST Notes
Building retrofit labor
$89,000
Approx 40 man-weeks labor
Materials
$91,000
Includes walls, bathrooms, plumbing, and counter construction
Furniture and displays
$58,000
Tables, chairs, couches, displays cabinets, etc.
Equipment
$76,000
Coffee/espresso makers, utensils, pastry warmers, ovens, etc
Setup inventory
$36,000
Coffees, filters, supplies, pastries, etc
Operating capital
$100,000
50% investor, 50% Starbucks
TOTAL
$450,000

31. Finances
Break-Even Analysis
Break-even Point = $18,200

32. Finances FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 REVENUE
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
REVENUE
Beverage Sales
$ 184,900
$ 235,193
$ 299,165
$ 380,538
$ 484,045
Foodservice and other
$ ,094
$ ,112
$ ,950
$ ,832
$ ,043
TOTAL SALES
$ 195,994
$ 249,304
$ 317,115
$ 403,370
$ 513,087
Cost of Goods Sold
$ ,960
$ ,381
$ ,093
$ ,718
$ ,049
Gross Margin
$ 165,034
$ 209,923
$ 267,022
$ 339,652
$ 432,038
Operating Expenses
$ 254,160
$ 242,384
$ 253,021
$ 264,509
$ 276,386
Income before Taxes
$ (89,126)
$ (32,461)
$ ,001
$ ,143
$ 155,652
Income Taxes (38%) $
$ ,320
$ ,554
$ ,148
Net Earnings
$ 8,681
$ ,589
$ 96,504

33. Finances Project Losses in Years 1 and 2 Break-even in Year 3
Profit Margin Projections
14% in Year 4
22% by Year 5

34. Introduction and Company Overview
Starbucks Products and Ventures
Why Expand into Brazil?
Starbucks’ Expansion Philosophy
Mode of Entry
Finances
Conclusion

35. Conclusion Most respected coffee retailer in the world
International expansion is key to success
Brazil is the next market to enter
Partner with Carrefour
Projected strong profitability by Year 5

36. Questions?