Starbucks in Strange Lands

The Wall Street Journal recently interviewed Starbucks CEO Orin Smith about the company’s experiences in new markets. I was impressed by Smith’s candor. Starbucks is learning the hard way what most American-based companies are learning the hard way — that someone may speak English and act American and still have little in common with Americans. As Smith noted, even the “Canadians are not Americans. They are different.”

However, Smith also notes that different cultures do often share the same tastes in beverages.

Here is an excerpt from the interview:

WSJ: You’ve opened more than 1,000 stores outside the U.S. What lessons have you learned?

Mr. Smith: The biggest lesson is not to assume that the market or the consumers are just like Americans, even if they speak English or otherwise behave as if they were. They’re not. This happened in the U.K., [and] it has even happened in Canada. The Canadians are not Americans. They are different.

We took to some of these English-speaking countries the same operating concepts and practices [as in the U.S.], and they just don’t work the same way in all markets. For example, in the U.S., our real-estate strategy was to find the best corners in the best markets and open the stores. It worked very, very well. If you go to the U.K. and find the best corner, it’s probably on High Street. You’ll do a great volume of business but you can’t afford the real estate. If you locate there as we did, in a number of places, it’s a big mistake.

WSJ: Did you have to relocate those stores?

Mr. Smith: No, it’s harder to change your mind after you’ve committed in the U.K. We’re locked in for a long time. Eventually we’ll work our way out of it.

WSJ: It’s one thing to sell a good cup of coffee to an American; it’s quite another to sell it to an Italian. How do you sell Starbucks coffee in Italy and France and other countries where people have definite ideas about how to make coffee?

Mr. Smith: There is already in those countries some built-up demand for the Starbucks experience. In countries where we don’t yet have a presence, there are Starbucks look-a-likes that appear to be doing very well. Paris is a great example of this.

WSJ: Is the Starbucks coffee one drinks in the U.S. the same as the Starbucks coffee in Japan or the U.K.?

Mr. Smith: Yes.

WSJ: Do you serve drinks that cater to local tastes?

Mr. Smith: We do try. For example, we have green tea Frappuccino in Taiwan and Japan. It’s the largest-selling Frappuccino in those countries. We don’t offer it anywhere else.

WSJ: Have there been products you’ve offered overseas and then brought to the U.S.?

Mr. Smith: Yes, and there will be more. The vanilla Frappuccino was popularized in Asia. We will be introducing strawberries and cream [Frappuccino] out of the U.K. next year. That one will be extremely popular here. It’s an amazing Frappuccino.

WSJ: How much does your product-mix vary from country to country? You’ve been selling alcohol in one outlet in Japan. How is that going?

Mr. Smith: First of all, there isn’t a great variation from country to country. Outside the U.S., you find that food is a bigger part of the business — much more important in China, Japan and the U.K. than it is in America. Frappuccino-kind of products are popular everywhere. You have a little bit less drip coffee in some markets because they are more espresso drinkers. In other countries, we don’t sell as much whole-bean coffee. They’re not into as much home brewing as we are here. We are trying to change that. We don’t have any intention of rolling out establishments with liquor.

WSJ: What has been most surprising to you about consumer tastes in other countries? Did you have to change any of your assumptions?

Mr. Smith: The biggest surprise for us is how quickly they accept the kinds of products that we’ve introduced in the U.S. It isn’t just the lattes and the cappuccinos or drip coffees. The Frappuccino is extremely popular. It catches on almost immediately. So do some of the very sweet drinks, the caramel editions and so forth.

We thought that in Asia, for example, they wouldn’t like those beverages as much as we do here, because they would be too sweet for the palate of many Asians. Not true. We’re a lot more alike sometimes than we believe.

WSJ: Do you think your biggest audience abroad is Americans traveling who miss their Starbucks at home, or locals who find this an American novelty?

Mr. Smith: It will be the locals. The first store or two will attract a disproportionate share of international types. It’s not just the U.S. missing [Starbucks] anymore: It’s the Japanese missing it and people from a lot of other countries where we now do business.

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