starbucks in consumer foodservice - purepure.au.dk/portal/files/6292/bilag_2.pdf · starbucks in...
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© Euromonitor International >Starbucks – CFS
Strategic Evaluation
Competitive Positioning
Market Assessment
Recommendations
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© Euromonitor International >Starbucks – CFSStrategic Evaluation
Key Company Facts
Starbucks
Name Starbucks Corp
Headquarters USA
Regional Involvement
North America, Western Europe,
Eastern Europe, Latin America,
Asia Pacific, Australasia, Middle
East and Africa
Sector Involvement Cafés/Bars
World % value share
(2007)2.9 share of Cafes/Bars
Value growth % (2006-
2007)24.5
Global leader in Cafés/Bars
Starbucks operates solely as a coffee specialist and
dominates the category, with a value share of 39% in
2007.
With a strong and growing international presence,
Starbucks is the top specialist coffee shop operator in
Asia Pacific, Latin America, North America and Western
Europe.
Starbucks’s largest presence is in the US, with around
70% of its total outlets in the country in 2007. The
company’s value share in chained specialist coffee
shops in the US is a remarkable 88%, and 67% when
including both chained and independents.
Operating income increased by nearly 18% in fiscal
2007, but the operating margin slightly dipped from
11.5% to 11.2% due in part to an increase in the cost of
goods, particularly dairy, higher rents and distribution
costs.
The US segment’s financial results slowed in 2007,
with lower levels of same-store sales. While some of
this was offset by two price increases, store traffic
overall has slowed as consumers faced increasing
prices for food and fuel.
Operating income up but margin down
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© Euromonitor International >Starbucks – CFSStrategic Evaluation
Growing the Band in Foodservice and Retail
Beyond coffee specialist outlets
Starbucks’s consumer products group accounts for
a small percentage of total company revenue but is
instrumental in developing and building brand
loyalty.
Highly concentrated in the US, Starbucks branded
products have expanded into Latin America,
Western Europe and Asia Pacific.
The company has used partnerships with well-
established packaged food and drink
manufacturers, including Kraft Foods and PepsiCo
to enter and grow in new markets. In the US,
Starbucks partnered with Hershey in 2007 to
launch coffee-flavored chocolates and with Unilever
in 2008 to create super-premium ice cream.
Through the addition of 2,604 outlets in 2007,
Starbucks increased its sales by a significant 25%.
According to Starbucks, long-term outlet growth
plans call for 20,000 US outlets and the same in
international markets.
Company-owned outlets represent the majority,
accounting for 85% of total value sales.
Internationally, there is a stronger emphasis on
licensed stores as this has been the fastest way to
establish a presence in a new market.
Gaining market share through outlet growth
Starbuck‟s Retail Market Share
Global Market
Sector
2007
Ranking
2007
% value share
Hot drinks 10 1.0
RTD coffee 3 9.5
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© Euromonitor International >Starbucks – CFSStrategic Evaluation
Operating Philosophy
Reliance on fixed price contracts
Starbucks’s socially responsible foundation will
continue to be favourable particularly as a
greater number of consumers themselves become
more environmentally-conscious.
The company continues to publish an annual
Social Responsibility Report while other fast
food operators have only recently started to act
and market their corporate social responsibility
moves.
Central to Starbucks‟s socially responsible
philosophy is its C.A.F.E.. (Coffee and Farmer
Equity) Practices. These practices were designed
to ensure the coffee the company purchases is
produced in a responsible way.
Starbucks also places a strong emphasis on
excellent employee relations, referring to all
employees as partners.
These efforts have helped to shield the brand from
the typical scrutiny that most large multinational
chains receive. With aggressive international
growth plans in place these efforts will need to
continue.
Expanding globally and responsibly
Starbucks controls the impact of increased commodity
costs by entering into fixed price contracts or price
to be fixed contracts with coffee suppliers.
While these coffee contracts have shielded the
company historically, a stronger threat now stems
from increased dairy and other food costs.
Starbucks large global position should shield the
coffee specialist from experiencing too much damage
in terms of operating margin, but it has had to
implement two price increases in the US to
counteract these costs.
The US accounts for 75% of the companies total
dairy expense. As dairy prices can change
significantly in the short term this has impacted profit
margins in 2007 and will likely have a similar impact in
full year 2008.
Passing on rising costs through an increase in menu
prices is an unfavourable option as mounting food
and fuel costs have and will continue to impact
consumers‟ discretionary spending into 2009.
Starbucks will look to new product launches to
attract existing and new customers to increase their
frequency as well as their value per transaction.
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© Euromonitor International >Starbucks – CFSStrategic Evaluation
SWOT – Starbucks
Opportunities
WeaknessesStrengths
Threats
Brand RecognitionLicensed International
Outlets
Asia Expansion Local Competition
Global Presence
Expanding Popularity
of Coffee
UK Market Reliance
Diluted Brand
The Starbucks brand is
well recognised and
synonymous with
premium coffee, helping
to attract consumers
looking for consistency
and convenience.
The company has
been the first chained
specialist coffee
operator in many
markets and continues
to benefit from its first
mover advantage.
While licensing
international outlets has
helped the company
quickly increase market
presence it does
weaken its overall
control.
Starbucks has 70% of
its outlets in the US,
where economic
conditions are currently
poor and the
competition from fast
food operators is
mounting.
China presents a unique
opportunity for Starbucks
as the coffee drinking
culture is still
undeveloped.
As the result of
Starbucks’s success and
quick expansion,
premium coffee
beverages are in high
demand and are
projected to continue to
be a popular affordable
luxury for most
consumers.
Competition continues to
escalate with
local/regional coffee
specialists increasing
their presence and fast
food operators
expanding their offerings
to attract consumers
seeking premium coffee
products.
As the company
continues to expand in
size so does the
authenticity and
premium platform on
which Starbucks has
relied upon to bolster
demand.
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© Euromonitor International >Starbucks – CFSStrategic Evaluation
Key Strategic Objectives and Challenges
Improving the customer„s coffee
experienceInternational outlet expansion
Starbucks has dedicated fiscal 2008 and 2009 to refocus
on its coffee offering, which is a core part of the
transformation strategy introduced in January 2008 in an
effort to enliven the Starbucks brand in the US.
Outlet growth is a top objective for Starbucks and
expansion is now concentrated on international
locations, now expected to make up 40% of total outlets
by 2011.
Starbucks is focusing on China where it hopes to benefit
from its first mover advantage, the large youth population
and rising disposable incomes. However, it must contend
with a heavy tea drinking culture, competition from other
foodservice operators and great income disparity.
New Coffee Initiatives
Introduced Pike’s Place
Coffee
Pike’s Place is a milder brew
targeting new customers who
find the traditional Starbucks
coffee too strong.
Add Mastrena Espresso
Machines
Mastrena machines deliver a
high quality espresso and
improve the preparation
experience for the customer as
these lower in height machines
promote more interaction with
the barista.
Launch Clover brewing
system
Allows baristas to make one cup
of coffee at a time – providing a
fresher cup of coffee and
improving the customer
experience.
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© Euromonitor International >Starbucks – CFSStrategic Evaluation
Defining the Experience
Health and wellness focus
Maintaining the “third” place atmosphere
Generating customer loyalty
Faced with an increasing amount of scrutiny regarding the
healthy position of its beverages and food items,
particularly in the US, Starbucks is focused on improving
its healthy product offering. The company has launched a
new beverage selection including Sorbetto’s and the
Vivanno smoothies, with the option to add Matcha Green
Tea Powder, as well as a selection of better-for-you
breakfast products in the US in 2008.
Starbucks has also changed its standard milk from full fat
to 2% fat in many of its markets. Additionally, it branded a
new selection of beverages using non-fat milk and sugar-
free syrup as “Skinny” in the US, the UK and Ireland.
Looking to maintain and build upon its loyal consumer
base, Starbucks launched a loyalty card programme in
2008. This card and other promotional initiatives will be
used to advertise new food and drink items encouraging
consumers to increase their store visits.
With plans to expand the loyalty card worldwide, cards
now exist in Hong Kong, Mexico and the UK with stand-
alone programmes in place in Japan, Spain and other
international markets.
Not traditionally a central part of Starbucks’s strategy,
loyalty programmes will become even more essential for
building customer loyalty and for tracking consumer
preferences in new markets as a result of increasing
levels of competition.
Starbucks is focused on maintaining its successful third
place positioning – a place between home and
work/school. While the US market has seen an
expanding number of outlets with drive-throughs,
Starbucks’s third place emphasis is an integral part of its
international market expansion strategy.
New US Breakfast Product Line
Starbucks Perfect Oatmeal
Power Protein Plate
Berry Stella
Apple Bran Muffin
Chewy Fruit and Nut Bar
Multigrain Roll with Spreads
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© Euromonitor International >Starbucks – CFS
Strategic Evaluation
Competitive Positioning
Market Assessment
Recommendations
10
© Euromonitor International >Starbucks – CFSCompetitive Positioning
Global Coffee Specialist Leader
Top Ten Global Company Rankings 2003-2007
Brand (GBO)5-year
trend2003 2004 2005 2006 2007
2007 %
value
share
Starbucks (Starbucks
Corp) 1 1 1 1 1 37.8%
Doutor Coffee Shop (Doutor
Coffee Co Ltd) 2 2 2 2 2 2.8%
McCafé (McDonald’s Corp) 11 9 6 4 3 1.8%
Costa Coffee (Whitbread
Plc) 4 4 4 3 4 1.8%
Barnes & Noble (Barnes &
Noble Inc) 3 3 3 5 5 1.2%
Gloria Jean’s (Jireh
International Pty Ltd) 12 * 11* 9 9 6 1.0%
Caffé Nero (Caffé Nero
Group Plc) 9 6 7 6 7 0.9%
Tully’s (Tully’s Coffee Corp) 7 5 5 7 8 0.8%
Caribou Coffee (Arcapita
Inc) 6 7 8 8 9 0.7%
Second Cup (Cara
Operations Ltd) 5 8 10 11 10 0.7%
Starbucks is the world’s fifth largest
consumer foodservice brand and the leader
in the only category it operates in, specialist
coffee shops.
With 15,269 outlets in 2007, the coffee
specialist is present in 44 countries with a
combination of company-owned and
licensed outlets.
While chained competitors are far behind at
the global level, competition stems from
independents and local chains.
Doutor Coffee Shop ranks second yet its
Japan-only presence does not make it a
direct threat to the coffee specialist giant.
Costa Coffee, which dropped in value
ranking in 2007, does present a stronger
threat with a presence in eight countries,
consistent outlet growth (reaching 666
outlets in 2007) and future plans for
expansion in Asia. (Costa formed a
partnership with the Yueda Group in China.)
The strongest challenger for Starbucks will,
however, come from McDonald’s McCafé
brand. While the company must still continue
to build its premium coffee reputation in
some markets, McCafé has a strong global
presence and a reputation for offering good
value for money.* Gloria Jean’s was owned by Diedrrich Coffee inc in 2003 and 2004
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© Euromonitor International >Starbucks – CFSCompetitive Positioning
Competition Expands Beyond Coffee Specialists
Starbucks competes increasingly against a number of
categories, as foodservice operators try to capitalise on
the popularity of premium coffee and breakfast on-the-go.
While the most direct competition stems from coffee
specialist shops, fast food competitors also pose a threat
with their strong brand recognition, reputation as a
breakfast/snack destination and global presence.
Fast food operators are increasingly becoming, for
consumers, a one-stop location for premium coffee,
breakfast, snacks in addition to their typical lunch/dinner
focus.
Bakery products fast food brands perhaps offer the
strongest threat to Starbucks as they already are a
morning destination for many consumers. While the
largest global brands, Dunkin’ Donuts and Tim Hortons
have the strongest presence in North America, other
smaller chains including Paris Baguette and Mister Donut
are quite popular in Asia.
Starbucks has historically set itself apart from fast food
operators by serving speciality coffee, but the slowdown
in the global economy will likely intensify the competition
as consumers seek out the better value over a name
brand.
Starbucks hopes its recent new breakfast menu will help
attract those consumers who have been drawn to these
fast food outlets for both their speciality coffee and
expanding breakfast selection.
Leading Competitive Bakery Products Fast Food
Brands - 2007 Outlets*
Dunkin’ Donuts 7,386
Tim Hortons 3,223
Mister Donut 1,778
Paris Baguette 1,650
Expanded Beverage Offerings Fast Food Brands
McDonald’s
To introduce speciality coffee beverages to all
US locations by the end of 2009.
Internationally looks to expand the McCafé
brand. In 2007 there were already 1,370
outlets worldwide.
Wendy’s
Began testing a line of ice coffee drinks in
several US states in 2008, including a
variation on the Frosty, called Frosty-cino.
Subway
Sandwich specialist Subway launched a new
concept called the Subway Café in
Washington D.C. in 2008 serving sandwiches,
gelato as well as speciality coffee drinks.
* Excludes sandwich specialist
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© Euromonitor International >Starbucks – CFSCompetitive Positioning
Chained vs Independent Coffee Specialist Shops
With 71,516 total specialist coffee shops, chained players account for the majority, with Starbucks by far the
market leader.
The independent sector, with 28,065 outlets in 2007, has a strong outlet presence yet its share of total value
is much smaller at 24%.
This high concentration of chains in specialist coffee shops, really as a result of Starbucks’s position, is
unique as other café/bars and full-service restaurants have a much higher percentage of independents in
both value and outlets.
Almost half of the world’s independent specialist coffee shops are located in Asia Pacific, mainly Vietnam
where small local specialist coffee shops target only a select customer group such as musicians, financial
professionals etc. with a unique style or product selection.
Independents continue to hold their own and have seen consecutive growth in outlets and value with a value
increase of 7% in 2007.
Starbucks’s expansion has likely helped independents as the brand has attracted new consumers to
speciality coffee.
The strongest competitive threat for Starbucks, however, will come from local and smaller international
chains which have also benefited from the growing demand for specialist coffee.
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© Euromonitor International >Starbucks – CFSCompetitive Positioning
When it Comes to Market Value, Starbucks Takes the Lead
Top Coffee Specialist Brands – Total Outlets
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© Euromonitor International >Starbucks – CFS
Strategic Evaluation
Competitive Positioning
Market Assessment
Recommendations
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© Euromonitor International >Starbucks – CFSMarket Assessment
Foodservice Value Growth: Starbucks vs The Market
A Starbucks has been the growth driver of specialist coffee shops through its own expansion and by
creating a coffee culture that did not exist in most markets.
B Despite a slowdown in US store traffic in 2007, the addition of over 2,600 outlets worldwide helped
the company achieve another year of over 20% growth.
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© Euromonitor International >Starbucks – CFSMarket Assessment
Opportunities Across All Regions
Only the North American market is nearing maturity - future value growth reliant on successful new product launches.
Western Europe is the most promising market, yet Starbucks must contend with strong competition from local chains.
While Asia Pacific’s projected compound annual growth rate (CAGR) is not as optimistic as other regions, North
America the only exception, the region is projected to add nearly US$2 billion in value, second only to Western
Europe.
Opportunity Zone
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© Euromonitor International >Starbucks – CFSMarket Assessment
US Market Evaluation
The US market has reached saturation with 10,679
outlets recorded at the end of 2007. Aggressive
domestic expansion plans came to a halt in 2008 when
the company announced it would have to close 600
stores.
The stores closed were unprofitable and as many were
located next to an existing Starbucks, the remaining
outlets are expected to benefit. While the company
intended for the stores to cannibalise each other the
true impact of market saturation was not anticipated.
Two US price hikes in 2007, as a result of the rising
cost of dairy, did help the company avoid a decline in
comparable store sales during its fiscal 2007; however,
a drop in 2008 is inevitable as store traffic has
continued to decline.
Starbucks pulls back in the US
2008 has been a challenging year for Starbucks as a result
of the decline in the US, which accounted for around 72% of
total system-wide value sales.
Howard Schultz returned to his role as president and CEO in
January 2008 and launched a number of new initiatives as
part of the transformation strategy, including the closure of
600 stores.
The economic slowdown has been the main driver of
Starbucks’s US decline, and this is expected to impact the
company into 2009.
Specialist coffee shops are projected to remain popular and
Starbucks is well-positioned to see an improvement, as the
economy recovers, based on its premium brand image and
new product launches.
The transformation plan
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© Euromonitor International >Starbucks – CFSMarket Assessment
Obstacles Facing the US Segment
Obstacle Starbucks Reaction and the Implication2008
Impact
2012
Impact
Competition:
Fast food brands have
introduced their own
specialty coffee
brands and are
pushing those to
consumers seeking
value for money.
Starbucks in turn has focused its attention on delivering a quality coffee product.
Starbucks has launched a loyalty and promotional programme hoping to retain
customers and increase daily visits. To help attract consumers looking for
convenience the company plans to open more drive-throughs which have been a
success. The alternative value beverage offering from fast food operators will attract
consumers faced with higher food and fuel costs but in the long term Starbucks‟s
premium position will help it maintain a more selective coffee consumer. The
key challenge will be maintaining their interest particularly with an increasing number
of smaller chains and independents emphasising their coffee expertise .
Unhealthy image:
Continued media
scrutiny regarding the
calorie count of
restaurant items in the
US has brought
Starbucks’s high-
calorie menu to the
forefront.
Starbucks built its brand by offering a wide selection of often sweet high-caloric
beverages. With more consumers looking for healthy alternatives Starbucks
has responded with the launch of Vivanno, a fruit-based smoothie and five
new healthy breakfast items. These new products are unlikely to change the
brand’s unhealthy image in the short term but this is not expected to have a great
impact as Americans are expected to continue to indulge. The new products
should also help attract new consumers looking for a non-coffee alternative or
increase the spend of existing customers.
Weakening US
economy:
Consumers have seen
their disposable
incomes shrink as a
result of higher food
and fuel costs.
Once considered an affordable luxury for the masses, Starbucks has been impacted
by the slowdown in the economy and this will continue to put downward
pressure on traffic. Poor US performance has been tied to stores in Florida and
California where consumers have been particularly hurt by the housing downturn.
The company is said to be testing smaller cups of drip coffee with free refills for
US$1; however, this type of tactic is unlikely to reverse the traffic declines. Starbucks
is better off maintaining its premium status and driving traffic through new
product launches or loyalty programmes, initiatives that are more likely to reap
benefits over the long term.
High Impact
Low impact
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© Euromonitor International >Starbucks – CFSMarket Assessment
International Market Evaluation
Starbucks steadily expands abroad Current hurdles
Following the addition of five new countries in
2006/2007, Starbucks also added new locations
to Argentina and the Czech Republic in 2008 and
plans to expand into Poland, Hungary, Colombia
and India.
In 2008, Starbucks partnered with SSP, the
leading food and beverage brand operator in
travel locations, to open 150 outlets in airports
across Europe concentrating on France,
Germany and the UK. These travel locations can
be extremely profitable because of the semi-
captive, high disposable income and typically
international audience that uses airports.
In some countries, Starbucks faces an existing coffee culture
with competitive local chains; in others, it must create a coffee
culture that does not exist. Starbucks has so far been
successful in entering new markets, with its premium product
and aspirational brand, particularly those where there is a
young, high disposable income consumer base.
However, as consumers are faced worldwide with shrinking
disposable incomes Starbucks will need to justify its high price
or risk becoming a commodity. Already the impact is apparent
with the UK market in 2008 showing a slowdown in traffic as a
result of rising food prices.
Starbucks has had a more challenging time within the Australian
market, with an existing coffee culture and where consumers
have not been drawn into the novelty of the Starbucks brand.
While this does not impact the brand’s global share it is an
indication that the brand is not always going to be met with
open arms, and Starbucks must remain aware of the local
chains and customs inherent to each market.
2008 Starbucks
announced plans to close
61 Australian outlets –
80% of total stores
2006/2007 New Market Entries
Total 2007 Outlets
Brazil - 5
Egypt - 7
Denmark - 2
Romania - 2
Russia - 2
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© Euromonitor International >Starbucks – CFSMarket Assessment
International Challenges and Opportunities
Starbucks is hedging on international expansion to lessen its
dependence on the US, increase sales and improve shareholder
value.
Global expansion on the surface looks to be promising with a
number of markets projecting outlet expansion influenced in part
by Starbucks’s expansion plans.
While short term the company will face a challenging market
environment, unlike in the US, there is still room for expansion
internationally and value growth can be gained through the
addition of new outlets.
International locations with comfortable seating and a localised
food offering will benefit from consumers looking for a place to
socialise, eat and drink.
China is a major target for Starbucks, where it has
already seen a positive response to the 259 outlets in
2007 and as a result is now focusing on small to medium-
sized Chinese cities.
Favourable demographics make China an obvious target
and is expected to be Starbucks’s second largest market.
The growing number of expatriates and citizens that have
returned to their homeland from abroad is expected to
help fuel an interest in coffee and the “third place”
positioning is increasingly attractive to Chinese people
looking for a place to socialise with friends.
In 2- and 3-tier cities, Starbucks faces strong competition
from local and global cafés/bar chains and independents
and a completely nonexistent coffee culture. Starbucks
has the resources to expand more quickly but its success
will be dependent on the general public’s willingness to
pay a premium for speciality beverages. 12
Starbucks, like others, looks to ChinaFinding growth opportunities abroad
Starbucks % Value Market Share – China
2006 2007
Total Cafés/bars 1.0 1.2
Chained Cafés/bars 4.5 4.7
Chained Specialist coffee shops 39.4 40.0
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© Euromonitor International >Starbucks – CFS
Strategic Evaluation
Competitive Positioning
Market Assessment
Recommendations
22
© Euromonitor International >Starbucks – CFSRecommendations
Premium Experience and International Expansion
Over saturation may weaken the value of the
brandUnderstanding local preferences crucial for
international expansion in 2-tier cities
As Starbucks expands so will its competitors in both
type and number. The US market has already seen an
increasing number of fast food operators improve their
coffee offering. In international markets, competition will
come from independents and local chains that can
quickly adapt to consumer demand. Starbucks would be
wise to continue responding to these challenges through
promotional campaigns and its loyalty rewards card
programme rather than offering a lower quality product
that threatens the premium positioning of the brand.
Remain mindful of all levels of competition
New food products and non-coffee beverages
launched in the US should help increase store traffic
and attract new consumers; however, this shift in
focus may put off those core coffee consumers that
are an essential part of the company’s success.
Starbucks will benefit from finding ways to improve its
coffee offering and consistency in quality rather than
diversifying its product range. While food and non-
coffee beverages are a great way to increase the
average transaction value if they become a substitute,
coffee enthusiasts will seek out a higher quality
product and experience elsewhere.
New products should not alienate core coffee
consumers
The company’s concentration on international expansion
is wise as it currently remains too dependent on the US
market. While expansion in major cities should continue
to be well-accepted the challenge will be to appeal to a
wider consumer base in smaller cities where consumers
typically have lower incomes and coffee cultures are
often nonexistent. Starbucks would benefit from
remaining culturally attuned to local preferences,
adjusting prices accordingly, localising food and
beverage and adapting stores to consumer demand.
Crucial to Starbucks’s success is its premium brand
positioning. While outlet expansion across the US and
internationally drove value growth and increased the
popularity of speciality coffee there is a point at which
market saturation can dilute a brand’s premium
positioning. In an effort to avoid becoming a sterile fast
food brand, Starbucks should not lose focus on its “third
place” positioning, particularly in International locations
where consumers seek out a place to relax and socialise.
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© Euromonitor International >Starbucks – CFS
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