Starbucks enters Italy

Starbucks CEO Howard Schultz's vision for the chain was largely inspired by the coffee bars he saw on his first trip to Milan more than three decades ago. But it took the company that has about 26,000 stores in 75 countries, 35 years to win the credibility he felt necessary to make the leap into the country that gave espresso to the world.

Located in an old post office building just steps from Milan's cathedral, the store will be the largest to date at 25,500 square feet, or about 2,400 square meters — compared with 200 square feet for the average Starbucks location.

Although Starbucks has garnered repute and immense 

popularity in the US, Asia and some parts of Europe, will it be able to invade the most fortified Old World coffee stronghold?

Italians are certainly passionate about coffee -consuming 4.6% of the world's supply - but they don't enjoy it the way Starbucks typically serves it: from drip percolators, and in elaborate preparations like the Frappuccino. They also favour making coffee at home, and when they do go out for it, they drink espresso shots and inexpensive cappuccinos while standing at the bar.

The Italian cafe market is the biggest in the world, with over $10 billion of retail sales in 2014.

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 in fact been decreasing, falling from 30.3% in 1997 to 23.4% in 2011.

Traditional espresso is deeply rooted in Italian culture. Starbucks' fancy drinks may appeal to foreigners and curious Italians, but it will never displace authentic Italian coffee. As a result, a cafe in Italy is always an espresso. A cappuccino is seen as something completely different - a breakfast drink no normal person would want after about 11 A.M. 

Also, baristas in Italy generally make the coffee in full sight of the consumer, and hand brioche and other pastries across a glass case, often with a quip. It is not uncommon to see waiters with silver trays delivering coffee in porcelain cups covered with foil to neighbouring business, a practice that underlies the rarity of the takeout coffee cup.

Starbucks’ strongest point is to take away, to buy and take away. However, the culture and strong point of Italian cafes is service, they serve coffee of very high quality, with a very refined blend and a great service.

To overcome this challenge, Starbucks will have to adapt its offerings for Italian tastes, as it has successfully done in China. The company serves red bean Frappuccinos and mooncakes in 2,000 Chinese stores, and plans to open 2,500 more in the next five years.

For Italy, Starbucks plans to come up with a Roastery in Milan.
The Roastery is Starbucks’ premium offering, designed to cater to well-heeled consumers that are driving sales of niche, artisan goods. It serves small batch “Reserve” coffees in a variety of brewing methods.

The average customer at the Roastery spends four 

times more than the average customer at a traditional Starbucks store.

After the Roastery, Starbucks plans to open other locations in Milan, a combination of traditional stores and Reserve stores, which are essentially smaller Roasteries, before it looks at other Italian cities. As of now, it is not known how many stores are planned for Milan, but as noted in the past, 10 to 12 have opened within the first year of entering a market.

To help capture the local markets, Starbucks will work with Italian licensee and business partner Percassi. Together they will also open "a small number" of regular coffeehouses in Milan for the balance of 2018, the company said. They are also expected to create around 350 jobs in Italy.

Percassi, the licensee, is a renowned Italian company with a proven track record of operating highly successful major brand partnerships across Italy. This venture will be instrumental in helping Starbucks combine local expertise with demonstrated business success to make every single store a favourable experience for Italian customers.

However Starbucks must be ready to face fierce competition-

     1. There are some 149,300 bars in Italy and a network of 3, 00,000 companies in the catering, restaurant, tourism and entertainment industry.

      2.  Considering the conventional coffee practices, initially only younger and brand-aware Italians and tourists in Italy may be disposed toward embracing Starbucks as a place to hang out. 

      3.  The notion of the “third place”—Starbucks as a kind of home away from home, or office away from the office—is not the usual concept for Italian cafes, that value customer-attention and service more.

      4.  Italians don't pay Starbucks prices. A cappuccino at an average Italian cafe costs 1.40 euros, about $1.52. That's less than half the price of a small Starbucks cappuccino, which costs $4.01. They also don't favour large drinks like Starbucks' 24 oz. Venti, which commands an even higher price.

     5.  Also, customers who order a pastry and a cappuccino while standing in an Italian bar in the Piazza Cordusio area (where the first Starbucks in Milan will open) can expect to pay around $3. By contrast, a Starbucks Grande Cappuccino alone can cost $3.95 before tax.

     6.  Pumpkin Spice Lattes and Peppermint Mochas are a no-no:  The various flavoured coffees popular in the United States are considered children’s drinks and are not favoured in the Italian market. 

Starbucks is set out to make an ambitious venture. Only successful catering to domestic practices, coupled with its marvellous brand name can help it make space for itself in the competitive market.