Why Starbucks Should Stick to the Home Front Now
Is Starbucks Corp. (SBUX) all maxed out in the United States? In a recent opinion piece, the Wall Street Journal's John Jannarone urges Starbucks to expand aggressively overseas to grow its sales again, because it's mature here.
While the open territory of new markets can sound alluring, focusing on overseas expansion isn't a good idea right now. Here's why:
Foreign distraction. When company CEO Howard Schultz started logging the frequent flier miles to dozens of foreign countries to explore partnerships and drive overseas expansion -- that's when Starbucks started to flounder as a company. Top management had their eyes abroad, and weren't tuned in that the U.S. stores were starting to lose their relevance. Starbucks doesn't need a repeat of that cycle.
Overseas expansion is problematic. Time and again, Starbucks has had to send U.S. managers overseas to rescue a floundering foreign-country operation, as it did to Japan in 2003. The company has a history of starting joint ventures with in-country partners in hopes of keeping managers' energy focused at home, only to have to ride to the rescue later, buying the partner out and taking over the whole operation. They did it years back with Switzerland and Austria, this summer with Brazil, and last summer with France. It's clear that translating Starbucks to other countries and cultures isn't necessarily a walk in the park. It takes time and energy Starbucks doesn't really have right now.
Domestic rebranding is just getting started. Starbucks is tinkering with some great new ideas, including serving beer and wine at night in its coffeehouses. But these things are just in the pilot phase. Managers need to stay focused on reinventing its core market presence for a while to come, to make sure this makeover is a success.
Packaged goods battle brewing. In its increasingly lucrative grocery-store business, Starbucks is in a faceoff with Kraft (KFT) about distribution of much of its packaged coffee. Starbucks would like to end the relationship and gain more control over its distribution, while Kraft has issued statements that it considers the partnership "perpetual." It's more important for Starbucks to focus on making sure this cash cow keeps producing and its distribution situation doesn't hit a snag.
U.S. rebound is getting underway. There's plenty of upside in the U.S. market as the economy improves, and as the company's new ideas get out to the stores. In its earnings release today, Starbucks saw stores open more than a year rise 9 percent here at home, while the sales improvement wasn't as good overseas. So that doesn't make it look like putting more energy into foreign stores is the best move right now.
Photo via Flickr user re-ality
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