Reasons behind Starbucks inability to open branch in Italy

Why Starbucks failed to open store in Italy so far?

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The Italian press began to report the upcoming opening of Starbucks in Italy years ago, which has, however, not become true so far. The Seattle-based coffee chain has opened stores in more than 65 countries worldwide, so why not in Italy?

Starbucks Coffee Company welcomes the return of the iconic Pumpkin Spice Latte, back for its 10th anniversary (CNW Group/Starbucks Coffee Company)
Starbucks Coffee Company welcomes the return of the iconic Pumpkin Spice Latte, back for its 10th anniversary (CNW Group/Starbucks Coffee Company)
Italy has long been a strong coffee consumer. There are as many as around 150,000 coffee bars throughout the country employing more than 360,000 people, without counting the ones inside hotels or other business establishments, according to figures of the Italian federation of bars and restaurants (FIPE).

There are some elements of Italy’s highly competitive market that have somehow put the brakes on Starbucks’ opening in the past. Not only the figures indicate that there is a bar for every 400 residents in Italy, but Italians also have a strong liking for a type of coffee, espresso, which is certainly not the flagship product of Starbucks.

On the other hand, however, Italian consumers’ habits have changed over the years.

This is proved by the fact that in main cities of Italy, you can find bars now which offer a variety of other types of products besides coffee, often artisanal ones, from pastry to ice-cream. Some have become very customized. For example, “coffices” and “workcoffees”, have opened in Milan where customers can work or even look for a job while they are drinking coffee.

Some bars appeared to have business models similar to that of Starbucks. They offer a variety of coffee choices, free internet access and takeaway service, and are designed to be an ideal space for those who want to stop and spend some time there.

One of these is Arnold Coffee, which has shops in Milan and Florence. The founder Alfio Bardolla says in a statement posted on his website that he has always loved traveling and that he felt the lack of a true American cafe in Italy. He says that after much searching around America and Europe, he gave rise to a different way of enjoying coffee in his own country.

However, Italy is a touristic destination visited by crowds of people already used to Starbucks, an element seems to suggest that Starbucks could be successful in some locations in Italy, for example, Milan’s business district and Rome’s busy city center. Starbucks’ absence in these places, according to experts, are due to a number of reasons.

“The key issue is that Starbucks thinks in terms of chain, that is to say in terms of economies of scale, where suppliers and everything are standardized. It would make no sense for the American giant to open just a few shops in a new country,” said Luciano Sbraga, director of the FIPE studies office.

“Starbucks has analyzed the Italian market in depth, and I know it is considering very seriously to open stores in the country, but it first wants to find the best way to deal with such a complex market. The possibility to enter and then withdraw cannot be taken into account as such a move would be seen like a failure,” said Sbraga.

He also underlined that the Italian market is open and poses no barriers. “Whoever wants to start a new business can do it in compliance with the Italian law. A typical example is that of McDonald’s, which despite being a sort of symbol of a totally different food service from the Italian typical ones, has opened in the country without problems,” he noted.

Sbraga highlighted the unique traits of the Italian market. “The Italian bar is a characteristic of Italy, there is not a similar format in other countries. First of all, here we have the tradition of drinking coffee at the bar counter. Our bars are very welcoming but generally quite small, around 60 square meters at disposal of consumers, who in general consume quickly and go,” he said.

On average, every Italian bar uses 1.2 kg of coffee every day, which means a total of around 175 cups, including both espressos and cappuccinos. And although there is a considerable price difference depending on the bars’ location and service, the average price of a coffee is just 96 euro cents (1.05 U.S. dollars).

“This makes Italy the place where coffee is the most inexpensive in the world, besides being the homeland of espresso,” noted Massimiliano Bruni, director of the food & beverage knowledge center at SDA school of management of Bocconi University in Milan.

In order to be profitable and sustainable in a new market, the American chain needs a sufficient number of points of consumption, as well as the possibility to train staff and manage a series of issues, according to Bruni, who talked to Starbucks some two years ago about the opening of stores in Italy.

“I guess it would not be worth opening in Italy with less than 20-25 points of consumption. In addition, Starbucks’ pricing is decisively higher than that of Italian bars, with a coffee at Starbucks costs no less than 3 euros,” he said.

Nevertheless, Starbucks was reportedly considering seeking cooperation with the Percassi business company, a leading Italian retailer, to open stores in the country. Percassi declined to comment on this issue earlier this week.

“The cooperation makes sense because Percassi is present in shopping malls and outlets, where people are likely to consume coffee,” Bruni said.

According to Bruni, Starbucks has three business models in the world: an ownership model, a partnership model with one of more local business developers – which would apply to possible collaboration with Percassi – and a license model – like the one of Autogrill, which operates Starbucks in many airports.

“There have been reports of a possible collaboration between Starbucks and Percassi months ago, so should something happen, we are likely going to find out during this year,” said Bruni.

He added that he still has some doubts on whether the Starbucks business model can be successful in Italy in the medium or long term.

“The success in the first months could be a result of consumers’ curiosity, but we are looking at years and years of turnover. I find it difficult to imagine many cities ready to host Starbucks in Italy, and in fact this is the reason why Starbucks has been hesitating so long,” he said.

Source: Xinhua,

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