Into the heart­land

Financial Mail - - SHOP TALK - @zeenat­moorad

It’s been a year of firsts for Star­bucks, that scep­tre of Amer­i­can glob­al­i­sa­tion. This year, the Seat­tle-based com­pany said it would phase out plas­tic straws be­cause of the plas­tic waste cri­sis. And it launched a ve­gan it­er­a­tion of its cel­e­brated Pump­kin Spice Latte. The com­pany will also al­low any­one, pay­ing cus­tomer or not, to use its re­strooms. None of Star­bucks’ firsts, how­ever, were as chewed over as the open­ing of its first Ital­ian out­post.

Italy has one of the most sto­ried cof­fee cul­tures in the world, an­chored in tra­di­tion and cer­e­mony. Morn­ings are for cap­puc­cino or caffè latte and it’s al­most sac­ri­lege to drink ei­ther of them af­ter a meal.

Cof­fee on the move — al­most al­ways an es­presso — is gen­er­ally drunk stand­ing up, at a (usu­ally) crowded cof­fee bar. There’s some quick-wit­ted ban­ter, a lit­tle bit of so­cial­is­ing but def­i­nitely no lin­ger­ing.

Many Ital­ians have de­rided Star­bucks’ launch in their coun­try as a ridicu­lous and provoca­tive joke, and snob­bery is likely to pre­vail in what is ef­fec­tively the spir­i­tual home of es­presso. But the mar­ket might just have room for tra­di­tional cafés as well as Star­bucks. Re­mem­ber that a visit to Mi­lan in 1983 was what in­spired Howard Schultz (later the com­pany’s CEO and chair) to take Star­bucks on a new tra­jec­tory. At the time he was the mar­ket­ing di­rec­tor for Star­bucks, which had just four stores in Seat­tle. They sold only whole-bean cof­fee for peo­ple to make at home. He was in Mi­lan for a trade show and fell in love with the sen­sory ex­pe­ri­ence of es­presso bars as he walked the city’s cob­ble­stoned streets. Italy was first men­tioned as a tar­get mar­ket in 1998, when he told The New Yorker that to open in the coun­try would be “to climb Mount Ever­est”.

The Star­bucks “Re­serve Roast­ery”, in the his­toric Poste build­ing in Mi­lan’s Pi­azza Cor­du­sio, comes about 35 years af­ter Schultz’s trip. Countertops at this more op­u­lent-type store were carved from a 30-ton block of Cala­catta Mac­chia Vec­chia mar­ble from a Tus­can quarry. It of­fers cof­fee, food and cock­tails, and il­lus­trates the Star­bucks roast­ing process.

Star­bucks is mostly tar­get­ing mil­len­ni­als be­tween 18 and 34 years old. Its re­search shows that brand recog­ni­tion is high and younger Ital­ians have tried Star­bucks cof­fee, de­spite the lack of do­mes­tic stores. Al­ready, in its fourth quar­ter up­date, the com­pany has said it would bring ad­di­tional cafés to Mi­lan in late 2018.


Perked up

The num­bers for the quar­ter to end-septem­ber showed shares had jumped 12% to a record high in their big­gest one-day gain since, I think, 2009.

The stronger-than-ex­pected growth was largely down to higher pric­ing, which to some ex­tent is cush­ion­ing the ef­fect of weak store traf­fic.

The chain has been in­creas­ing prices at a faster rate than niche cof­fee shops, dough­nut shops and fast-food play­ers. It had 4% same-store sales (the key gauge of re­tail per­for­mance) growth in its home mar­ket.

This beat ex­pec­ta­tions of about 2%3% growth. Glob­ally, Star­bucks posted a 3% in­crease in same-store sales, beat­ing the 2.4% rise an­a­lysts had ex­pected.

Im­por­tantly, com­pa­ra­ble sales in China turned pos­i­tive and an­a­lysts ex­pect con­tin­ued im­prove­ment in that mar­ket as the com­pany ex­pands its de­liv­ery part­ner­ship with Alibaba.

It’s the mar­ket to watch for Star­bucks — which is open­ing 600 stores a year there, aim­ing to have 6,000 by the end of 2022.

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