Into the heartland
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.
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.