Starbucks Goes Local to Solidify Global Dominance

Starbucks (NASDAQ: SBUX  ) is putting the final nail in the coffin of specialty coffee shops by designing stores that have the feel of a local coffee shop. Yum! Brands' (NYSE: YUM  ) localization strategy in China enabled KFC to become China's most powerful brand. Dunkin' Brands  (NASDAQ: DNKN  ) , too, is attempting to localize its Dunkin' Donuts stores. But neither is going as far as Starbucks. Already a leader in the coffee industry, Starbucks could solidify its dominance by going beyond other companies' attempts at localization.

Global brand, local stores
Starbucks has always had an inviting atmosphere compared to other mass chains. However, as the company grew, it produced ubiquitous stores that all had the same look and feel. To some customers, it was starting to feel a lot like fast food.

Bill Sleeth, Starbucks' VP of design for the Americas, told Wired magazine, "What you don't want is a customer walking into a store in downtown Seattle, walking into a store in the suburbs of Seattle, and then going into a store in San Jose[, Calif.], and seeing the same store."

To solve the problem, Starbucks opened 18 design studios around the globe so that designers could visit the locations firsthand and design stores that incorporate local culture. For instance, a Starbucks in Breckenridge, Colo., is a yellow cottage that blends in with the other buildings in the popular ski resort. A Starbucks in New Orleans features work from local artists that gives it a Big Easy vibe. In Mexico, people treat Starbucks as something like a bar, so the designs are more casual and cater to group conversation.

In China, people come to Starbucks in large groups; designers accommodate this behavior by adding more movable furniture that customers can rearrange to sit together. In contrast with Americans, who tend to favor fast service that allows them to quickly get on with their day, the Chinese like to sit and relax for a while. In response to this revelation, Starbucks is now building larger stores in China -- some up to 3,800 square feet. It has also added custom flavors like red bean Frappuccinos to appeal to local taste buds.

Of course, not every Starbucks can be a completely unique location. The company scales its designs by allowing for custom colors and materials for the average location, but the overall design of the store and furniture is the same as other stores. For example, locations in Florida tend to use lighter colors and cool furniture to match the bright sun and hot weather.

A step further than the competition
In many foreign countries, the localization of a foreign brand is critical to its success in the country. Yum! Brands discovered that adding local tastes to its menu, like Thai-style fried rice and soy milk, was an important part of gaining widespread acceptance in China. Yum! Brands has done so well in China that brand research company Millward Brown ranks its KFC concept the top foreign brand in the country. Millward Brown concludes that companies that understand the unique tastes of the Chinese consumer have the most success in the country.

While KFC claims the top spot in China, Starbucks does not even crack the top 20. But Starbucks is going all out to mimic the atmosphere of the local coffee shops that coffee snobs around the world crave. Its dedication to designing unique stores further separates it from low-end chains like Dunkin' Donuts. Dunkin' Donuts customizes its menu in some locations; for example, it serves a shredded pork pastry in China. But Dunkin' Brands will never be able to capture the coffee shop vibe that keeps customers coming back for high-priced coffee at Starbucks.

Foolish takeaway
Customers want to order from the same menu with the same quality food and beverages whether they go to a Starbucks in Seattle or San Jose, but they do not want the same surroundings. Starbucks is going beyond the competition by incorporating local tastes into its store designs so that customers do not get tired of seeing the same concept everywhere they go. If Starbucks can successfully localize even as it globalizes, then its dominance of the specialty coffee market is all but assured.

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8/29/2014 4:00 PM
SBUX $77.81 Down +0.00 +0.00%
Starbucks CAPS Rating: ****
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YUM $72.43 Up +0.12 +0.17%
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