Starbucks sets sights on France

/ Source: Reuters

U.S. coffee chain giant Starbucks Corp will open its first branch in France next year, hoping to sell its take-away American-style concept to a coffee-proud nation accustomed to sit-down shots of espresso.

The world's largest coffee chain, which is already present in a handful of European countries including Britain, Germany and Spain, said on Thursday it would launch its first French coffee bar in the Opera district of central Paris in the first quarter of next year.

The Seattle-based firm, whose green-and-white logo is a fixture on street corners across the United States, has expanded rapidly across the globe in recent years.

But sceptics have scoffed at the idea of bringing take-away cafe lattes to countries like France and Italy, which have grand coffee traditions on which the Starbucks chain itself is loosely based.

“It is with the utmost respect and admiration for the cafe society in France that we announce our entry into the market,” said Howard Schultz, chairman of Starbucks Coffee Company, who came up with the idea to start a chain of coffee bars while travelling in Italy in the early 1980s.

Starbucks, which traditionally partners with local firms when entering new markets, said it would team up with Spanish food service and retail operator Grupo Vips in France.

Owned by Spanish multimillionaire Placido Arango, Vips is already the U.S. firm’s partner in Spain, where Starbucks has built up 16 chains over the past 18 months.

The U.S. giant has no specific growth targets in France, said Franck Esquerre, who will run operations in the country.

But he believes its non-smoking, lounge-like stores will go down well in a country where cafes have served as a hang-out for bohemians, philosophers and artists for decades.

“The French have a long coffee tradition and we think we can tap into that with a complementary offering,” he told Reuters by telephone.

A dominant player
Starbucks has emerged, in only a few years, as a dominant player in a number of foreign markets, notably Britain where it now has close to 400 branches.

Last month, the company began a push into South America, with the opening of stores in Peru and Chile.

But its recent experience in other foreign locales has underscored the difficulties inherent in exporting its coffee concept.

In May, Starbucks Coffee Japan posted a net loss of 454 million yen for its 2002/03 fiscal year, amid a prolonged sales slump and special losses to close stores.

Shares in the Japanese unit are still 80 percent below a record high of 84,300 yen seen in the weeks after its media-hyped listing in October 2001.

Last March Starbucks pulled out of Israel, closing its six stores there due to “operational challenges” in the market.

Analysts have said the idiosyncrasies of foreign markets are partly to blame for setbacks in the firm’s international development, but they also point to increasing competition from copy-cat chains.

In France, where French-owned American-style coffee bar chain Columbus Cafe set up shop nearly a decade ago, the competition could prove intense.

According to Correspondance de l’Enseigne, a weekly newsletter on the Paris property and retail market, the first Starbucks store will be located just down the street from Columbus’s largest and newest coffee bar in the capital.

“The war is on,” said Philippe Bloch, the founder and co-owner of Columbus, who documented his own difficulties in selling the take-away espresso-bar concept to Parisians in a book released earlier this year.

Bloch said he believed Starbucks could succeed commercially in France, but predicted the U.S. company would have trouble turning a profit in the country for many years, given its inexperience with a market he sees as highly complex from both a cultural and regulatory point of view.

That may be a risk Starbucks is willing to take. The company has a track record of swallowing short-term losses in other foreign markets, while staying focused on long-term gains.

It is predicting that its international operations —roughly 1,600 stores in Latin America, Europe, the Middle East and the Pacific Rim — will turn a profit for the first time in 2004.

“We have been thinking of opening in France for a long time,” said Schultz.