Starbucks: limited growth in reliance on Moscow

Starbucks

Mojtaba Akhbari, Director General.

Starbucks has been long awaited on the Russian market. Eventually, the company opened its first Russian coffee shop only in autumn 2007 in Moscow. Six years later, the world-famous coffee shop network has become well-established in the Russian capital. Since its opening, the company has been actively developing to open 67 coffee shops to date. And despite such impressive results, Starbucks is mainly present in Moscow with only five coffee shops in St. Petersburg and one in Rostov-on-Don. However, recently the company has announced its plans to establish itself in Krasnodar and Sochi.

Such situation results from the unusual strategy Starbucks adopted in Russia – a non-aggressive organic growth. That is the company doesn’t seek to conquer the national market as quickly as possible at the expense of massive investments from the parent, but relies on expansion out of the locally earned funds. This is the reason for such an eloquent disproportion in numbers of Russian and foreign coffee shops. For example, over 1,200 coffee shops operate in Canada and about 1,000 in the UK (Starbucks entered this country of traditional tea-lovers in 1998 through buying and rebranding 65 coffee shops).

Starbucks is able to support its organic growth strategy due to the high profitability of its Moscow subdi vision.

According to Howard Shultz, Starbucks CEO, success rests upon three pillars – clear concept, guarantee of uniform quality in all coffees shops with no exceptions, and a reasonable pricing policy. It is obvious that the Moscow market with its high density of solvent, internationalized and quality-seeking consumers is best suited for this development strategy. A fairly solid, profit-generating cluster of Starbucks coffee shops has developed in Moscow to enable the company’s expansion to other Russian regions. However, it is too early to speak of the company’s hitting the Moscow ceiling. Today, Starbucks controls only one tenth of the Moscow market. According to management estimates, the potential for development of the business in Moscow is still high. The contemporary Moscow economy boasts developed wholesale and retail trade, public services, hotel and restaurant business. All those sectors will further develop due to new construction and overall improvement of the urban environment. What is more, foreign analysts note that Moscow has human capital, which fosters entrepreneurial activity, new goods and services. Thus, Starbucks has recently presented an innovative format in Russia – a coffee shop combined with a bank. The details have not yet been revealed just like plans to open the next facilities of the same type. But it appears that banks are not less interested than Starbucks and, therefore, they are likely to make a significant investment. And it is as likely as not that very soon the magic power of the Starbucks brand will support not only coffee producers in Moscow, but financial service providers as well.

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