Critical Evaluation of Starbucks’ Recent Entry into South Africa

To select the correct market for a companies’ success it is important to look at two factors which include environmental and firm influences (Lee and Carter, 2009, p220). An analysis of the international market environment is useful as it reduces risks and aids decision making; this can be done through targeting. Targeting can be described as a company “a specific customer group with a specialised and tailored marketing offering” (Lee and Carter, 2009, p199). Thus, before choosing a market it is useful to evaluate environmental factors include looking at micro and macro global environments such as politics and international industry structures. During the time, the South African currency was plunging to an all-time low against the U.S. dollar and British pound. (BBC News, 2018) This could have acted as potential challenge for Starbucks. (Fleisher & Bensoussan (2002). Yet, despite the currency falling Financial analyst such as Celeste Fauconnier said entering into South Africa, during the time acted as an easy “business environment to work in and has better infrastructure than some countries" (BBC News, 2018). Moreover, South Africa’s coffee consumption was at an all-time high as consumers, particularly in the middle–to–higher income market, was shifting to more premium offerings (Holmes, 2018). This was proven by the latest data from Statistics SA released in April which showed income from restaurants and coffee shops increase’s 5.3% year on year (Writer et al., 2018). Therefore, this is an attractive audience for the implementation of Starbucks.

Market entry is “the most significant international marketing decision [most companies] are likely to take” (Doole & Lowe, 1999). Companies can take different approaches to market entry either an ‘waterfall’ or ‘shower’ approach (Keegan, 1989:30-1). Starbucks entry into South Africa resembles the waterfall approach being that prior to this entry Starbucks expanded in many advanced countries including Europe and Asia. Additionally, there are different methods of entry either direct or indirect entry. Starbucks first step to entering the South African market was having a licensed partnership with South Africa’s Taste Holdings, which was founded by entrepreneur Carlo Gonzaga (Endeavor, 2018). “A partnership can be between two or more persons/parties” (Sars.gov.za, 2018). This form of entry can be successful if partners share the same goals. This was one of the many reasons why the launch in South Africa was successful as Taste Holding and Starbucks we able to work together efficiently due to have similar goals and morals (Endeavor, 2018). Although, Starbucks has opened more than 22,000 outlets in over 71 countries the CEO, was “astonished by the scene this week at his new store in an affluent Johannesburg suburb, where some customers had driven for two hours just to try the American coffee brand” (The Globe and Mail, 2018) . This in turn, demonstrated the success of Starbucks partnership as a mode of entry. This form of market entry was also useful for Starbucks as partnering with a well-known brand in South Africa helped to support the expansion of the coffee chain. Research suggests that partnerships can speed up market; this alongside Taste Holdings good brand image being a leading licensor of food and retail brands in the region, previously helping Dominos launch in South Africa also provided Starbucks a smooth entry reducing the risk for Starbucks (Endeavor, 2018).Moreover, to make the entry successful Starbucks and Taste holding came together to ensure that there was a big focus on localisation in terms of empowering the locals and elevating employment levels. Thus, local contractors and artisans were involved in the launch to help with design and décor. (Thulo et al., 2018).

However, there are also some drawbacks to having a licensed partnership as management can become complicated as well as having to share rewards. Taste Holding are still waiting for a recover from their investment for their recent investments. (Anon, 2018). However, it is evident that this launch brought other challenges. Firstly, despite their being a high demand, Starbucks is still operating in a challenging economy. Moreover, Starbucks also faced some culture issues, due to the rise of complaints since the launch. Culture is “an integrated system of learned behaviour patterns that are distinguishing characteristics of the members of any given society”. Czinkota & Ronkainen (1998, p. 65). Many people complained about "neo-colonialism" by U.S. multinational companies. Many argued that with launches like Starbucks, it was encouraging white privilege in South Africa. Thus, there was some racial tensions during the launch. (The Globe and Mail, 2018).

Marketing mix is a useful tool that companies can use to ensure that aspects within their marketing strategy cannot be neglected. This can be done through implementing the fours Ps being product, price, place, and promotion to ensure an effective marketing strategy. (The Marketing Mix, 2018). Analysing the marketing mix can be useful to for Starbucks to analyse the potential success of their service in another market. Starbucks has positioned themselves as a well - known brand, which has kept them distinguished when it comes to their brand/product. This focused differentiation has enabled them to have an effective marketing strategy.

Starbucks has become a brand that is customer focused, ensuring they give their customers a product that will retain them (Martin Roll, 2018). With the new coffee era developing speedily Starbuck has been able to find a niche and provide different forms of sustainable/fair trade coffee. Their product has now expanded beyond coffee and other beverages such as fresh food items and handcrafted beverages (Starbucks Coffee Company, 2018). Moreover, Starbucks include other aspects within their products such as design, services, and packaging. Ensuring that their products as eco friendly through implementing their fair-trade policy. “Our brand equity is built on our customers’ experience and that depends on the quality of our people” Mr Schultz said to the New York Times (Stewart, 2018). Starbucks product reflects their brand image strongly that it did not need to change much when entering South Africa. Analysts such as 36ONE Asset Management, said that Starbucks success in South Africa is due to their “strong brand” (Hine and Hine, 2018). This strong product image has been able to push sales and enable Starbucks to have a successful entry in South Africa.

Starbucks are known for providing premium priced coffee. Around the world many people are willing to pay high prices for their coffee. However, South Africa are not used to paying such high prices. Thus, when entering this market, Starbucks reduced their prices by 30% (Chutel, 2018). However, although Starbucks watered their prices down, some reports highlight that their prices are still too high leading some individuals in South Africa to assume that Starbucks is only targeting the upper-middle class population. Furthermore, poverty is also on the rise in South Africa since 2015, a year before the launch of Starbucks; with the head count increasing by 55,5% of those whom are poor (Africa, 2018). Currently, Starbucks prices are the highest when looking at the coffee market which may prevent locals thus in turn effect profit.