Starbucks Takes the Edge Off


Starbucks is the type of company that's willing to go the extra mile to become more culturally accepted. Whether it means softening its branding image where independent coffeehouses thrive, or catering to locals that are less keen on the taste of coffee, Starbucks is in the process of adopting a business model of regional fluidity, aimed squarely at expanding its addressable market. As you can imagine, this aspiration won't come easy for a company with over 18,000 stores throughout the world.

Infinite complexities
Because Starbucks is looking to expand its presence internationally and at home, the company is effectively campaigning on two fronts. Abroad, it's all about making Starbucks feel like it's not a big Western brand that's forcing its Venti Vanilla Lattes on the local population.

In China, Starbucks is localizing itself to feel more like a familiar teahouse that offers comfort and space to relax in during the afternoon lull. Some future stores will be as large as 3,800 square feet, easily accommodating customers who come in groups. Additionally, the company is planning to release more Chinese-inspired flavors for those customers who don't enjoy the bitter taste of coffee.

Here at home, Starbucks has to compete against the independents, which often bring more passion to the coffee shop experience. Surprisingly, out of the 1,700 coffee shops throughout the five boroughs of New York City, 57% remain independent, which goes to show how important experience and quality are to the coffee drinker with too many options. Naturally, Starbucks is working to soften its branding image and to increase the passion of employees in these markets.

One size doesn't fit all
Although tempting, taking the easy way out and importing an "alien" business model isn't nearly as effective as cultivating a localized approach. Yum! Brands has seen business improve in China as the result of introducing fried shrimp and soy milk to its KFC menus. However, KFC's stores in China mostly feel like a cookie-cutter replica of the U.S. concept, which could arguably alienate some potential customers. Over the super-long-term, this cookie-cutter atmosphere may prove to be the fast-food giant's Achilles' heel.

Starbucks, on the other hand, isn't just adopting its menu to feature local flavors, it's also thinking about how atmosphere could enhance popularity. This approach could potentially expand a company's addressable market by several orders of magnitude since it embraces local customs. Granted, it certainty takes more time and resources to implement successfully, but if it means the difference between good and excellent reception, it'll likely be a worthwhile endeavor for long-term investors.

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Fool contributor Steve Heller owns shares of Starbucks. The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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