Analysis of a Failed Venture: Starbucks in Venture: Starbucks in

IsraelIsrael

Avner Barnea –Competitive Intelligence Strategic Consultant, Israel

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Starbucks in Israel Starbucks in Israel –– basic basic factsfacts

Date of opening the first shop- May 2001Date of opening the first shop- May 20012001Number of shops- 62001Number of shops- 6Date of closing the operation in Israel-Apr 2003Date of closing the operation in Israel-Apr 2003Apr. 2003Info. about Starbucks (2001)Apr. 2003Info. about Starbucks (2001)

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ProcessProcessProcessProcess

Sources:Sources:Sources:• Public information.• Interviews

Sources:• Public information.• Interviews• Interviews.

Analysis:

• Interviews.

Analysis:Analysis:“Peripheral vision”.

Analysis:“Peripheral vision”.

Day, G. Schoemaker, P., (2006), Peripheral Vision. HBSP

Watkins M and Bazerman M (2003) "Predictable“Predictable surprise”.“Customer Value Analysis”.“Predictable surprise”.“Customer Value Analysis”.

Watkins, M. and Bazerman M. (2003). Predictable Surprises. Harvard Business Review

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Coffee Shop Markets in Israel Coffee Shop Markets in Israel yy

ppPrior to Starbucks EntryPrior to Starbucks Entry

• 1930s: Established coffee culture. • Mid-’90s: Arrival of international coffee• 1930s: Established coffee culture. • Mid-’90s: Arrival of international coffee

brands.• 2001: 750 local coffee shops

50% i T l A i 3% h i

brands.• 2001: 750 local coffee shops

50% i T l A i 3% h i~50% in Tel Aviv; 3% chains.38% visit at least once a week.55% appreciate quality coffee

~50% in Tel Aviv; 3% chains.38% visit at least once a week.55% appreciate quality coffee55% appreciate quality coffee.60% are aware of Starbucks brand.

• 2006: 1050 local coffee shops

55% appreciate quality coffee.60% are aware of Starbucks brand.

• 2006: 1050 local coffee shops• 2006: 1050 local coffee shops.23% in Tel Aviv; 23% chains.

• 2006: 1050 local coffee shops.23% in Tel Aviv; 23% chains.

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Coffee Shops Markets in Israel Prior Coffee Shops Markets in Israel Prior Coffee Shops Markets in Israel Prior Coffee Shops Markets in Israel Prior ppto Starbucks Entryto Starbucks Entry

ppto Starbucks Entryto Starbucks Entry

o Significant market growth, Mid ‘90s-2001.o Customers visit more frequently, stay longer (to o Significant market growth, Mid ‘90s-2001.o Customers visit more frequently, stay longer (to

socialize). o Customers demand/get new coffee types, tastes,

quality light food

socialize). o Customers demand/get new coffee types, tastes,

quality light foodquality light food.o Customers already familiar with quality coffee,

mainly through imported brands.

quality light food.o Customers already familiar with quality coffee,

mainly through imported brands.y g po Coffee shops actively attract customers, strengthen

loyalty through improved service, product diversity, f t bl f it i l k ti ti iti

y g po Coffee shops actively attract customers, strengthen

loyalty through improved service, product diversity, f t bl f it i l k ti ti iticomfortable furniture, special marketing activities.comfortable furniture, special marketing activities.

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Starbucks Strategy in IsraelStarbucks Strategy in IsraelStarbucks Strategy in IsraelStarbucks Strategy in Israel

Resources

Tangible Excellent locations

Strong Financial support

Quality products

High quality serviceHigh quality service

Intangible

High brand reputationHigh brand reputation

Exceeded customer expectations

Capabilities

Superior technology Designed comfortable shops High-end management

6Fast expansion of shops

Israeli Customer CharacteristicsIsraeli Customer CharacteristicsIsraeli Customer CharacteristicsIsraeli Customer Characteristics

o Early adoptors, very demanding and service oriented

o Early adoptors, very demanding and service orientedservice oriented.

o Leaders in adoption of fashion trends. service oriented.

o Leaders in adoption of fashion trends. o Highly exposed to the outside world.

Tend to share their experienceso Highly exposed to the outside world.

Tend to share their experienceso Tend to share their experiences.o Tend to share their experiences.

The launch of Starbucks in Israel was a remarkable success in its early stage

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remarkable success in its early stage

Competitors were worried, Competitors were worried, Competitors were worried, Competitors were worried, actively scanning…actively scanning…actively scanning…actively scanning…

o Worried and actively scanningo Worried and actively scanning

Primary findings:o Many Starbucks' customers were dissatisfiedPrimary findings:o Many Starbucks' customers were dissatisfiedo Many Starbucks customers were dissatisfied

with quality of coffee and service.o Coffee was perceived as inferior to brands

o Many Starbucks customers were dissatisfied with quality of coffee and service.

o Coffee was perceived as inferior to brandso Coffee was perceived as inferior to brands already in the market.

o Starbucks was unaware of local customer

o Coffee was perceived as inferior to brands already in the market.

o Starbucks was unaware of local customero Starbucks was unaware of local customer sentiment.

o Starbucks was unaware of local customer sentiment.

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Customer Value AnalysisCustomer Value AnalysisCustomer Value AnalysisCustomer Value Analysisyyyy

CompetitionPrices too highfor given Starbucks Israel

Customer

Value

for given products and service quality

did not deliver good customer value

Value

Price

Product quality

Service Quality

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Customer Value Map Customer Value Map Customer Value Map Customer Value Map pppp

i l

competitors above the line and the left- in a share-

RelativePrice Starbucks

Is ael

Fair valueLine

left- in a share-losing position

Israel

Local CoffeeChains

IndependentC ff h competitors belowCoffee shops competitors below

the line and right-in a strong share-gaining positiong g p

10Performance- Service, Quality, Diversity

Why Starbucks Failed in Why Starbucks Failed in Why Starbucks Failed in Why Starbucks Failed in Israel? Israel? Israel? Israel?

Resources

Tangible Planning: Excellent locationsExecution: Selection of locations was wrong, especially to concentrate in Tel AvivPlanning: Strong Financial supportExecution: Investors did not back as expectedPlanning: Quality products

Execution: The products were not perceived as higher quality

Planning: High quality service Execution: Relatively not good enough service

Intangible

Planning: Leverage of high brand reputationExecution: A gap between the brand reputation and the performance as perceived in the local marketPlanning: Exceeded customer expectations

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g pExecution: Did not adjust to the local requirements and tastes

Why Starbucks failed in Why Starbucks failed in Why Starbucks failed in Why Starbucks failed in yyIsrael? Israel? Cont.

yyIsrael? Israel? Cont.

Capabilities Resources

Planning: Superior technology

Execution: Local coffee technology was not inferior

Planning: Designed comfortable shopsExecution: Local coffee shops were often more

impressive and comfortable

l i i h dPlanning: High-end managementExecution: Inexperienced senior management and many

managerial changes in a short time

l i i f hPlanning: Fast expansion of shops

Execution: Only 6 shops in 2 years

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Peripheral VisionPeripheral VisionPeripheral VisionPeripheral VisionPeripheral VisionPeripheral VisionPeripheral VisionPeripheral VisionPeripheral Vision: “A portfolio of scanning methods to capture and amplify the weak signals within targeted zones of the periphery: inside the firm, customers and channels; the competitive space; technologies political social and

Peripheral Vision: “A portfolio of scanning methods to capture and amplify the weak signals within targeted zones of the periphery: inside the firm, customers and channels; the competitive space; technologies political social andthe competitive space; technologies, political, social and economic forces; and influencers and shapers“…. Active, open-ended scans are particularly important in turbulent environments or new areas of activity where

the competitive space; technologies, political, social and economic forces; and influencers and shapers“…. Active, open-ended scans are particularly important in turbulent environments or new areas of activity whereturbulent environments or new areas of activity where unexpected, outlying data might become more important.turbulent environments or new areas of activity where unexpected, outlying data might become more important.

Day, G. and Schoemaker, P. [2006], Peripheral Vision- Detecting the Weak Signals that Make or Break your Company. Harvard Business School Press.Day, G. and Schoemaker, P. [2006], Peripheral Vision- Detecting the Weak Signals that Make or Break your Company. Harvard Business School Press.

These are also many of the characteristics of implementing13

These are also many of the characteristics of implementing a quality Competitive Intelligence discipline.

Peripheral Vision and Starbucks in Peripheral Vision and Starbucks in Peripheral Vision and Starbucks in Peripheral Vision and Starbucks in IsraelIsrael……IsraelIsrael……

Senior management:o The business plan did not fit the needs of theSenior management:o The business plan did not fit the needs of theo The business plan did not fit the needs of the

market.o Were not scanning systematically the

o The business plan did not fit the needs of the market.

o Were not scanning systematically theo Were not scanning systematically the external environment.

o Were passive and reacted in delay.

o Were not scanning systematically the external environment.

o Were passive and reacted in delay.o Were passive and reacted in delay. o Were not ready to read the bad news.o Remained optimistic despite clear signals of

o Were passive and reacted in delay. o Were not ready to read the bad news.o Remained optimistic despite clear signals ofo Remained optimistic despite clear signals of

failure.o Remained optimistic despite clear signals of

failure.

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Predictable SurprisesPredictable SurprisesPredictable SurprisesPredictable SurprisesPredictable SurprisesPredictable SurprisesPredictable SurprisesPredictable Surprises

Arise from failures of:R i i E i f

Arise from failures of:R i i E i f• Recognition: Executives are unaware of

emerging problems.

P i iti ti P t ti l th t i i d b t

• Recognition: Executives are unaware of emerging problems.

P i iti ti P t ti l th t i i d b t• Prioritization: Potential threat is recognized butnot acted upon immediately.

M bili ti Th t i i d d

• Prioritization: Potential threat is recognized butnot acted upon immediately.

M bili ti Th t i i d d• Mobilization: Threat is recognized andresponded to immediately butresponse is ineffective.

• Mobilization: Threat is recognized andresponded to immediately butresponse is ineffective.

Watkins, M. and Bazerman M. (2003). "Predictable Surprises: The Disasters You Should Have Seen Coming", Harvard Business Review OnPoint collection.

Watkins, M. and Bazerman M. (2003). "Predictable Surprises: The Disasters You Should Have Seen Coming", Harvard Business Review OnPoint collection.

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Failures of Predictable Failures of Predictable Failures of Predictable Failures of Predictable SurprisesSurprisesSurprisesSurprises

22 Identified as a surprise too late and

11 The problem:Customers are not satisfied surprise too late and

only in retrospect

33 R i d b t33 Recognized but failed to prioritize and mobilize

44 Id ifi d44 Identified as a surprise too late and only in retrospect –

the business closed

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Predictable Surprises and Predictable Surprises and Predictable Surprises and Predictable Surprises and Starbucks in IsraelStarbucks in Israel……Starbucks in IsraelStarbucks in Israel……

• Psychological: CI was unknown to many executives. Also suffered from Bounded Awareness that prevents from seeing seeking

• Psychological: CI was unknown to many executives. Also suffered from Bounded Awareness that prevents from seeing seekingAwareness that prevents from seeing, seeking using and sharing information during decision-making process. Organizational: CI support was not an

Awareness that prevents from seeing, seeking using and sharing information during decision-making process. Organizational: CI support was not an• Organizational: CI support was not an integral component of the organizational structure.

• Organizational: CI support was not an integral component of the organizational structure.

• Political: Internal objection to CI participation in routine business activities.

• Political: Internal objection to CI participation in routine business activities.

In the absence of recognition, there was no prioritization and no mobilization that could save the

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prioritization and no mobilization that could save the Starbucks operation in Israel.

ConclusionsConclusionsConclusionsConclusionsConclusionsConclusionsConclusionsConclusionso The business plan did not fit the needs of the customers, the marketplace and

lack awareness of the competitive space.o The poor results were mainly a result of lack of peripheral scanning and

incorrect reading of the market signals

o The business plan did not fit the needs of the customers, the marketplace and lack awareness of the competitive space.

o The poor results were mainly a result of lack of peripheral scanning and incorrect reading of the market signalsincorrect reading of the market signals.

o Starbucks Israel did not believe it was critical to listen to the local customers.

o They proceeded with the same strategy expecting that the awaited change will come soon as a result of strengthening the marketing campaign

incorrect reading of the market signals. o Starbucks Israel did not believe it was critical to listen to the local

customers. o They proceeded with the same strategy expecting that the awaited change

will come soon as a result of strengthening the marketing campaignwill come soon as a result of strengthening the marketing campaign. o The minor changes that management tried to present towards the end,

were too late and too small. o GloCalization of a product is more likely to succeed when the product or

service is adapted specifically to each locality or culture it is marketed in

will come soon as a result of strengthening the marketing campaign. o The minor changes that management tried to present towards the end,

were too late and too small. o GloCalization of a product is more likely to succeed when the product or

service is adapted specifically to each locality or culture it is marketed inservice is adapted specifically to each locality or culture it is marketed in. o Lack of commitment by the management to its strategic intent led to

the absence of sense of challenge that withheld entry to a crisis mode that was needed..

o They failed to build a comprehensive strategic response, instead reacted

service is adapted specifically to each locality or culture it is marketed in. o Lack of commitment by the management to its strategic intent led to

the absence of sense of challenge that withheld entry to a crisis mode that was needed..

o They failed to build a comprehensive strategic response, instead reacted o ey a ed to bu d a co p e e s e st ateg c espo se, stead eactedtactically and partially too late and without a strategic focus.

o ey a ed to bu d a co p e e s e st ateg c espo se, stead eactedtactically and partially too late and without a strategic focus.

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And a Final WordAnd a Final WordAnd a Final WordAnd a Final WordAnd a Final Word…And a Final Word…And a Final Word…And a Final Word…

Since its failure in 2003, Starbucks did not try to make another attempt inSince its failure in 2003, Starbucks did not try to make another attempt innot try to make another attempt in Israel….not try to make another attempt in Israel….And… what is the name of the only country where Starbucks raised a white And… what is the name of the only country where Starbucks raised a white yflag???

yflag???

Thank youThank youAvner Barnea

@ t i i t il19

avnerpro@netvision.net.il