Starbucks Ambitious to Be Company-owned

By Anita Shen,
FranChina

Starbucks Coffee International has recently increased the holdings in Coffee Concepts (Southern China) Ltd, a joint venture established with Maxim's Caters Ltd, up to 51%, which is expected to complete by 30th this month. Some professionals think that Starbucks will hold much more powers in the business of southern china and in addition, significantly speed up his footstep as sole proprietorship in order to monopolize all the profits in the entire Chinese market.

On Jun 12th, a reporter telephoned Wendy Consultant PR Firm who is responsible for Starbucks public relations in southern china to confirm this piece of news and was told that Starbucks (Guang Dong) was busy dealing with this shares transaction, which would be announced later.

It is researched that Maxim's Caters Ltd got the operation and administration of Starbucks (Hong Kong) in 1999 and opened its first outlet later in May 2000, which now expands to the total number of 51. In 2002, they purchased the power of southern part.

Coffee Concepts (Southern China) Ltd was a joint venture (JV) composed of Maxim International Co. Ltd (under the leadership of Maxim's Caters Ltd) and Starbucks International (under the leadership of Starbucks) with Starbucks holds 5% of the shares. In order to develop the business in southern china, this JV continuously established Coffee Concepts (Guang Dong) Ltd, Coffee Concepts (Shen Zhen) and Coffee Concepts (Macao) Ltd. Till recently, there are totally 13 Starbucks in southern china, of which 6 was in Guang Zhou and Shen Zhen separately and 1 was in Macao.

Maxim Group enjoys a high awareness and powerful strength in Hong Kong and Southern China, which implies the difficulty in seizing back shareholdings from them. Therefore, Starbucks prolongs the cooperation period with Maxim Group in Hong Kong and Macao. Instead, Maxim International Co. Ltd captures 30% shares in a joint venture running Starbucks in Cheng Du. A senior retailing analyst shares his views that in return, Starbucks has to witness the expansion of Maxim Group from southern china to Cheng Du. ''Starbucks aims to be sole ownership in china and what he does right now tries to pave a smooth way for his further step to increase his shareholdings.''

As one in Starbucks revealed that around 8000 American Starbucks have varies of business cooperation structures due to complexity of markets, which can be concluded as such: sole proprietorship, joint venture, license and franchise. For sole proprietorship, Starbucks usually keeps all stocks at hand and applies this model in the development of Britain, Thailand and Australia market; for joint venture, which was carried out in Japan and S-Korea, Starbucks shifts 50% stocks out; for license, Starbucks accounts for only a few of 5% stocks in cooperation with Tai Wan (china), Hong Kong, Hawaii and Shang Hai (before increasing shares); for franchise, Starbucks sells master franchisor to the markets in Philippine, Singapore, Malaysia and Beijing and shares no stocks any more.

Before Starbucks entered Chinese market, he had sold master franchisor to Beijing Starbucks Company, Taiwan Starbucks Company and Maxim Starbucks Company with neither control of stocks nor direct investments. While his profits were generated mostly from franchise fees, ads fees, etc, which takes a maximum proportion of total 20%. Never before long, Starbucks Hong Kong outlet made surplus for the very first month which created a new record in the history of fastest running profits that let Starbucks add more importance to Chinese market. And the performance of kiosk in Shang Hai and Shen Zhen was fairly a great surprise. One that has close relationship with Starbucks revealed that Starbucks had to reconsider his investment strategies in face of such a huge lucrative market.

In addition, the new appointed CEO of Starbucks who once was assistant CEO in Yum! Brands Inc. injected some new ideas into the business plan. According to his view, Pizza Hut adopted the franchise model for the first ten year, which led to heavily deficits. In 1997, Yum! Brands Inc got seized all the shares back, changing all the franchised outlets to company owned ones, which generated profits at large immediately. Compared with Starbucks, he might also follow the same route. Therefore, it is only a matter of time for Starbucks to withdraw all the shares and begin to run the wholly owned.

It can be dated back to July 2000 when Starbucks significantly increased shares with Shang Hai Joint Venture from 5% to 50%, after which negotiations about the proportion of shares with Beijing Starbuck Company and Maxim Starbucks Company came to the key point. At the same time, another two company owned Starbucks in Da Lian and Qing Dao kicked off at the end of 2004. Since then to the next five years, Starbucks prefers to operate company owned outlets instead of franchised ones.

Though Starbucks' changing strategy moves smoothly to the expected, there is many to worry about. Starbucks will challenge from human resources overseas, and backups that have been used to franchised outlets. We will wait and see.