Welcome to the the Ivey HBA Retail Marketing Management blog. Retail marketing is an exciting, dynamic, important, and very visible aspect of the overall field of marketing. Throughout the year, students will be posting comments regarding contemporary retailing issues. Although this is intended to be used by Bus 4411 students, industry marketing professionals are also invited to join in if they like.

Monday, March 30, 2009

Coffee-to-go the way to go?

Coffee places such as Starbucks and Tim Horton’s have become part of everyday life in Northern-America. Yet, in the Netherlands the presence of this type of “coffee-to-go” retail chain is extremely rare. This small European country has only two Starbucks locations: one in the terminal of the Amsterdam airport Schiphol and one at the headquarters of Nike. Both locations are difficult to access because you either need to have a boarding pass or to be a Nike employee. Therefore, it can be said that the country is “Starbucks-free”. It does not imply that Dutch people are against Starbucks. When searching the web you’ll find numerous, large communities that advocate the presence of this American coffee chain in the Dutch retail environment. What explains this “lack” in Dutch society?

Let’s first look into the Dutch coffee consumption culture. It appears that 70% of the consumers drink their coffee at home. This means that they make their coffee themselves instead of getting take-out which appears to be very common in Northern-America.[1]

The other 30% drinks their coffee at work or at a café. Having a cup of coffee in a café is considered to be a social activity and should not be rushed. Therefore, a very small percentage of this 30% consists of coffee-to-go consumption. The only place where consumers purchase coffee-to-go is on train stations. Coffee at work is provided by the employer so people don’t need to go across the corner to get their shot of caffeine. [2]

Additionally, Dutch people are hooked on Douwe Egberts which is a brand that has been out there for more than a century. The brand has built a lot of brand equity and is truly embedded in the Dutch culture.

It can be said that Dutch coffee consumption is either considered to be a commodity; therefore consumed in bulk, or it is perceived as a quality product that you can enjoy in a social setting. Looking at the first type of consumption there seems to be an unwillingness to spend a lot of money on coffee. Key values are that the coffee needs to be regular without any frills and cheap. Especially the ‘cheap’ component is important for Dutch people. Therefore, they make the coffee themselves at home which saves money rather than getting it on your way back home at a drive-through for example.

The rest of this article will focus on the out-of-home market. This is because Starbucks might be more successful in that segment of the market as coffee-to-go is not embedded in Dutch culture yet. For the Dutch OOH market as a whole, the RVP is based on experience and price. People want to enjoy the company of their friends or family, while enjoying a nice cup of coffee. Paying a premium to have this cup of coffee in a nice mug and sitting in a comfortable chair is worth it.

So why would Starbucks work? Because the typical Dutch OOH consumer is exactly the type of customer that Starbucks had in mind when setting up the business model. Initially, the company focused on people that are willing to pay a premium price while enjoying their Starbucks in their store. They have nice furniture, wireless-internet, and other appealing features. However, as Starbucks became more and more successful the company tried to focus on more parts of the RVP, which shifted their attention away. Now many customers are not willing to pay this premium as a large portion of their revenues come from coffee-to-go. Since coffee-to-go is not a part of Dutch culture, Starbucks does not need to worry this pattern repeats itself in this market.

Why would Starbucks fail? Dutch OOH coffee market is saturated; which makes it difficult to penetrate the market. The company struggles finding a distributor[3]. This can partially be explained by the market dominance of Douwe Egberts. In addition, coffee-to-go is not a trend that is embedded in Dutch culture and a culture change needs to take place first.

Moreover, I think there will only be a short moment of success for Starbucks. This can be explained by the fact that the American phenomenon is highly appealing for Dutch consumers. Now they can only see it in movies and tabloids where celebrities consumer the product. Eventually, the hype will gradually fade away because Starbucks needs to compete heavily with other big players in the market.

To conclude, if Starbucks is able to find a distributor it can become highly successful. In my opinion they should not try to position themselves in the coffee-to-go segment which they are pursuing right now. The company is negotiating with distributor Servex, to open some locations at the main train station of the Netherlands to offer coffee-to go[4]. Instead of taking this strategy, they should concentrate on making it a premium coffee brand that people need to appreciate by taking their time to consume it. This fits best with the current Dutch OOH culture and is the most sustainable strategy. That means that the company needs to change its current strategy by serving the coffee in mugs instead of cartons assuming that it is coffee-to-go. Moreover, the coffee should be brought to the customer instead of the customer having to wait for it. Only then, it can be perceived less as a coffee-to-go brand. Whether Starbucks is willing to offer this to Dutch consumers is something they need to decide themselves.

[1] http://socgeo.ruhosting.nl/html/files/ba-thesis/scripties/2004-2005/Bijsterbosch,%20Erik.pdf
[2] Ibid
[3] http://fastfoodnederland.blogspot.com/2007/01/starbucks-waarom-niet.html
[4] http://www.seattlepi.com/business/375003_starbucks15.html

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