Starbucks adapts to Gallic tastes in growth quest

* “Gallicisation” of menu crucial for success -consultant

* Local offerings include “cafe gourmand” combination

* Subsidiary now profitable, eyes growth -France chief

By Lionel Laurent

PARIS, May 27 (BestGrowthStock) – Coffee chain Starbucks Corp
(SBUX.O: ) is changing its ways in France and trying to adapt to
the local palate as it tries to break with past losses.

The group’s French outlets have recently started to offer
well-known local fare like the “cafe gourmand” — a single shot
of espresso served with three delicate pastries including a
mango macaroon.

It is a far cry from the 12-ounce cups of American coffee
and chunky muffins that made Starbucks a worldwide brand, but
after years of losses in France the $20 billion group is having
to make concessions to the local cafe culture.

Achieving international success in markets like continental
Europe and Asia is seen as crucial for Starbucks as it seeks to
drive growth outside a saturated home market.

“We in France don’t drink coffee all day long and flavoured
coffee is not in our culture,” said Bernard Boutboul, head of
food retail consultancy Gira Conseil.

Starbucks needed to “Gallicise” its menu if it wanted to
succeed in France, Boutboul said.

Other typically American brands have taken similar steps.

Domino’s Pizza Inc (DPZ.N: ) for instance sells special pizzas
such as the Savoyarde, smothered in fragrant Reblochon cheese
from the Haute-Savoie region in the French Alps, while
McDonald’s Corp (MCD.N: ) has offered toasted ham and cheese
“croque monsieur” sandwiches.

“Starbucks is going more local,” said Ilaria Guandalini, an
analyst with consultancy Planet Retail. “They want to trial
outlets that are more inspired by the neighbourhood where they
are located.”

Starbucks’ newest store in the southern city of Marseille,
which opened earlier this month, has even preserved the local
style of architecture and interior decoration.

“It’s true that we seek to respond as best we can to
consumer wishes in all of our markets, France especially,” said
Starbucks France head Philippe Sanchez. He said new menu items
in France were a sign of development rather than a “correction”.

UNTAPPED DEMAND

Starbucks has just 54 stores in France and annual sales of
around 55 million euros ($67.5 million). The operation has lost
money on a yearly basis since 2004 but turned its first
quarterly profit in the last three months of 2009.

Analysts say continental Europe is a key area of untapped
demand for Starbucks.

Sanchez said the French unit’s recent profit was proof of
strong demand and said he aimed to open stores at a rate of one
a month in 2011 after a planned six openings in 2010.

Gira Conseil’s Boutboul was more sceptical. He said the
swing to profit was more likely due to Starbucks taking full
control of its French unit last September, when it bought out 50
percent equity partner Grupo Vips for an undisclosed sum.

Full ownership will have immediately lightened the load of
royalty payments the subsidiary had been paying to the Starbucks
group as a licensed entity, which along with pricey rental
agreements had been crippling profitability, said Boutboul.

Starbucks’ Sanchez declined to comment on “internal
accounting”, but said the French unit had not differed from
other license-model businesses that paid royalties.

Regardless of doubts over past performance, international
markets like Europe and Asia are seen as crucial levers of
Starbucks’ future growth that it cannot afford to do without.

“The international side of the Starbucks business is really
the growth engine over the next decade”, said one New York-based
analyst. “In order for this company to double or triple in size
the international markets are really important.”

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(Editing by David Holmes)
($1=.8139 Euro)

Starbucks adapts to Gallic tastes in growth quest