May 27, 2010 / 1:50 PM / 7 years ago

Starbucks adapts to Gallic tastes in growth quest

4 Min Read

PARIS (Reuters) - Coffee chain Starbucks Corp 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 flavored 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 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 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 neighborhood 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 skeptical. 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."

Editing by David Holmes

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