January 15, 2011 08:17
What do Google, Polo Ralph Lauren, Wal-Mart and McDonald's have in common? They are world leaders in their field but struggle in the Korean market. And now Starbucks has joined the list.
According industry figures, Starbucks, long the unbeaten No. 1 coffee outlet, relinquished the top spot to Korea's own brand Caffé Bene at the end of last year and recently dropped to third place when it was taken over by Lotte Group subsidiary Angel-in-us.
Because all Starbucks shops in Korea are directly managed by the company, headquarters' sales is still greater than those of Caffé Bene and Angel-in-us, which are heavily dominated by franchise membership. But Starbucks falls far behind the other two in terms of the number of outlets. As of Wednesday, Caffé Bene had 410 outlets, 74 more than Starbucks' 336.
Industry insiders say it will be impossible for Starbucks to catch up with Caffé Bene's speed of opening new shops at the rate of about 30 a month.
◆ Speedy Expansion
An executive at Shinsegae, which holds a 50 percent share of Starbucks Korea, said when he visited Starbucks headquarters in the U.S. early last year, "We can't maintain the top position unless we increase the rate at which we open new shops." This led to Starbucks chief Howard Schultz visiting Korea in April to discuss ways to strengthen its operation here with Shinsegae vice chairman Chung Yong-jin. But the chain proved unable to fight off the fierce challenge from Caffé Bene, which has a separate team of a dozen staff solely devoted to identifying and securing the best locations for new coffee shops.
According to industry insiders, the major reason for Wal-Mart's failure in the Korean market was the slow speed of decision-making, despite its wealth of know-how in managing superstores worldwide. An E-Mart executive said, "In 2005, we entered bid for two places in Hanam, Gyeonggi Province, to challenge Wal-Mart, which reportedly eyed opening a store there as well. But Wal-Mart never came. I heard that they gave up because they didn't hear from headquarters as it was the summer holidays."
◆ Localization Strategies
Korean brands also offer items that global brands lack on their menu. Caffé Bene's menu is full of original ideas like grain-based beverages, and fast food chain Lotteria has a best-selling "Bulgogi" burger, both invented to target Korean customers.
Bean Pole, which leads the upscale casual wear market over global leader Polo Ralph Lauren, runs a focus group of customers and keeps a score sheet of customer satisfaction every month. It also regularly launches new lines specially targeting Korean customers in cooperation with leading designers. This is something that Polo specifically lacks.
Caffé Bene has over a dozen shops that are open 24 hours. Its CEO Kim Sun-kwon said, "We need to boost efficiency in stores like the ones in Dongdaemun and Gangnam, as the former has a huge flow of population at night and the latter has huge rents to pay."
"Because Korean brands employ very aggressive strategies once the business is deemed profitable, global brands who enjoyed initial success cannot guarantee that it will continue," an industry insider said. "It's extremely difficult to sustain success with just the brand value unless these global brands strive to transform themselves quickly through speedy decision making."
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