Starbucks plans opening in Mexico

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Posted 1:57PM on Thursday, February 28, 2002

MEXICO CITY - After testing out Asia and Europe, Starbucks Coffee Co. is now ready to get its feet wet in Latin America - a region that grows coffee, but drinks relatively little of it. Seattle-based Starbucks said Monday it plans to open its first Latin American store in Mexico City sometime this year in association with Alsea S.A., the local franchiser for Domino's Pizza. Gourmet coffee has just begun to take off here. Despite being the world's fifth-largest coffee producer and exporter, Mexico has one of the lowest per capita coffee consumption rates in the world - only about 1.3 lbs. per person annually. And about one third of the 100-million population lives in poverty. ``(Changing habits) has got to be part of the game plan going into a producer country. They always put the best stuff on boats,'' said Mike Ferguson, marketing director for the Specialty Coffee Association of America in Long Beach, California. ``The theory is that if you serve better coffee, then consumption will rise,'' he added. Starbucks hopes to have an additional 10 to 15 stores up and running within 12 months of its Mexico City launch. The company is also exploring opportunities in Argentina, Brazil, Chile, Colombia, Peru, Puerto Rico and Venezuela, with aspirations to open 900 stores throughout the region by 2005. The plans are ambitious. Dozens of Starbucks-style coffee shops have sprung up in recent years in Mexico's capital, home to 22 million potential customers. Still, most Mexicans rely on soft drinks to perk them up, making the country the world's biggest per capita consumer of Coca-Cola. Additionally, adults who do drink coffee are accustomed to instant mixes, rather than beans, and thus are less likely to switch over to specialty blends. That means Starbucks may have to target younger generations. Mexico has been fertile ground for U.S. brands. Alsea, Starbucks' chosen partner in Mexico, grew its Domino's Pizza franchises to 425 outlets across the nation within 13 years. ``The Alsea group has a lot of experience in the kind of market and business Starbucks is looking at,'' said Julio Gutierrez, Latin America president for Starbucks. Starbucks liked Alsea so much that it closed negotiations in a matter of months. Among other candidates in the running to work with Starbucks was billionaire Carlos Slim, who owns so many Mexican enterprises that some joke the country should be called 'Slim World.' Starbucks' trendiness has helped propel the company around the world, but that appeal may work with only a small segment of the population in Latin America, analysts warn. ``One of the big obstacles for Starbucks in Mexico and Latin America is per capita purchasing power,'' said Scott Waltmann, an analyst with Merrill Lynch. Starbucks is banking on lower real estate costs and minimum wage salaries to sell a cup of java for less in Mexico than it does in the United States, where its American-style coffee runs above $1 per cup and a latte reaches $4. The minimum wage in Mexico is around $4.00 a day.