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Starbucks to expand beyond Prague

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Starbucks entered the Czech market a year and a half ago and, so far, is happy with its performance. “We came to a country where people used to drink coffee grounds mixed with boiling water. Now when walk through Prague in the morning I meet people holding cups of our coffee in their hands,” said Vladan Armus, brand president in charge of central and eastern Europe. Now the company is planning to expand in the Czech Republic and Poland. While some of its branches in western Europe and the US are shutting down, the coffee retailer wants to double its number of cafes here within five years. “We want to go outside Prague, too. We are eyeing Brno and Ostrava,” Armus said.

How many coffees do you drink a day?
Roughly four to five. In any case, I start every day with a coffee.

Are they all Starbucks’, or do you drink your competitors’ coffee as well?
It is mostly our coffee, but I have to try our competitors so I know what they offer. But I like the coffee at Starbucks and I drank it even when I was working for a rival chain. 
I am happy to see that Starbucks is successful in the Czech Republic. That is why we are going to open more cafes.

How many?
In September, we are going to open our 10th branch at the Metropole Zličín shopping centre, but that will definitely not be the last. We are starting a big expansion. Not just in the Czech Republic – the whole region is important to us. We want to at least double the number of cafes in the Czech Republic and Poland in the next five years. Apart from that, we are going to enter the Hungarian market in the years to come.

But for how many Starbucks can the Czech Republic handle? In 10 years will there be a Starbucks on every corner and in almost every city like in the US?
How many cafes we will have here will depend a lot on the property market and on how successful we are in finding suitable localitions.

But for now you are only in Prague.
We definitely want to go to other towns as well. It depends on when we find suitable locations. There are several towns we want to enter. Brno is an attractive city where we definitely want to go and where we are looking for a place now. Ostrava is attractive too.

You say it depends on suitable locations. Isn’t space cheaper now during the crisis? Some of your competitors are closing down…
Some companies are facing problems and closing down branches, but good localitions are definitely not cheaper than last year. And we are not going to buy a place just because it is cheap.

How is the crisis affecting Starbucks in the Czech Republic? You had to close some branches in the west.
Yes, we have shut down some branches in the west, but the threat here isn’t so great. We have been here for a year and a half and are planning investments. We’re not afraid of the crisis. The Czech economy is doing better. Of course, unemployment is still rising, but it always takes it more time to catch up with improvements elsewhere. As for the crisis, I see a light at the end of the tunnel. Central and eastern Europe have not been hit by the crisis as much as the United States and Great Britain.

As for Czech branches, the only thing affecting us a bit is the decline in tourism. But that has hit every business in Prague. According to some data, tourist numbers in Prague fell 20%. But we cannot really compare since most of our branches weren’t even open last year. Our first store, which has been here for a year and a half already, saw some decline. But that’s because four more cafes opened around it and it’s not the only Starbucks in the Czech Republic any more.

Do you have data on the proportion of foreigners and Czechs among your customers?
It always depends on where a given cafe is situated. In Prague’s centre it is 50-50. In the cafes on the outskirts of Prague it is mostly Czechs. But these figures are tricky because many of our customers are foreigners who live and work in the Czech Republic.

Competition is growing in the Czech Republic. McDonald’s has opened its McCafé, the Gloria Jeans has entered the market. Is there enough room for all of you?
The reason behind this coffee boom in the Czech Republic is quite simple. Western Europe is stabilised already, while here there is still a plenty of room. That is why the expansion will continue. For the moment, there is definitely room for everyone here, no doubt about it. Only after some time will we see who stays on the market. Look at England. There are more established cafe chains than here and they all do relatively well.

But you are the most expensive one here.
Even if McDonald’s expands with its McCafé, hamburgers are and will always be their main product. We focus on coffee only. We are a premium brand. As for prices, we are actually not much more expensive than Coffee Heaven.

Some chains are offering crisis menus. Subway has cheaper sandwiches. Will you to introduce something similar?
We cannot cut coffee prices because it would affect quality. But we are going to launch new products in the autumn. It will be mostly food whose prices will definitely be acceptable even now.

What is your market share?
We are going to have 10 cafes. Coffee Heaven has a bit more now, but in the coming years we will have the biggest market share. I do not know who is No 1 now.

What are your economic results? Are you in the black?
I cannot disclose these figures. The results are published by AmRest and we are a unit of the AmRest holding company. So I cannot even say what colour the figures are. My main tasks in the company include expanding and generating profit.

AmRest operates KFC stores in the Czech Republic. Is there a opportunity for closer cooperation between the two chains? Like your coffee offered in KFC?
At the moment, I don’t think so. KFC is a strong brand and they have their own coffee. But I cannot rule out what might happen in future.

In the US, Starbucks is restricting the number of people with computers in its cafes because they spend too much time there and consume too little. Will you be introducing restrictions here?
No, we will definitely not do anything like that here. If we were planning such a restriction, we would not offer free internet. I cannot comment on this announcement from the US, but we will definitely not do that.

You said in the beginning that you came to the Czech Republic where people used to drink Turkish coffee. Were you aware of what you would be competing with?
I know Turkish coffee, of course. I am from Yugoslavia, and my mother drank Turkish coffee. I still drink it from time to time. If you buy roasted coffee at Starbucks, you can use it to make Turkish coffee at home.

Are you going to sell Turkish coffee in your cafes?
No. Anyone who wants it can make it at home. I don’t think we should sell Turkish coffee in our cafes. We offer what our customers want, and most of our customers are younger than 39. They would have a latte or an espresso. We have done surveys on what our customers want, what they drink, and it is definitely not Turkish coffee. Even our customers in Turkey prefer lattes. They make Turkish coffee at home and do not need to go to a cafe to have it. It would not make sense at the moment.

Established in 1971, the chain now has 15,000 outlets in 44 countries and employs more than 170,000 people. The majority of its stores are in the USA, where the company began.

The number of Czech locations will increase from nine to 10 in September.

The world’s leading coffee processor and retailer, Starbucks announced in July a plan to close up to 600 cafes in the US alone and to lay off 12,000 employees.

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