Polish Rivals Shrug Off Starbucks Arrival

As Starbucks plots its move into Poland's booming coffee sector, local shops and chains insist there's nothing to fear

The giant is moving in next door to Polish coffee shops.

Starbucks, the iconic American company with more than 15,000 locations worldwide, is expanding into Central Europe. The company poses new competition to other coffee shops and chains in an already blossoming Polish market.

Poland has been a Central European hot spot for coffee stores and products in recent years. From 2001 to 2006, the market for hot drinks in Poland grew between 3 and 4 percent annually, according to market data. The Warsaw Business Journal reported in 2005 that about 80 coffee shops open in the country each year.

Krakow residents can choose from a range of coffee shops to suit their lifestyles. Photo by Seyward Darby.

The number of stores and bars belonging to chains is estimated to be in the low hundreds. Popular chains include imports like Nescafe and Costa Coffee and domestic companies like Mercer’s Coffee and Coffeeheaven. British-owned but Warsaw-based, Coffeeheaven is the country’s largest café chain with 48 stores.

There are countless other homegrown Polish coffee shops with loyal followings.

Much of the market growth has been driven by increasing wages, which boosts out-of-home coffee consumption. Overall economic growth has also put the country in closer touch with Western investors and café trends.

“Poland has a dynamic economy and a high number of regular coffee drinkers…. It is an attractive market for all international coffee companies,” Judd Williams, regional director for Costa Coffee Europe, told Transitions Online. “We expect the sector to grow steadily over the coming few years, in the same way it has done in the West.”

Starbucks will contribute to this growth. The corporation selected AmRest, a Warsaw-based restaurant management company that already runs Pizza Hut and KFC in the region, to oversee its Central European market, which initially will include Poland, Hungary and the Czech Republic.

Although AmRest has not officially announced any Polish Starbucks locations, openings may begin as early as the second quarter of 2008. As many as 100 stores may open in the next few years.

Starbucks has been criticized for its expansion tactics, which have included saturating local markets with stores to sap the competition, according to several media reports. In recent months, however, the company has admitted that opening too many stores too quickly may be harming its brand. Executives hope a new development strategy unveiled in January will reel in the bloated business and rekindle financial growth.

No matter where Starbucks stands economically, coffee businesses in Poland are determined not to be done in. Coffeeheaven plans to double its stores in the next few years. Costa Coffee hopes to open 100 cafés by 2011.

Small, local coffee shops, however, agree that keeping business limited and customers close will preserve their niche in the market. It’s the chains that stand to lose, they say, because they offer clones of the Starbucks atmosphere.

“Regular customers come in every day. They open the door and know what to do – order their coffee or large beer,” said Kate Fuchs, 23, who works at Krakow’s Café Golebia 3. The smoky, wood-paneled café is usually full of local people chatting or working on their laptops. Although it offers to-go coffee, Fuchs said the café isn’t the sort of place customers “rush in and rush out” of, as she sees them do at larger chain stores.

“We’re not afraid of Starbucks,” she added.


At Krakow’s Café Ole, two waitresses bustled behind the counter, doling out espressos, hot chocolates, and sandwiches to a throng of tourists. The whir of the store’s gleaming silver coffee maker blended with the conversations of people eating or waiting for their orders.

It’s a fast-paced, youthful atmosphere, and one that sharply contrasts Krakow’s traditional café scene. The city’s large coffee houses, which date back hundreds of years, once rivaled those of Vienna with their lush interiors and personal table service.

Under communism, low wages and economic stagnation suppressed the Polish coffee market and café culture. In the 1990s, however, demand for coffee began a steady increase.

Imports jumped from 15 million kilos in 1991 to almost 156 million in 2006, according to the International Coffee Organization. Vietnam, the world’s third-largest coffee exporter, now counts Poland as one of its 10 biggest importers.

As Polish imports have grown, new coffee shops have opened to cater to consumers with a hankering for Western-style cafés and extra money in their pockets. Poland’s per capita GDP rose an average of 6 percent each year between 2000 and 2006, according to International Monetary Fund data.

“We used not to have places like this,” said Dominika Winnikow, 23, gesturing at the quick-service line at Café Ole. The shop opened two years ago.

Like Café Ole, which has only one location, some businesses have stayed small. Café Golebia 3 has one location that opened in 1999. Krakow’s popular Tribeca Coffee has three branches.

Other businesses, however, have invested in broad store networks.

Mimicking popular chains throughout Western Europe, Coffeeheaven opened its first store in Warsaw in 2000 and grew quickly. The stores, which often are located in large malls and on busy shopping streets, offer a wide selection of coffee drinks and snacks like muffins, cakes, and even sushi.

Mercer’s Coffee, which also started in Warsaw, now has 16 locations in the capital, Wroclaw, Lodz, and Poznan.

On the international side, Costa Coffee, a U.K.-based company with the third-largest coffee shop network in Europe, opened in Poland in 2006. It now has 12 stores. Nescafe, run by the Swiss company Nestle, operates 38 coffee bars.

The overall value of the coffee shop market in Poland reached about 405 million euros in 2007.

When Starbucks enters the mix, it will bring with it eager young Poles ready to be the first customers. “I can’t wait,” said Kasia, 23, a hotel clerk in Krakow who had been to a Starbucks in England. “Starbucks is Starbucks. You can’t compare it to anything.”

Other Poles, however, aren’t interested in the hype.

At Café Ole, both waitresses shrugged at the Starbucks name. Neither had ever heard of it.


Still, when Starbucks moves in, it can act like a magnet for customers old and new.

On a crisp January morning in Prague, young Starbucks staff in bright green aprons carried trays with samples of muffins and scones through a packed house of local media. Guests sipped lattes from mugs stamped with the company’s emblem.

It was the official opening of the company’s first store in Central Europe. Starbucks already has thousands of stores in Western Europe, and it recently opened in Bucharest and Moscow.

“Wherever I go, I’m embarrassed to say it took us so long to get there,” said Cliff Burrows, president of Starbucks in Europe, the Middle East, and Africa.

Representatives insisted that Starbucks will offer a new experience for coffee drinkers and not overwhelm the existing market. “Especially in Central Europe, there are so many countries that have an existing coffee culture that it’s interesting for us to come in and add something new,” said Carole Pucik, a Starbucks spokeswoman. “We always think that there’s room for all different kinds of coffee houses. There’s room for different kinds of stores and chains.”

Since opening, the Prague location has attracted long lines of customers, including many tourists.

A 2002 Wall Street Journal article reported that Starbucks’ openings in the United States hadn’t hurt independent businesses as much as people perceived. In fact, in some cities it helped other stores by cultivating a new crop of coffee customers or increasing loyalty to local shops, whose patrons put up a show of strength as the corporation moved in.

Still, the company has been criticized for running small shops and chains out of business, or buying them out.

Nikos Balamotis, Coffeeheaven’s director of new markets development, said Starbucks won’t take substantial business from his company or any other offering quality food products. He said Starbucks’ menu is lost behind the merchandise – including mugs, CDs, and books – the company now promotes at its counters.

Balamotis added that Starbucks’ decision to open franchises around the globe has undermined its local quality and won’t appeal to Polish customers. Its prices are also higher than those at many homegrown stores. “If you’re delivering coffee by selling image, customers won’t buy it,” Balamotis said.

“Starbucks is going in a way that we call ‘McDonaldization,’ ” he continued. “We just think it’s not easy to copy and paste at any single place in the world.” Coffeeheaven doesn’t franchise, and Balamotis said the company won’t expand outside Central and Eastern Europe.

In 2006, Starbucks announced its long-term intention of expanding its network to 40,000 stores worldwide. Since then, however, all hasn’t been well in the Starbucks universe.

Due in part to overexpansion and emerging competition, Starbucks’ share prices plummeted by 42 percent in 2007. Its CEO, Jim Donald, was fired in early January and replaced by company founder Howard Schultz. Later that month, Schultz announced plans to scale down U.S. growth.

International expansion, however, will continue at a slightly higher pace than anticipated. The company’s overseas target for 2008 is 975 new stores, 75 more than originally planned.

How Starbucks will play in the Polish market has yet to be seen. But it seems likely that the company will enter the game without too many advantages, thanks to its recent business woes, other existing chains, and pride in the local coffee culture.

“I’d like to try Starbucks, because I’ve never been,” said Fuchs at Café Golebia 3. “If I’m running through the city, I’ll go there … but if I want to sit with friends and smoke a cigarette, I’ll come to places like this.”

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