Almost three years after it was first reported that Starbucks was heading to Hungary, the world’s most famous purveyor of overpriced and overcomplicated coffee finally seems poised to pour its first double espresso in Budapest. But instead of what we all probably expected – a big fancy launch in a large location on a prestigious walking street somewhere downtown – the big debut will take place in a smallish space in the WestEnd mall. (Pic via consumer blog Tékozló Homár.) According to an earlier report in daily Népszabadság, Starbucks decided not to expand into Hungary directly, and instead passed the franchise rights to a company called Amrest Holdings, which recently posted an ad for a store manager. The job seems to have lots of responsibilities, though given all the other competitors that have beaten Starbucks to the market, one of them probably isn’t explaining to locals the concept of premium coffee to go. Sad!
FYI. After the blog item came out, the poster was changed and “Starbucks” was removed.
Perhaps the quality will be better if they’ve passed it on to someone else. Their pastry, in the US, is among the very worst I’ve tasted. Bodes ill for Starbucks in Hungary. Unless they buy local.
Trashing Starbucks is easy if you ignore the fact that up until recently (the last few years) finding a properly made cappucino, latte or even a simple espresso in Budapest was a crap shoot at best and and more times than not came up snake eyes. Anyone was has been here a decade or more can attest to that. The mere specter of a Starbucks opening spun a hundred copycats and as far as I’m concerned raised the bar on accepted standards.
I am sorry to disagree with this one, i guess it is matter of taste again.
I think you get pretty decent(italian type) coffee here, especially espresso. Sometimes you get it too cold but mostly just fine. Cappuccino is anyway only breakfast drink, but i have never understood drinking coffees that have more calories than proper lunch.
The one thing i am missing here is a proper “bica”, but i doubt Starbucks will help there.
It’s no coincidence that big multinational food chains like McDonalds and Starbucks originated in the US. (Such operations could have started in other countries too, but that somehow seldom happens.) What patrons are getting is (hopefully) a lack of surprises when it comes to service and predictability as to quality of food. Something in the American national character places a very high value on such uniformity and consistency. Mass market driven regimentation goes back to the 19th century, and no doubt the result of the continental vastness of the US national market.
The economies of scale in a large country made it very very profitable. Combine that with the people’s impatience with slow service, and you get an operation that treats coffee and food items like units of mass production, to be turned out with minimum cost and maximum efficiency. I could never envision Hungary or any other European country producing a franchise chain like McDaonalds or KFC or Starbucks.
Starbucks is an interesting lightning rod for resentment. In the states the chain draws a lot of blue collar “lumpen prole” resentment, as it’s patrons are seen as yuppies, effete types, soccer moms and college educated white collar folks. In Hungary I could see the chain resented as a symbol of a multinational juggernaut, the type which Hungarians seem incapable of creating. It’s a case of where someone else’s strength reminds you of your own weaknesses.
Laszlo,
i am not sure why hungary should even try to create anything like mcdonalds, starbucks etc. It is not only Hungary, i don’t quickly recall any european country to have produced anything like that. I think europe (except UK) lacks that kind of marketplace volume or consumer attitude (after all US is the working man’s paradise) that is breeding place for nondifferentiated mass products where product promotion takes priority from product content. After all, Pizza hut is american not italian company (and you definitely can taste that)!
The future of europe in general is not trying to imitate product offerings that americans are good at doing, nor trying to (long term) to compete with low manufacturing cost advantage as this is difficult to do long term.
Most successful european companies are excelling in producing high r&d intensive products, offering high differentation value (or like north italian sme’s excellent price/quality = which has made northern italy possible the wealthiest area in the world) or product innovation. In europe we need to compete with the advantages and benefits we have, not trying to copy someone else’s competitive advantages. Already now Hungary has significant amount of r&d activities for telecommunications, electronics, medical etc industries. Just look what company like Nokia has done for Finland (my other adopted home…), i would bet on Hungary being able to create company like Nokia much better than “Langos for all” type of activi
There is nothing wrong with companies like starbucks, mcdonalds etc from investment point of view (lot of my customers have made big $$$ with their shares) but i don’t think we have what it takes to create companies like that in europe (of course there might be exceptions), our home market is simply too heterogenous for that.
I would not recommend any of my customers to invest in any european start up trying to achieve global foodprint in that kind of business… Maybe that is wrong but i need to do it based on my feelings
(and when it comes to pizza huts, starbucks it happens to concide with my taste as well…)
@ile:
One reason you noted: heterogenous markets is obviously correct – for the discerning customers!
People with low expectations are better served by simple homogenous products world wide.
Actually I wrote on another thread: when we go on holiday, not expecting too much from the food (like London or the USA) – we also visit Burger King – but McDonalds, never!
When in Hungary, or Germany or Spain … on the other hand, we try to find good restaurants with country-typical food.
Another reason for the success of the chains is simply price!
Of course in the case of Starbucks that reason is invalid. I don’t know what moves people to them, we’v never visited them.
Hi ile,
As to “why”, it’s about money. Franchising has produced multi-billion dollar companies and fortunes. They are also successful globally, even in countries where people take snooty purist attitudes toward food, like in France. (McDoanalds is the biggest restaurant chain in France)
It’s not about what you like to eat personally; it’s about business opportunity and filling a market need. I don’t see why you couldn’t franchise some mass market variant of Hungarian cuisine, similiar to what Taco Bell did for mexican food. So what if these things don’t appeal to purists? They still make lots on money.
I’m concerned about the lack of entrepeneurship in Hungary. Taking a defeatist attitude isn’t going to make you a winner in the capitalist system.
@FL:
Well, all the typical simple Hungarian foods that I know taste only really good when they’re freshly made:
Langos, Palcsinta,grilled meats, ?
And that goes against the idea of a chain, where everything is frozen and/or prepared long ago, just to be “warmed up”.
I still shudder remembering the langos they sold on some markets and fairs in Germany – it was horrible!
Hi Wolfi,
One processed food product from Germany that I have always loved are those large cans of Stockhausen soup with the white lining. (I enjoy both fresh cooked soup as well as canned varieties.) I believe that if they were better marketed worldwide, they would be good sellers. Europe makes a lot of good stuff, that can sell well internationally with better promotion. (Look at the worldwide success of Campbell’s soup, they have subsidiaries in all continents, even China, where there is a good local soup making tradition.)
American chains do well worldwide because there is a big cultural difference between Americans and Europeans. Americans are big hucksters by nature, and view the preperation and sale of food as an item of commerce for a large market. Quality is subservient to pragmatism and the bottom line. No sooner does an American have a succcessful reatuarant, than he starts to think of franchising! Europeans invest more sentimentality and emotion into it all, and I believe this keeps them from starting operations like Pizza Hut, KFC etc.
It’s a shame, because you surrender a lot of economic power and opportunity when you let the fast food business be dominated by Americans.
Hi again Wolfi,
If Taco Bell can do it, then so could someone who might want to fast food Hungarian cuisine. Issues of freshness and quality have to be carefully planned out and executed. The product would have to costed out and standardised. It might not taste like mom’s cooking, but then the point would be cheapness of price and quick service, complete with drive thru windows. I think given the right amount of market testing and product preperation, it would be doable, especially in certian national markets where people have the disposable income and want value and convenience.
With Europeans, the hard part is not in doing it, but in convincing them that such a thing is worth trying! That’s the hard part! What is there to lose? Get some investors together, come up with a product, launch a few outlets and take it from there. If it works, the owners will be very rich. If not, they can try agian.
Hi, Laszlo!
I wouldn’t mind if anyone tried it – European Regional cuisine on a large scale, doesn’t matter really if it’s Hungarian, Spanish, Greek, Italian – I like them all …
But of course, as you say, you need money and “a long breath” as we say in Germany. Experience tells us, it’s difficult, but you never know …
Good luck to everybody who wants to try!
Laszlo,
believe me i am all for entrepeneurship, after all i have been looking for promising entrepeneurs and finding them money for years! I am full of admiration for american model and its effectiveness in allocation of resourices (raw materials, money, people) to businesses that need those. In that matter USA is light years ahead of EU (after all, we used to subsidize german coal miners with 200k euro/year/miner!).
The success of Hungary obviously is going to depend almost entirely on its success of promoting entrepeneurship as it has neither raw materials nor existing major businesses. Daydreaming will not make it happen.
When assessing the likelihood of business case you need to see its feasibility. Especially in global level you end up fighting with very tough people and honestly i do believe there is no chance to compete globally with masters of low value added consumer business especially in food (US), we simply don’t even have critical mass in our local markets (eu) to create products offering to achieve low enough production cost. I do believe in regional champions coming from europe in this business, but something like americans, no, and honestly speaking dreaming about that would be waste of lost opportunities somewhere else.
In terms of money, don’t worry, my personal tastes and my investment recommendations are two totally different matters… (i know major investors in some of these food chains that would never even considering using their products…)
and Laszlo, i would be more than happy if you can prove me wrong, but for me the mathematics of european cost level (for product development, marketing, distribution, raw materials, market size, volume production) will make the business case of developing global leader for this kind market place like winning in lottery. It might happen, for sure, but…
I rather see money invested in creating high value added products, which can support higher cost levels. And i see examples of those all around me every day, in countries like Scandinavia, UK, Germany there are global leaders created all the time (you might see them as they might be part of other products, whether as sw, design etc).
One of the reasons i believe US will after all be global leader for foreseeable futire even with Asia developing its amazing machinery to produce both kinds of businesses. Although we have almost double the amount of people in europe, we overall have to put our act together to develop sustainable competitive advantages, but homogenous and low market entry home market is not one of them.
This discussion may be academic, but at least it’s refreshing.
We’ve been talking about successe stories, but I also remember many failures (or almost failures, being sold to someone else) in Europe and the USA. Just a few:
Wimpy in Britain
Wienerwald in Germany
Checkers in US used to sell Mexican food – now sells burgers
The list could be much longer.
Why don’t you guys exchange phone numbers and go on a date already. Jesus! Not supporting GIANT MULTI NATIONAL ANYTHINGS here-just saying that a place like Budapest, which had such a prominent cafe culture at the turn of the 20th century should be able to turn a proper cappucino no matter what time of the day it is. Not everyone works 9 to 5. Speaking of Hungarian chains-I had the most disgusting coffeee I#ve ever had in my life at California Coffee on Terez Krt. It was undrinkable-case in point!
Dear ile,
Some good points you mention. About food franchising; it’s not my place or purpose to run the numbers here and prove that it is possible. That is the job of any motivated group of investors who are serious and organized. What I keep harking back to is that it IS being done, all the time, but almost always by americans. They can not only do it at home, but they can go into any country, however small, and make these franchises work.
The problem with Europeans is that they are just not attracted to the idea. When I run it by them, I just get endless nay saying and head shaking and excuses about why it shouldn’t be even considered. The EU market is more than big enough to consider opening a few outlets in. Let’s say you open 10 restaurants that have a brand name and standerdised service and product. If it becomes successful, one thing that can happen is that the chain may be bought out,(at a very good price to the original investors) So what if a Pizza Hut ends up owning the whole thing, if the original investors make millions on the deal? Then they can go on to the next venture.
Some may focus on the failures, but that kind of deafeatism just frees up the opportunity to those who are willing to take a risk. Jesus was wrong: the meek don’t inherit the earth.
About high value added business. I am all for that! The problem is that Hungary keeps losing the people who could make that happen, as they leave for more economically advanced societies.
I’m still not sure many here understand how restaurant franchising works. It is trademarking a name, standardising the product and service. This usually starts with a “pilot restaurant” or two. The parent company then sells investors on the idea of buying a franchise. What that means is that the franchise buyer puts up the cost of land, building and hiring of staff. Such a buyer can be a wealthy individual, or a group of people; doesn’t matter. When the operation is underway, a fee/profit split is made between the franchise owner and the parent company. This is how it works for McDonalds for example. (Back in 1989, McDonalds was selling franchise opportunities in Budapest for a mere $60,000!!! What would that right be worth today?)
The idea works because the risk is diversified over many investors. You get one group of investors owning the parent company, and another owning and operating the individual restaurants. The head company has say so over how the outlets are run and how the food is prepared and served. All of these are contractual understandings. If an individual outlet fails, then the parent company is not taken down. If it succeeds, the parent company gets the juice. There is no reason why Hungarians or anyone else can’t launch these kinds of ventures.
One ethnic group, besides Americans, who “get it” are Indians from the Gujarat. They own most of the Dunkin Doughnuts and 7-11 franchises worldwide. You needn’t draw them a picture!
Opposition to Tyrants is Obedience to God!!
Unfortunately (for them) Starbucks doesn’t know what a REAL coffee house is like. Sure, Starbucks will be able to a few cups to tourists (which is why they are setting up in the West End Mall) but they won’t be able to convert the true Hungarian Kave Haz afficianados who know the glories of the New York, Gerbeaud and Astoria as well as countless other pleasant and worthwhile coffee houses in the country.
For the same money as an overpriced and bitter cup of coffee in a paper cup at Starbucks the top line coffee houses give you an excellent cup of coffee served by a uniformed waiter on a silver tray with a mint and glass of mineral water.
For a product to succeed in Hungary it has to be either cheap or good. Starbucks is neither.
WOW! The 1,000 lbs Gorilla unleashed at last, but in such a location and in such a humble manner? It is very suspicious and hard to believe.
The comments posted here were very interesting to read and insightful, but I believe the arguments about franchising and the EU vs the US have missed the mark. This is my humble opinion.
In a nut shell, the success of US franchises have more to do with our recognition and warm perception of things that are Americana and very little to do with anything else. The Americans did not win this admiration over night, but it took decades of calculated steps since WW1 to do so.
The sum of all these steps is what the economists call “The Demonstration Effect”. No other nation in modern history has been as successful as the USA to set trends, churn out pop culture and demonstrate it to the world at large decade after decade. Even if the trends and pop cultures originate elsewhere, it’s demonstration to the world is services via the USA.
This is why a teenager in Budapest, who has not been to the US or even seen a Starbucks in her life, may be ignorant of the New York on the Korut, but can give you the recipe of the Starbucks Frappucino if you asked for it.
Well said Al. You got it in one. This is all about
pop culture, not quality or service.
Yes, Minnie and Al, it’s gotta be pop culture, that tells people what’s in and what’s out.
So everywhere (not only in Europe, also Asia and Africa and …)
they go to McDonalds
they drink CocaCola or Red Bull or Bud Light (one of the most horrible tasteless things I ever had to drink)
they watch american tv series like …
they listen to popmusic (not Rock or Blues or Jazz !)
and — the list could go on and on …
PS: I’m a big fan of the USA, been there often for business or pleasure, but don’t like any of the above!
Al,
i fully agree with you, it is one of those market entry issues (competitive advantages = giving you leverage in creating brand awareness) when selling mass market consumer products, and that’s why even indian, european (even italian!!) companies frequently brand their products to look american even if they are not.
Beside that, however, to run something like taco bell (beside being a distribution outlet for pepsico) you need lot of cash and knowhow that has traditionally given our capable american cousins edge in this business (case in point: pizza hut is not italian, nor taco bell mexican – which you do taste immediately as well).
Lastly, i have had dozens of my friends coming over from italy, france, spain, portugal (all those countries offer excellent, though each a bit different coffee) and none of them have ever complained about the hungarian coffee, and i suspect that quite a few have had also cappucino for breakfast… Of course maybe none of them know what good coffee should taste…
I suspect that california coffee company is not hungarian actually.
Wolfi,
Red Bull is austrian actually, and (blush blush), i love it…
(or maybe i am addicted but anyhow, a few each day is a must, not for the taste honestly)..
And your list brings into my mind the old joke about american coffee, american beer and having sex in the boat…
@ile:
You’re right, Red Bull is a kind of “odd man out” – not American, but still very much part of pop culture. Did you know that Mateschitz found it in Thailand ? Look here: http://en.wikipedia.org/wiki/Krating_Daeng
thanks, it is interesting story. Sadly to say but i am all hooked in red bull, i have one in the morning, one late afternoon and one in the gym… And if i go out, my favourite club drink is vodka with red bull…
so much for me pretending to have good and sophisticated taste…
Interesting case study of marketing and global brand created in reasonably short time with (comparately) small investment (and this is nowadays _very_ comparatively).
However, Red Bull is more drank for the effect than taste (although you do get used to it)…
In economics they thought us a little about “Human Rational Behavior” which I found very interesting and pursued a deeper understanding of it. I believe it is the core of all human social and economic activity. I also believe that the Demonstration Effect is the major modifier of human behavior.
The greatest modifier tool in our times is the motion and the print media. Those who control it will set the trends and shape the cultures.
One of the pitfalls of franchising and hyper growth is the shift of focus from selling the product to focus on selling the franchise. This shift from product to branding is inevitable, but the TV and mass media is there to fill the gap materializing between quality and quantity.
The media does this by moving the focus from the product to the consumer and for a nominal fee demonstrate, whether true or not, that product “X” is consumed by the likes of Paris Hilton, Brad Pitt etc.
Watch the movie “The Terminal” starring Tom Hanks for example. It is nothing more than a 100 minute commercial for Starbucks. It is very subtle, but while you watch count the number of scenes where see the Starbucks logo in the background. You will realize that Starbucks was a major financier of the movie.
Now there may not be a Starbucks in Hungary yet, but believe me a lot of Hungarian teenagers can’t wait to be like Paris Hilton or Tom Hanks for a few sips and a 1000 HUF. Taste is only secondary, but here lies the secret of American franchising.
As far as California Coffee Company “CCC” goes;
I lived in Southern California more than half my life and never heard of such a chain. They are Polish in origin, stated by a certain breed of entrepreneurs I call “facilitators”.
I call companies like these “Bait”.
Their main mission is to appear on the radar screens of big multinationals like Pepsi, Coca Cola or Starbucks and wait for them to bite. In CCC’s case they provide the location and logistics and facilitate an easy access to new or unfamiliar markets. They are not there to sell or promote a quality product.
CCC took a gamble years ago thinking some multinational will jump at the opportunity and buy them out but this has not materialized yet.
If the Starbucks in the Westend proves it self to be a success do not be surprised if CCC vacates its stores for Starbucks.
@Alper: The same strategy is used everywhere. I’ve so often read in city guides “This place (restaurant, bar, specialist shop, boutique, casino, whatever) is frequented by celebrities … you might meet XXX or YYY here”.
But of course these celebrities would never go to a place where they might meet the “hoi polloi”, unless they’re crazy …
I normally don’t get involved in these debates, but you’re all a bit unfair — and wrong — about Starbucks. Do I like to drink it? Nah. I don’t. I’m a tea person and they don’t do a good one, but please remember: Starbucks is the American dream.
Before you go ranting that yes, it’s so because it is a corporation, look back at its history:
Starbucks started as a single, tiny little coffee shop for locals. It gained in popularity in its hometown in the American West simply because it had damn good coffee. As it got more popular, it opened more stores, and then slowly, but surely, it became the coffee juggernaut we know and love or hate today (as Starbucks seems to inspire one or the other, can people ever be neutral?). It sort of cheeses my crackers it becomes a scream about American commercialism. I find that offensive almost as while yes, America did give the world such wonderful gems as Burger King and McDonalds, we also have farmer markets, mom and pop restaurants, and local coffee shops — and I guarantee you in most parts of NYC, Denver, and Portland, people are going for the local.
Regardless, Starbucks is an amazingly ethical company who has consistently proven their dedication to the coffee growers they use. They believe in fair trade and sustainability, something I’d like to see Coffee Heaven or California Coffee Company show. Do they still exploit farms in Africa; well, I’m sure, but this comment is long and I’m lazy.
Hi, Courtney!
These comments here really are addressed to the people all over the world who think they must go to McD or Starbucks or drink CocaCola or whatever … Nobody forces them to hand out money for that – it’s their problem/choice/ whatever you call it, it really is a phenomenom of pop culture.
Still I and many others wonder about today’s youth woh want to be independent: why do they succumb so easily to these “trends” and fall prey to big industry ?
I’m not sure Starbucks will win over the European market – they sure didn’t win over the Australian market and we are still in the early stages of our coffee appreciation whereas the Europeans have had good coffee for centuries!
Here in Australia not long ago Starbucks closed all but a small percentage of their stores as they just weren’t making enough money. The reason they failed?? They didn’t take into account how Aussies (and Melbournians to be specific) drink their coffee…They continued on with their American business model, selling oversized, poor quality, sweet and weak coffee to the masses in homogenised, decidedly AVERAGE stores with very little ‘vibe’. In a city where we are really starting to get picky about our espresso, this just didn’t work out.
Now we have only two Starbucks left in Melbourne (barely a block from each other no less!) and they are frequented mostly by Asian international uni students there for the abundance of couches and free wifi.
I can’t imagine that Budapest will be much different. Starbucks may not fail completely and I’m sure the store will have it’s patrons but they probably wont have a loyal customer base, nor will they revolutionise Hungarian coffee drinking culture!
I was glad for a Starbucks when I passed through Newark airport as I did not want to eat hamburgers or pizza.They had a decent turkey salad sandwich.
This unit seems to have been taken so Starbucks
doesn’t seem to be opening in West End at all now.
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