Starbucks In Lagos, Nigeria

Nicholas Ballard

Positioning Report

Mark 4325

Starbucks in Lagos, Nigeria

Executive Summary

When you think of Nigeria what comes to mind? You may think of the civil war, and

military coups, for others you may think of the recent actions of Boko Haram. Then you’re faced

with a city like Lagos, A modern metropolis with some 5.2 million inhabitants (2) Lagos is the

fastest growing city in Africa (7), and is a part of a new line of economic powerhouses known

collectively as the MINT countries. “In Nigeria's case, it illustrates the possibility that the next

tiger economies could well be in Africa,” according to Larry Elliott economics editor for The

Guardian (Appendix 1). Lagos has proven to be a vibrant spot for consumers of coffee with

start-ups such as Café Neo. Which would like to position itself as the Starbucks of Africa (1), but

everybody knows that there is really only one Starbucks.

The initial plan would be to open two flagship locations in Lagos, Nigeria. Nigeria is

projected to be one of the fastest growing economies of the emerging markets, and the second

fastest growing economy in Africa according to Joshua Robinson of Bloomberg Business

(Appendix 2). The new stores would be in the largest city of the region Lagos which has a

population of about 5.2 million residents. When you search for locations for coffee in Lagos

there are only about 6 locations come up, most of which are Café Neo. This is an incredibly

underserved industry for a metro the size of Lagos. This would be the equivalent of a city larger

than Los Angeles, CA (3) only having 6 coffeehouses.

Rationale for product

Starbucks would be the ideal U.S. Competitor for entering into the Lagos market.

In 2011 Starbucks held approximately 32.6% of the coffee and snacks retail market share

according to Starbucks investor relations (Appendix 3). In the 2014 fiscal year Starbucks had

total net revenues of 16.4 billion dollars (6) (Appendix 4). The company also announced in 2013

that they would like to open up an additional 3,000 stores by the year 2015. Of the new stores the

company would like to open a planned 1,500 of them are in the new emerging market of China

according to international business times (4). So as you can see Starbucks is always looking to

new emerging markets to increase overall market share. I feel that the company would be a good

fit for Lagos because they make a conscience effort to respect the traditions and culture of the

country in which they are operating in. Because of this they could compete with the competition

that is already established there. “We remain highly respectful of the culture and traditions of the

countries in which we do business. We recognize that our success is not an entitlement, and we

must continue to earn the trust and respect of customers every day,” according to Starbucks CEO

Howard Shultz (5).

Rational for location

I thought long and hard about different possible locations, and emerging markets that would be

appealing to a company such as Starbucks. My first initial thought was perhaps somewhere in

Northern Africa with a well-defined coffee culture such as Morocco. But Starbucks is very good

at their job of identifying new business opportunities in emerging markets unto which they can

expand, and there is already a Starbucks in Casablanca, Morocco. I choose Lagos after reading

about Café Neo. There is a new and emerging culture of coffee there and people are making the

switch from traditional instant coffee to fresh brewed coffee. The population of Lagos is

tremendously underserved, as mentioned earlier in my summary it’s a metropolis with a

population of 5.2 million people and just a handful of coffee houses. The question of if there is

money to be spent in Nigeria is not really the debate. In 2014 there were an estimated 15,700

millionaires and billionaires in Nigeria, with approximately 60% of them living in the state of

Lagos according to National Geographic, and the middle class in the state of Lagos grew from

480,000 in 1990, to 4.1 million in 2014 (8). Nigeria has an estimated GDP of 510 Billion USD

making it the largest economy in all of Africa according to the African Economic Outlook (11). It

recently passed the previous title holder of South Africa who has a GDP of some 352 Billion

USD. The country has shown tremendous economic growth since the early 2000’s (Appendix

5). So for these reasons I think it is ideal for Starbucks to look into moving here before their

competitors pounce on the opportunity.

Market Overview:

The broad market conditions of Nigeria look favorable to new industry in restaurant and

hospitality fields. In 2008 retail and restaurants accounted for only 14.8% of national GDP, but

in 2013 the same field accounted for some 17.5% of Nigerian GDP, according to the African

Economic Outlook 2014. This may not sound like a lot until you look at other industries such as

Agriculture, and forestry which saw a decrease in their percentage of national GDP by nearly

10% (10). There are some challenges to entering in the market that are strictly Nigerian. One

problem that Nigeria faces is the lack of security in the North Eastern region of the country with

the actions of Boko Haram. The other main issue with Nigeria is the huge inequality of wealth in

the country. Agriculture employs roughly 70% of the labor force according to the African

Economic Outlook report, and the majority of these individuals are very poor. Lagos is primarily

an urban environment and as such could be a lucrative market for a company like Starbucks.

Competitive Environment:

In the Lagos market there is only one other direct competitor for the retail coffee and

snacks store industry, which is Café Neo. There is however others that could try to carve out a

piece of the market share for themselves. For home production of coffee Nescafé is the one with

the brand recognition according to Euromonitor.com. In 2013 Nestle held approximately 80% of

the coffee market share in Nigeria. This of course if coffee for consumption at home, leaving

plenty of room for growth of the coffee house industry. Café Neo currently has three coffee

houses in Lagos and is trying to position itself as the Starbucks of Africa. Possible alternative

products for coffee consumers might be things such as soft drinks or carbonates. Companies such

as PepsiCo and Coca Cola have already established themselves in this market and are a viable

alternative for beverage consumers. Volume sales of carbonates increased 5.9% in 2014

according to myfinancialintelligence.com (12). Although these are all things to look out for when

entering into a market, it is still my belief that Starbucks incorporated would do well to enter into

the Lagos market. Starbucks is at a competitive advantage when entering into emerging markets

because of the size of the coffee chain, and can afford to wait for profit unlike their competitors.

Product description:

Starbucks inc. originally started as a coffee house in Seattle, Washington’s Pike Place

Market in 1971. Although the company didn’t really take off until Howard Shultz an employee

of that original Starbucks, now the company CEO came back from a trip to Italy and saw the

Italian style coffee shops. He had a dream for Starbucks to be a place where individuals could

come relax and visit with one another. He with the help of local investors decided to purchase the

little Seattle coffee shop in 1987 (13). The Starbucks mission is to “inspire and nurture the human

spirit- one person, one cup, and one neighborhood at a time,” according to the company website.

Attributes associated with the company include a set menu of espresso drinks, and an extensive

menu of Frappuccino© drinks and assorted snacks and sandwiches to eat. Café Neo which is the

only player in the coffee house industry in Lagos has made it by catering to those who have

worked or studied aboard and brought back with them a taste for Italian style coffee. As far as

adaptations for the marketplace I would recommend keeping much of Starbucks the same. It’s a

formidable brand and carries with it a connotation that people have come to expect. They may

want to simplify the menu some, and carry a larger variety of African coffees though.

Positioning Statement

Among middle and upper class Lagos coffee consumers, Starbucks is the brand of coffee

houses that offers a truly superior taste, because we roast our ethically sourced beans to the peak

of flavor perfection.

Marketing Mix Decisions

Price- The national currency for Nigeria is the Nigerian naira and the average price for a

regular cappuccino in Lagos is around 521.65 naira (Appendix 7) (15). With the current exchange

rate this works out to around $2.62 (16) which is comparable to prices here in the United States.

Therefore with regards to pricing strategy I would recommend that Starbucks enters into the

market under its current pricing structure.

Product- Starbucks gathers its beans from ethical practices yielding fair prices for farmers

and growers then roast them to the peak of flavor providing superior taste in every cup of coffee

that they serve.

Place- The product would be launched through company-owned stores within Lagos. We

would open two store fronts, the first being in the Murtala Muhammed International Airport

which is in the state of Lagos and serves the city in order to cater to individuals flying into the

city who are accustomed to high quality coffee. The second store front would open on Lagos

Island which is in the center of the city and ideal for appealing to the general population within

the city of Lagos.

Promotion- In regards to promotion of the product I would recommend a mix of both

billboards and street advertisements. The location of these advertisements would vary as to

attract our target audience of middle to upper class Nigerians whom have traveled abroad. The

first location in which we would put advertisements would be within the international airport so

upon arrival residents would know that there is a Starbucks that can serve their coffee needs.

Other locations in which we will advertise are in the Lagos business district and in close

proximity to universities in the area as to build long term customers for the future.

Marketing Objectives

We would like to try to mimic the profit achieved by our current locations within the

China/Asia Pacific market because many of these locations are in emerging markets such as

China, Thailand, and Singapore. According to Starbucks financial records the company had net

revenue of $1.546 billion in its China/Asia Pacific locations and total operating expenses of

$1.089 billion creating profits of $456.6 million. There is also approximately 4,624 company

operated locations in these markets making average profitability for each store roughly $98,746

for fiscal year 2014. We would like to achieve this profitability with in a margin of 5% in the

first fiscal year excluding the initial opening cost of the stores.

Appendices: Starbucks in Lagos, Nigeria

Appendix 1: MINT economic indicators

Source: http://www.theguardian.com/business/2014/jan/09/mint-condition-countries-tipped-economic-powerhouses

Appendix 2: Estimated 2015 Economic growth

Source: http://www.bloomberg.com/news/articles/2015-02-25/the-20-fastest-growing-economies-this-year

Appendix 3: 2011 Starbucks market share

Source: http://www.quora.com/What-is-starbucks-market-share-globally-and-in-the-US

Appendix 4: 2014 Net Revenue (in millions)

Fiscal Year Ended

September 28, 2014

September 29, 2013

% of change

Net revenues:Company-operated stores

$12,977.9 $11,793.2 10%

Licensed stores $1,588.6 $1360.5 16.8%CPG, foodservice and other

$1,881.3 $1,713.1 $9.8%

Total net

revenues $16,447.8 $14,866.8 10.6%Source: Starbucks 2014 Fiscal Annual Report\

Appendix 5: Nigerian economic growth

Source: https://www.quandl.com/c/nigeria/nigeria-economy-data

Appendix 6: GDP by sector

Table 2 - GDP by sector (percentage)2008 2013

Agriculture, hunting, forestry, fishing 32.9 22of which fishing 1 0.5Mining and quarrying 37.6 14.5of which oil 37.4 14.4Manufacturing 2.4 6.8Electricity, gas and water 0.2 1.3Construction 1.3 3.1Wholesale and retail trade, hotels and restaurants 14.8 17.5of which hotels and restaurants 0.4 0.5Transport, storage and communication 3 12.2Finance, real estate and business services 6 14.6Public administration, education, health and social work, community, social and personal services

0.7 3.6

Other services 1.2 4.4Gross domestic product at basic prices / factor cost 100 100Source: Data from domestic authorities

Source: African economic outlook

Appendix 7: cost of living in Lagos

Restaurants Avg.Meal, Inexpensive Restaurant 1,000.00 ₦Meal for 2, Mid-range Restaurant, Three-course 7,976.25 ₦McMeal at McDonalds (or Equivalent Combo Meal) 1,600.00 ₦Domestic Beer (0.5 liter draught) 280.00 ₦Imported Beer (0.33 liter bottle) 500.00 ₦Cappuccino (regular) 521.65 ₦Coke/Pepsi (0.33 liter bottle) 125.63 ₦Water (0.33 liter bottle) 83.28 ₦

Source: Numbeo cost of living in Lagos, Nigeria

Work Cited

1) http://www.dailymail.co.uk/wires/afp/article-2901837/Nigerias-Cafe-Neo-hoping- African-Starbucks.html

2) http://www.citypopulation.de/Nigeria-Cities.html

3) http://www.demographia.com/db-uscity98.htm

4) http://www.ibtimes.com/starbucks-open-least-3000-stores-over-next-five-years-china- get-1500-stores-2015-1142647

5) http://www.starbucks.com/business/international-stores

6) Starbucks corporation form 10-K for the fiscal year ended September 28, 2014

7) http://fortune.com/2014/06/12/lagos-nigeria-big-apple/

8) http://ngm.nationalgeographic.com/2015/01/lagos/draper-text

9) https://www.quandl.com/c/nigeria/nigeria-economy-data

10) http://www.africaneconomicoutlook.org/en/statistics/

11) http://www.africaneconomicoutlook.org/en/countries/west-africa/nigeria/

12) http://www.myfinancialintelligence.com/fmcg/nigerian-food-drink-industry-thriving-

amid-uncertainties/2013-01-02

13) http://www.starbucks.com/about-us/company-information

14) http://ng.umutucoffee.com/

15) http://www.numbeo.com/cost-of-living/city_result.jsp?country=Nigeria&city=Lagos

16) https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-

8#q=Nigerian+naira+to+usd&spell=1