Starbucks in Indonesia

Saturday morning at 7am, the gates fly up and the doors open for business at Starbucks in Pakuwon Trade Centre. Situated in the upscale west neighbourhood of Surabaya, Indonesia’s second largest city, the coffee shop is open for less than five minutes before foot traffic begins. The store features warm colours and hanging lamps, and is filled with the sound of soothing Balinese music playing over the speakers. The energetic employees are all in their early 20s, speak English well, and know exactly what they’re doing behind the counter. They shout Italian drink orders to each other as if they were Seattle baristas, while well-dressed locals file past the register. Suited up professionals settle in for business meetings while college students fire up their laptops. Outside the window, a Mercedes E Class drops off some teenagers for a coffee date. Learning from the Past While the rest of the world has been scrambling to get back to zero since the Global Financial Crisis in 2008, Indonesia has been enjoying an unrivalled economic expansion, with an average annual growth rate of 6 per cent over the past decade. What we see today is a surprising turnaround for a country that was on the verge of tearing itself to pieces in the wake of the Asian financial crisis in 1998. With the fall of the Suharto regime (in power for more than three decades) and the near collapse of Indonesia’s economy, came angry riots in the streets of Jakarta. Between December 1996 and January 1998, the Indonesian Rupiah plummeted from 2,400 to the US dollar to 16,000. The price index for food rose as much in January 1998 as it had for the six prior months combined. In an astonishing comeback, today Indonesia is South-East Asia’s largest economy. According to the 2013 Index of Economic Freedom, the country has undertaken a wide range of reforms to address its structural weaknesses and become more competitive in the global market, particularly in attracting foreign investment. Recent reforms have created a livelier private sector through modernisation of the financial sector, all while taking steps to attract investment from countries like the US, Korea and Japan. A study by the Organization for Economic Cooperation and Development (OECD) titled ‘The Emerging Middle Class in Developing Countries’ states that today Indonesia’s household consumption of the overall domestic GDP sits at 63 per cent, well above the global average, and in stark contrast to China’s unbalanced 37 per cent. The OECD predicts that countries like Indonesia, India, and Vietnam will more noticeably become the world’s new points of economic gravity in decades to come. First Come, First Served Starbucks may not have been the first upmarket coffee chain to notice Indonesia’s prolific rebound, but it was certainly the first to act on it. Last year, Starbucks announced its plans for rapid expansion in Indonesia. The global coffee giant is now poised to open more than 700 stores in South-East Asia over the next three years, 100 of which are set to be built on the world’s largest archipelago. During his visit in April, Starbucks Chairman and CEO Howard Schultz publicly affirmed the importance of the country’s market to Starbucks’s global standing. “With a population of more than 240 million people, an emerging middle class that is driving strong domestic consumption and a robust and resilient economy, Indonesia presents a unique untapped potential for Starbucks in the Asia Pacific region,” said Schultz. Enter 49-year-old Englishman Anthony Cottan, Director of PT Sari Coffee Indonesia, the country’s Starbucks franchisee. “We are still on track to open about 30 to 35 new stores in Indonesia every year,” Cottan tells GCR. “As we have many formats that include drive-thru, universities, malls and office, this is an achievable number.” Cottan’s background is firmly planted in the food and beverage industry. When he first arrived in Indonesia in 1989 he started as the General Manager of the Mercantile Club, “a city dining venue managed by CCA International from Hong Kong,” says the British expatriate. After leaving the position in 1996, Cottan was taken all over Asia by ClubCorp, an elite network of golf and country clubs, for which he also held managerial positions until 2001 when he jumped at the opportunity to return to Indonesia on behalf of PT Sari Coffee Indonesia. Today, Cottan lives in South Jakarta with his Indonesian wife and children.  Although the first Starbucks store popped up on Indonesia’s grid just 12 years ago in Jakarta’s popular shopping centre Plaza Indonesia, locals have taken such a liking to the brand that 152 stores now exist in major cities throughout the archipelago, a number that will nearly double in five years’ time. “We are proud that we can be in 12 cities across Indonesia and maintain the same standards that would apply to any Starbucks across the globe,” says Cottan. “So what you experience in Balikpapan should be the same, if not better, than London.” In January 2013, Cottan announced the grand opening of two new stores in South Sumatra’s capital city of Palembang, making it the newest pinpoint on the map for the global coffee giant. “We see Palembang as an important and growing region in Sumatra,” he says. In August 2013, Cottan told Tempo magazine that the Starbucks market has grown by double digits, “around 10 to 20 per cent” in three years. Indonesia is the only country in Asia where market growth has been consistently in double digits. If viewed overall, the company’s sales growth reached more than 30 per cent as a result of new outlets. Cottan says that while the growth of the Indonesian market is large, the daily transaction volume is not that big, roughly 30 per cent lower than Singapore’s, which has a higher income per capita. However, he remains confident that he can boost the daily transaction average, depending largely on how he formulates a strategy for pulling in new consumers. Although the undisputed brain behind Starbucks Indonesia, Cottan often downplays his own contribution to its domestic success, giving credit to Singapore’s influence in setting trends for Jakarta. “What Singapore has, Jakarta has to have – that’s the mentality of the market,” Cottan argued in an interview with The Jakarta Post last April. Younger Customers with Increased Spending Power As the small group of teenagers climb out of the Mercedes and walk into the coffee shop, they are greeted with warm smiles from the young staff, and make their way to the cushy seats in the corner next to a young man in a suit and tie punching away with the stylus pen on a Samsung Galaxy Note 3. It would seem apparent that without intent, Starbucks has become the de facto cornerstone of style for a new generation of coffee drinkers in Indonesia. “I come [to] Starbucks because I like to hang out with friends there,” says one of the 19-year-old girls named Rizka. But Starbucks is not the type of company that achieves anything by mistake. It should come as no surprise that ‘Generation Y’ in Indonesia is naturally gravitating toward the Starbucks name. With rapid proliferation of the brand across the nation, coupled with strategic implementations on university campuses and every single outlet boasting a young, intelligent and attractive staff, Cottan has successfully capitalised on Indonesia’s latest niche market: young trendsetters with newfound money to spend. Although Cottan acknowledges the performance of his young employees, he also recognises that the nature of the workforce today is quite different that it was back in the 1990s, when young people were proud to work for big companies. He says that technology has sped up the expectations of Indonesia’s youth, and therefore it can prove to be difficult to retain them for long periods of time in order to cultivate future company leaders. If anyone is up to the challenge in Indonesia, however, it’s Starbucks. Cottan says corporate leaders must first be able to foster the forward thinking values of the new generation while also teaching them principles that support the organisational structure necessary for large companies like Starbucks to thrive. “I make sure I always visit stores on Thursday and Friday to see the reality of what we do and compare to our standards and vision,” Cottan explains. Referring to his young staffers he says: “That’s the most satisfying part, when we see the passion that our young partners have.”   Responsibility in a country that needs it According to the World Bank, the 1998 Indonesian financial crisis led to little to no investment in water infrastructure, and the government has struggled to maintain upkeep of existing facilities. As a result, diarrhoea and typhoid fever have been key factors to the under-five mortality rate in Indonesia. Last July, Starbucks Indonesia and the Planet Water Foundation, an international non-profit focused on bringing clean water to disadvantaged communities, launched a program called Water for Change in Bantargebang, Bekasi, one of Jakarta’s eastern boroughs that struggles with sourcing clean water. Starbucks Indonesia now donates 1,000 Rupiah (US$0.08) to the Planet Water Foundation for every bottle of water purchased by its customers. For 2014, the money raised by Starbucks bottled water sales will be allocated to constructing new clean water tanks in Sumatra. Between November 2013 and January 2014, Starbucks worked with the Indonesian Street Children Organization to deploy its annual Drop of Hope campaign, an initiative that among other efforts collects school uniforms for children in families living below the country’s poverty line. Through this program, Starbucks helps procure thousands of uniforms for Indonesia’s students in low-income households. “It is an important part of our company’s culture and values,” says Cottan, referring to his company’s CSR department as a whole. A Trusted Brand At 9pm on Saturday night, the doors close and the gates slowly begin to come down. It has been one of the busiest days of the month for Starbucks at Pakuwon Trade Centre. Regardless of the day, there never seems to be much down time in Indonesian Starbucks cafés. As the island nation has shown itself to be the most promising emerging market of South-East Asia, Starbucks was able to plant its flag early, establishing a strong market share in the retail coffee sector as well. In 2012, The Nielsen Company and Campaign Asia Pacific ranked Starbucks as the number 10 brand in Indonesia, the only food and beverage brand out of 1000 companies on its list. Cottan says he loves what he does in Indonesia, and explains: “We recognise that it is our store baristas, partners, shareholders, and most importantly, our customers that make us the top of mind brand when it comes to premium coffee experience.” 

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