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Starbucks may be pulling back in the U.S., but it’s all over Central Europe

REUTERS/Peter Andrews

PRAGUE, Czech Republic — In a country where people are used to drinking their unfiltered “Turkish coffees” in small ceramic cups, Starbucks’ first 18 months have made something of a splash.

The Seattle-based chain has announced plans to double its stores in the former Eastern Europe over the next five years, according to a Starbucks representative.

The figures, to be sure, are modest. The joint venture has nine shops in the Czech capital and two more in Poland — one in Warsaw and another in the southern city of Wroclaw, where Starbucks’ partner, the restaurant operator AmRest, is based. The expansion plans include spreading out to other Czech cities and into Hungary, according to Tereza Prochazkova, a spokeswoman for the regional venture. Starbucks already has several outlets in Romania.

“The Central Europe region is definitely seen as a very good opportunity, a very healthy market that can provide great opportunities,” she said. “The Czech, Polish and Hungarian markets are still very new. The coffee culture is on a very good level but can still be increased.”

Independent research by the British based firm Euromonitor appears to substantiate those lofty claims. “Czechs are falling in love with coffee shops,” according to Euromonitor’s 2008 report. “In terms of value, sales at specialist coffee shops saw 24 percent growth in 2007.” Prochazkova declined to comment on Starbucks’ sales growth, but Euromonitor calculates that the chain generated $2.7 million in sales in 2008, ranking it sixth in the local specialty coffee market.

Truth be told, there has always been something of a cafe culture in the Czech Republic. Coffee houses were common gathering spots of the urban bourgeoisie before communist leaders systematically closed them or converted them into state-run facilities after 1948.

But while Starbucks first entered the European market in Britain in 1998, according to the company’s official website, it held off on Prague for another decade. Now the Czech Republic’s per capita GDP is on the up and up — having more than doubled from 1997 to 2007, according to World Bank figures. With more money to spend, Czechs are splurging on premium brands at high-end coffee boutiques. Prochazkova said that prices in the Czech Republic Starbucks start at 50 koruna (almost $3) for the smallest coffee, and more than double depending on the drink.

“About the prices, we think there’s space for a premium product,” she said. “And actually we have the evidence because Starbucks has nine stores — they are successful and they are going to open more stores. The feedback from the customers for the demand is very high.”

The expansion announcements in Central Europe follow on the heels of a pull back in the U.S. In July 2008, Starbucks announced it would be closing 600 “underperforming” stores in the U.S. over the next 18 months.

In Central Europe, more and more drinkers of Turkish-style coffee — conditioned to their comparatively cheap instant coffee where the beans are ground into a veritable powder and one has to wait for the dregs to settle to the bottom — appear to be embracing something new across the board.

Other upscale Prague coffee houses include Coffee Heaven, a Polish-based entity with 15 stores, Britain’s Costa Coffee, Australia’s Gloria Jean’s and to some extent Switzerland’s Nescafe and Italy’s Segafredo.

Starbucks claims to welcome competing brands.

“Starbucks thinks it’s a very good thing for the market because the more people are educated then the better they understand the quality and the added value of the concept of Starbucks brand,” Prochazkova explained. “It’s always about the quality. Of course they can have cheaper coffee somewhere else. We are trying now in the Czech Republic to explain to people what is behind the coffee.”

Tourists still make up a sizable portion of Starbucks customers — especially in stores located in the historic parts of town. But Prochazkova said the local clientele is growing as an overall percentage of the customer base. She said locals now account for 60 percent of the stores’ traffic.

Inside the historic Gromling Palace, Starbucks flagship shop in Prague’s Lesser Town Square (Mala Strana Namesti), the shop is buzzing.

Behind a bay window that looks out on the majestic square, Eva Narozna — doing just what Starbucks goers are supposed to do, slowly sipping a large tea and writing in her notepad — explains why, in a city chock-full of cafes, she stopped in a Starbucks.

“One meeting got canceled and I had about an hour and half left and I wanted just to read and write,” said Narozna, a managerial trainer in Prague. “And I was thinking, ‘do I go to this Czech cafe which was around the corner, or do I come here — and here is probably more expensive.’ So I think finally the reason I came here is it is more sort of anonymous. If I write something here nobody cares, while in a smaller Czech place people look at you and ask you what you are doing.” Behind a nearby partition, Spanish sisters Teresa and Ana Echanoue have stopped in for the love of a Frappuccino. “Every time there is a Starbucks nearby, she goes in for a Frappuccino,” said Ana of her sister. “In Alicante [Spain] there is no Starbucks so when she goes to Madrid she always goes to Starbucks.” Unlike others who sit and linger over their drinks, Teresa usually takes her drink and goes.

Downstairs, a pair of 17-year-old Slovak boys were finishing off a couple Frappuccinos after nearly an hour relaxing on a sofa and a lounge chair. They came to Prague for a couple of weeks to do some manual labor for an uncle, and seemed unfazed by cost of their drinks — the equivalent of $5-$7.

“Here in Starbucks you are not just paying for the coffee, but for the atmosphere,” said Adam Martak pointing to the comfortable couch he was sitting on, and the mellow music emanating from the speakers.

Both lamented that they can’t get these drinks back home.

“In Bratislava [the Slovak capital] we don’t have Starbucks — the market is too small,” Martak said.

But his friend, Igor Strucka, tried to look ahead: “I think they’ll choose Bratislava for their future.”

Perhaps down the road, but for the near future it looks like the teens will have to go to Vienna — about an hour away — to get their Starbucks fix. Even though Slovakia’s per capita income is higher than that in Hungary and Poland, and though it is the only one of four central European countries to have adopted the euro, Starbucks has no immediate plans to open shop in the capital, according to Prochazkova.

Despite Slovakia being the only one of four central European countries to have adopted the euro, Starbucks has no immediate plans to open shop in the capital, according to Prochazkova.

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