Eamonn Fitzgerald's Rainy Day

If we visit the Starbucks Germany site and call up this press release from 2001, we can read the following statement: "For its entry into the German market, Starbucks has chosen a strong partner, KarstadtQuelle AG, Europe's largest shopping centre and mail order group... All 35 of Starbucks German coffee houses will be operated by KarstadtCoffee GmbH as its own subsidiaries. It is not possible to open a Starbucks coffee house as a franchisee."

That was very much then. Today, KarstadtQuelle is on the ropes, barely conscious and gushing red ink. In its desperate bid to restructure, it is speciality shops. Its share prince is down 45 percent this year, and if the banks don't pony up a €500 million lifeline next month, it's all over. One of the first victims of the KarstadtQuelle financial mess is its lauded joint venture with Starbucks. Except, of course, that the injured party isn't Starbucks. In typical KarstadtQuelle style, the German partner stands to lose most of its investment. Rumour has it that in the contract KarstadtQuelle signed with the Seattle coffee giant, the Essen-based group is not allowed to sell its share to anyone else except Starbucks, and as it owns 82 percent of the KarstadtCoffee GmbH, that's going to be a particularly bitter deal for the Germans to swallow and then walk away from.

The KarstadtCoffee idea was an attempt by the 120-year-old department store concern to break free of the downward spiral German retailing finds itself in. The magic touch of Howard Schultz would help the bottom line thought those who invited Starbucks into the heart of old Europe. At the sign of the mermaid, the tight-fisted German consumers would buy a €5 frappuccino and then let rip with the debit and credit cards, decided those who opted for a bit of American entrepreneurial spirit in the land of the "social market". But neither Starbucks nor General Motors can cure the German disease. This winter, the jobless total will top the critical five million mark, growth is predicted to stay below two percent next year and the domestic companies who have seen the writing on the wall are voting with their factories. More and more BMWs and Mercs are being in North Carolina and Alabama and it won't be long before most Volkswagens will be made in China. There's nothing like a German Google on the horizon and the country's only software firm that's a global player, SAP, is more than 30 years old. In other words, Germany is exhausted.

So what's Starbucks going to do in Gerhard Schr? gloomy federation? It's got 35 shops in the market, after all. Well, it will have to act fast because cheaper, local outfits such as Tchibo and Balzac are gaining share, and all kinds of clones such as the San Francisco Coffee Company are establishing themselves in the larger urban centres. It will have to make a move in 2005, but knowing Starbucks, it has a strategy. Meanwhile, it's making headway on the music front. It had the Number 2 album in the US last month the Ray Charles CD "Genius Loves Company", which was released by its HearMusic subsidiary. Schultz has given the green light for 45 stores to install CD burners, allowing the espresso sippers to sample online music and then make their own albums. It's all about ideas.