Download Hungary

Hungary for Starbucks?
Francisco Cavazos
Dipannwita Chakraborty
Da-Jiun Chen
Rema Ramakrishnan
Background



Hungary was part of polyglot
Austro-Hungarian, which
collapsed during World War I.
Fell under Communist rule
following World War II.
In 1956, a revolt was met with
a massive military intervention
by Moscow.
Background




In 1968, under the leadership of Janos
Kadar, Hungary began liberalizing its
economy, introducing so-called New
Economic Mechanism
In 1990, Hungary held its first multiparty
elections and initiated a free market
economy.
In 1999, joined NATO.
In 2004, joined the EU.
Geography





Location: Central Europe
Capital: Budapest
Area: 93,030 sq km, slightly smaller than Indiana.
Climate: dry continental climate, with cold winter
and warm summers.
Natural Resources: Bauxite, Coal, Natural Gas,
Fertile Soils, Arable Land
People

Population: 10,032,375 (estimate 2004)

Age Structure
80%
70%
60%
50%
40%
30%
20%
10%
0%
0-14 years
15-64 years
65 years and over
People

Median age: Total: 38.4 years
Male: 35.4 years
Female: 41.1 years

Literacy: Total population: 99.4%
Male: 99.5%
Female: 99.3%
Way of Life




Rural nature
Fewer than ten cities have a population of
more than 100,000
Cities are surrounded by village-type
settlements
Huge number of commuters
Way of Life


Over 50% of the population pursues agriculture in
addition to their main occupation.
Higher level of consumption of goods and services,
as compared with other former Communist
countries.
Social Problems:
 High incidence of alcoholism
 Racial discrimination and persecution
Privatization
Ownership structure of companies
(% in assets)
1992
1993
1994
1995
1996
1997
25.1
29
32.9
35.2
34.7
38.2
Foreign owners
0.1
16.1
18.9
28.4
31.5
35.3
Total private
ownership
35.2
45.1
51.8
63.6
66.2
73.5
Total state and other
64.8
54.9
48.2
36.4
33.8
26.5
Total domestic private
owners
Source: Pitti, Zoltán (1998)
Social services



Health care and pension funds are financed
by employer-employee contributions totaling
approximately 10 percent of the annual
wages of each worker.
Health insurance is obligatory, and most
medical treatment is free.
Guaranteed minimum wage.
Social Services


Eligible to receive retirement pensions
Men: age 60
Women: age 55
Social insurance provides for




prenatal and maternity benefits.
compensation for unemployment.
old age and disability pensions.
aid to orphans and widows.
Currency and Exchange Rate


Currency: forint (HUF)
Exchange rate: 189.09 (forint per US dollar)
Post-Communist period





Hungarian government actively sought foreign
investment
Encouraged foreign firms to take over privatized
firms
Today-80% of Hungary’s output is produced by
private sector
Péter Medgyessy’s government is following a policy
of shedding state ownership
Companies to be privatized: financial institutions
(e.g. Posta Bank), MOL (The Hungarian Oil and Gas
Company
Foreign ownership

National Development Program
and the Smart Hungary program:
aimed at facilitating foreign
investment
Manufacturing
Local
33%
Foreign
67%
Telecommunications

100% ownership permitted,
exceptions:defense, national
airline
Local
10%
Foreign
90%
Land ownership



The 1994 Land Law: restricts foreign
ownership to 6000 sq. meters
Leases are allowed up to 300 hectares for 10
years
Restrictions hold until 7 years following EU
membership
Business Environment

Ownership more concentrated than in US

Hungarian accounting standards are
significantly different from international
standards
Dispute settlement



Independent judiciary and well-developed
legal system
Hungary has accepted binding international
arbitration in cases of dispute between state
and foreign investors
Well developed commercial law
Regulations

Regulatory process


Income tax levels



Relatively open and transparent
40% individual
18% corporate
Price regulation

Pharmaceuticals,energy
Political environment

Political violence


Almost negligent, peaceful transition to
democracy
Corruption


Very low—good legal system in place
Isolated incidents but not pervasive
"Good coffee should be black
like the devil, hot like hell, and
sweet like a kiss."
Hungarian saying
Tradition



Traditional and growing modern trends
Early 1900s
New York Palace coffee shop



Significant role in cultural life
Hub of most lively social events
Used by most influential and significant writers
Tradition

Café Gerbeaud




Opened 1858
Over 600 people
Oldest in 1824
Rebirth of Café era
Hungarian Coffee Market



2001: Coffee sales up 6% from 1997-2001
2002: Retail outlets accounted for almost
73%
2003: Hot drink market up 2.1%
Growth






Reduction of 12% luxury tax
Growing disposable incomes
Number of foodservice outlets
Western lifestyle
Better quality products
Growing consumer sophistication
Expected Growth

By 2008 – Expected growth of 7.3% in
volume


Sales growth of 9.3% valued at HuF114.6 billion
Niche markets



Green Tea
Decaffeinated coffee
Instant cappuccino
History and Objective

History



1971
1984 Howard Schultz,
vice president
Objective

To establish Starbucks as
the most recognized and
respected brand in the
world
Growth of Starbucks






Dominant retailer, roaster, and a brand of specialty
coffee in North America
4.1 billion net revenue
8% annual store sales growth
1000 stores in Asia Pacific region
More than 7000 locations worldwide
9 on Fortune Magazine’s Most admired companies
list
Starbucks: SWOT Analysis
Strengths
 Strong Brand Name
recognition
 Large retail distribution
system
 Quality Product
 Extensive product list
 Strong financial history
 Strong Human Resource
Weaknesses
 Prices high relative to
competition
 Strong dependence on
suppliers
Starbucks: SWOT Analysis
Opportunities
 Expansion into overseas
markets
 Expansion into untapped
U.S. markets.
 Expansion of brand name
into new products or
business lines
Threats
 Economic condition may
make consumers unwilling
to pay high prices
 Political conditions abroad
may limit expansion
 May be reaching saturation
point in some U.S. markets
International Market
Barriers to enter Hungary





Competition: Countless coffee
shops in Hungary
Trend in Hungary: Every café
serves alcohol
Ambience: Elegant and
sophisticated
Supply/Demand: Additional
cafés would cause surplus
Price: Lower comparative
price
Price Comparison
Hungary Coffee Shops
Price
Starbucks
Espresso
$1.30 Espresso
Cappuccino
$1.99 Cappuccino
Coffee with milk &whipped
cream
$1.99 Coffee with milk&
whipped cream
Price
$1.75
$ 3.45
$3.95
Hot Chocolate
$1.99 Hot Chocolate
Ice Coffee
$2.60 Ice Coffee
Frappe
$3.33 Frappe
Frappe ( with vanilla ice
cream )
$3.00 Frappe ( with vanilla
ice cream )
$ 2.70
$ 3.95
$ 3.95
$ 3.95
Recommendation

Do not enter the Hungarian market.
Questions

Any questions?