Pouring Israel into a Starbucks Cup

Abstract

An analysis of Starbucks’ failed venture in Israel provides a cautionary tale of emotionally driven decisions gone wrong. For its joint venture, Starbucks worked with Delek Israel Fuel Company (DIFC), an operator of gas stations and convenience stores, among other ventures. While both firms were successful in their own spheres, their competitive advantages and corporate cultures did not mesh in attempting to operate a joint venture—particularly when business went sour. A consideration of why these two firms went forward with their venture, even though it was clear that they were not well matched, provides strong implications for managers. Three factors pushed the deal, once it began: (1) emotional commitment, (2) escalating commitment, and (3) overconfidence. First, Starbucks CEO Howard Schultz wanted his firm to open shops in Israel, but the company did not appear to conduct serious market research. Second, once it became known that Starbucks and DIFC were negotiating a deal, it became increasingly difficult for either one to back off. Third, because both firms were successful—and because Starbucks had successfully opened a chain of stores in Arab Middle Eastern nations—the two firms exhibited overconfidence and anticipated that their joint venture would necessarily be successful. The key lessons from the case are for companies to (1) choose their partners carefully, (2) be willing to exit agreements rather than to proceed with partnerships that appear problematic, and (3) avoid substituting emotion for market analysis.