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Starbucks: Brewing Coffee in India
B U S I N E S S S T R A T E G Y
S E C F
Prepared By: IMRAN KHAN HARSHALL BANDEKAR HARLEEN KAUR RISHABH LAL HITESH MOTIRAMANI
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Table of Contents CHAPTER 1: INTRODUCTION ......................................................................................................................... 4
Starbucks: Brewing Coffee in India ............................................................................................................... 5
Starbucks: Caffeinating India ........................................................................................................................ 5
Coffee: A Recession Free Product ................................................................................................................. 6
Coffee Industry: In a Nut Shell .................................................................................................................. 6
PORTER’s FIVE FORCES .............................................................................................................................. 6
The Threat of New Entry ....................................................................................................................... 6
Threat of substitutes: ............................................................................................................................ 7
The Bargaining Power of Suppliers ....................................................................................................... 7
The Bargaining Power of Buyers ........................................................................................................... 7
Competitive rivalry ................................................................................................................................ 8
PESTEL ....................................................................................................................................................... 8
Political ...................................................................................................................................................... 8
Economic ................................................................................................................................................... 9
Ecological: ................................................................................................................................................. 9
Sociocultural ............................................................................................................................................. 9
Weather ........................................................................................................................................................ 9
PORTER’s Diamond ............................................................................................................................. 10
1) Demand condition for porters diamond .............................................................................................. 10
2) Related and supporting industries: ..................................................................................................... 11
Specialty coffee cultivation in India .................................................................................................... 11
MONSOONED MALABAR AA ............................................................................................................... 11
MYSORE NUGGETS EXTRA BOLD ......................................................................................................... 11
Robusta Kaapi Royale .......................................................................................................................... 11
3) Factor conditions in India: .................................................................................................................. 12
Land ..................................................................................................................................................... 12
Labor: .................................................................................................................................................. 12
4) Firm Structure, Industry Structure and Rivalry ................................................................................... 13
CHAPTER 2: BACKGROUND ......................................................................................................................... 14
Starbucks: The History ................................................................................................................................ 14
Industry structure and rivalry: .................................................................................................................... 16
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Café coffee Day ....................................................................................................................................... 17
International exposure of Café coffee day ......................................................................................... 17
SWOT Analysis – CCD .......................................................................................................................... 18
Strategies adopted by Cafe Coffee Day: ............................................................................................. 19
Barista Lavazza ........................................................................................................................................ 19
SWOT analysis of Barista ..................................................................................................................... 20
Strategies adopted by Barista: ............................................................................................................ 21
Costa Coffee ............................................................................................................................................ 21
Gloria Jean's ............................................................................................................................................ 22
Competitors’ Visibility ................................................................................................................................. 22
CSR initiatives by Barista Lavazza, Café Coffee Day, Costa Coffee: ............................................................ 29
Barista Lavazza: ....................................................................................................................................... 29
Café Coffee Day:...................................................................................................................................... 29
Costa Coffee: ........................................................................................................................................... 30
CHAPTER 3: The SWOT’s ............................................................................................................................. 31
Opportunities and Roadblocks’ Ahead ....................................................................................................... 32
Opportunities: ......................................................................................................................................... 32
Increasing Coffee Consumption .............................................................................................................. 32
Challenges: .............................................................................................................................................. 33
Starbucks: SWOT Analysis ........................................................................................................................... 34
Strengths: ................................................................................................................................................ 34
Weaknesses: ........................................................................................................................................... 35
Opportunities: ......................................................................................................................................... 35
Threats: ................................................................................................................................................... 36
Strategic Position – Starbucks ..................................................................................................................... 36
Proposed Strategies ................................................................................................................................ 38
1. The Product ..................................................................................................................................... 38
2. Pricing .............................................................................................................................................. 39
3. Promotion ....................................................................................................................................... 39
4. Place ................................................................................................................................................ 39
Starbucks’ current Strategy .................................................................................................................... 39
1. Rapid store expansion strategy ....................................................................................................... 39
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2. Employee Training and Recognition ............................................................................................... 40
3. Real Estate, Store Design, Planning, and Construction ................................................................... 40
4. Store ambience ............................................................................................................................... 40
5. Coffee purchasing strategy ............................................................................................................. 40
Strategic Capabilities – Resources and Competency .............................................................................. 41
1) Resources ........................................................................................................................................ 41
2) Competences - Their competitive advantage ................................................................................. 42
Conclusion ............................................................................................................................................... 44
TOWS Analysis: ........................................................................................................................................... 45
CHAPTER 4: Reactions and Outlooks .......................................................................................................... 46
Company Reaction over a period of time ................................................................................................... 47
Future Outlook of Starbucks in India .......................................................................................................... 47
References: ................................................................................................................................................. 52
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CHAPTER 1:
INTRODUCTION
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Starbucks: Brewing Coffee in India
Starbucks Corp. is aiming India as its next major hub for development. Starbucks want to
replicate the success they had in USA and more recently, in china. Surprisingly, their venture in
China proved to be more profitable than that of US. Here in India, Starbucks entered into a deal
with TATA Coffee Ltd1.,, Asia largest publicly traded coffee grower. This is, in particular, a
non-binding agreement between two giants. There are plans to combine the trust and legacy of
TATA coffee with the iconic brand image of Starbucks which can move on to development of
Starbucks retail coffee chains in other parts of Asia. In addition to sourcing coffee beans from
TATA‘s Indian facilities, the companies will also work towards developing Starbucks stores in
retail outlets and hotels.
Starbucks: Caffeinating India
India and China are the world‘s two fastest growing economies. Starbucks had already ventured
into the Chinese market and not surprisingly, their Chinese venture turned out to be much
profitable than that of their US business. Thus, they want to replicate their success in Chinese
mainland in India.
Also, the Indian market is heavily driven by the upcoming youth culture which is totally driven
by the western trends. With the growing disposable income of Indians, people tend to spend
more towards apparels and fast foods. With the success of Indian owned Café Coffee Day and
Barista Coffee, it is a widely proven fact that there is lot of scope for the development of coffee
café culture in India. Thus, Starbucks want to capitalize on this particular opportunity.
They are planning to start with targeting the niche upper class segment by opening their outlets
in Taj Hotels and Resorts. Their primary target market is the younger generation of age 16-40
years. They will also target the tourists who will be visiting India. Since, most of the tourists
coming to India are from the countries of U.S., England, Germany, and Japan who are well
aware of Starbucks brand name. Thus, there will not be the problem of brand name recognition
among them
1 TATA Coffee is a part of TATA Sons Conglomerate
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Coffee: A Recession Free Product
Coffee Industry: In a Nut Shell
PORTER’s FIVE FORCES
The Threat of New Entry
The entry barriers in the coffee retail industry are relatively low in India, particularly for the
foreign players. This is possible owing to the fact that 51 % FDI2 is allowed in India in retail
sector. Any large or well-funded company having the thorough understanding of the market can
enter into retail sector in India.
Economies of Scale: given the fact that Starbucks is a global, it is having its own advantages
when it comes to achieving the economies of scale. Though, for a start, they will open few stores
in India, they have plans to open new stores in most of the major Indian cities.
Capital Requirement: Starbucks being the global coffee retail chain, they are going to have any
particular capital related problems. Also, they are having MoU being signed with TATA‘s for
opening their outlets in their Taj group of hotels and resorts. Thus, their entry can assured to be
pretty smooth
Access to supply:
India, being the sixth largest producer of coffee in the world is having the largest home grown
supply of coffee beans. Thus, sourcing coffee for any new entrant in this industry is not going to
be much of the problem
Customer or supplier loyalty:
Indian market is already being captured by the long established brands like Café coffee day,
Barista, Barista Lavazza and Costa Coffee. Thus, it is going to be pretty much difficult for any of
the new entrant to establish its brand name in the Indian market. However, Starbucks being the
international brand will definitely help in attracting the educated Indian crowd
Market Experience:
The existing players in the Indian coffee retail industry have been here in the market from last 10
years. Thus, their management must be having greater understanding of the Indian markets and
2 FDI stands for Foreign Direct Investment
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Pallets. Therefore, for Starbucks, it is going to be important to first understand the Indian
preferences, before making any major move.
Legislation or government action:
In India FDI regulation for single branded retail stores is 51%. Thus, any foreign player will need
to have an Indian partner, compulsorily. Therefore, Starbucks is also planning to enter in Indian
markets with collaboration with TATA coffee.
Differentiation:
Coffee is not the product where there is a great scope for product differentiation. However, it
depends on most of the cases on the store ambience, which can act as the point of differentiation.
Threat of substitutes:
Products for Product substitution
Product substitutes, here, will include other beverages, apart from the Starbucks coffee, for
example, soda, fruit juices, water, beer or other liquid beverages. This will also include other fast
food beverages like burgers etc.
Substitution of a need
This will include the lower end local coffee houses or other snack shops which are less
luxurious. These are places which provide people with the place to sit, chat and relax.
The Bargaining Power of Suppliers
In this case of coffee retail, the suppliers, supplying the retailer with the coffee beans are not
having much of the bargaining power. This is particularly because of the fact that coffee retailers
like that of Starbucks tend to be very big buyers for any of the supplier to lose as a whole. This
also gives the Starbucks to dictate terms to the supplier.
Similarly, suppliers of other resources like that of paper products etc., will not be having much of
the bargaining power as there are many sources from which the company can source them.
However, this is not valid in the case of the suppliers supplying the technological machinery as
there are not many suppliers here.
The Bargaining Power of Buyers
In the past, buyers in India were not having much of the bargaining power as there were not
many food retail giants which were present in the country. However, with the advent of
multinational food retail giants in India, like that of Mc Donalds, Barista Lavazza, Café Coffee
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Day and Costa Coffee, consumer is faced with lots of choices. Thus, it will be difficult for
Starbucks to influence the Indian buyers to pay premium for their products.
Competitive rivalry
Major competition for Starbucks in India comes from that of Café coffee day. The abbreviation
CCD is known to most of the people in urban parts of India. Their positioning is same as what
Starbucks have in US. The other competitors include Barista Lavazza, Barista and Costa Coffee,
which are also the multinational brands, widely recognized.
Apart from them, secondary competitors include the Georgia Coffee served in fast food joints
like that of Mc Donalds and KFC
PESTEL3
Political The Government of India has communicated the sanction for the implementation of the
Coffee Debt Relief Package – 2010 for the debt ridden small coffee growers with a total
implication of Rs. 241.33 crores vide order No 4/3/2008-Plant (B) dated 14th June, 2010.
The copy of the order made available to the SLBCs, Banks, and Growers‘ Associations
for information and initiate necessary action for speedy implementation of the Package.
It is estimated that this relief package would benefit more than 95% of the small growers
(74929 small growers out of the total of 78,665 coffee growers) having accumulated bank
loans covering all the coffee growing regions of the country.
Implementation modalities-XI Plan Support Schemes-including Mechanization
1. Modalities for implementation of coffee development programs – NER
2. Modalities for implementation of coffee development programs – NTA
3. Support for Grower Collectives in Coffee Sector – Modalities
4. Support for coffee replantation, water augmentation & quality up gradation for coffee in
Karnataka, TN & Kerala
3 Source: http://www.indiacoffee.org/indiacoffee.php?page=ModalitiesImplementationDevelopment
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5. Modalities for implementation of scheme for setting up of Quality Evaluation/Cup
Tasting Lab
6. Modalities for implementation of subsidy schemes for Coffee Processing
7. Modalities for Implementation of Development Support Scheme
Economic In que with Global price increase in coffee, Indian coffee manufacturers are also getting hit by
the price increase. Coffee manufacturers have to compromise on their margins since their input
costs are raising. Coffee growers on the other hand are sorting to practices like Hoarding with the
hope of further price increase in global markets so that they can cash in on exports. This is again
creating supply side pressures and further escalating the prices.
Ecological:
A major factor affecting coffee prices is weather. Weather is an uncontrollable force that can
seriously damage the crop yield in any given year. So, if weather does not cooperate, farmers are
not able to produce as much as demanded and once again, there is a supply/demand imbalance
that leads to rising prices.
Sociocultural
Coffee stores hangout places, a place for young people, average age of Indians around 30,
therefore a big scope for this industry to blossom in India.
Weather
A major factor affecting coffee prices is weather. Weather is an uncontrollable force that can
seriously damage the crop yield in any given year. So, if weather does not cooperate, farmers are
not able to produce as much as demanded and once again, there is a supply/demand imbalance
that leads to rising prices. In 2004, demand for coffee significantly overcame the available
supply of coffee partially due to the fact that Brazilian coffee fields had experienced extremely
poor weather and could not produce enough coffee to meet worldwide demand. Since Brazil
accounts for 29% of coffee production, a decrease in production in Brazil leads to a significant
lack of supply.
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PORTER’s Diamond
1) Demand condition for porters diamond
Restaurant chain Cafe Coffee Day said it plans to almost double the number of outlets it operates
in India by the end of 2014 as it embarks on an expansion spree.
A division of the Amalgamated Bean Coffee Trading Company Ltd (ABCTCL), Cafe Coffee
Day currently operates 1,185 outlets across India across three formats -- lounges, cafes and
kiosks. It is looking to add about 815 new outlets in the next three-and-a-half years.
"The company has a plan to aggressively expand the number of outlets it operates to 2,000 cafes
by the end of 2014," Cafe Coffee Day president (marketing) K Ramakrishnan said.This tells us
that demand for Specialty coffee is rising every year.
Also, Tea consumption in India has declined ever since the subcontinent's population discovered
the lure of the bean and the roast. As demand rises, traditional suppliers in Brazil and Columbia
will struggle to match it - and the price to the coffee shops will rise and rise.
Supply and Demand Fundamentals4
Coffee prices are largely determined by supply/demand fundamentals, and to a slight degree,
speculative actions. So, coffee prices generally increase when demand exceeds supply and they
generally decrease when supply exceeds demand. For example, if the world-wide coffee crop
yield decreased for any given year to an amount less than the demand from world-wide coffee
retailers then coffee prices would likely to increase as the availability of coffee would be less and
people would be willing to pay a higher price if there was a strong lush enough demand for
coffee.
4 Source: http://www.nzherald.co.nz/food/news/article.cfm?c_id=206&objectid=10747625
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2) Related and supporting industries: Coffee cultivation and manufacturing in India
Specialty coffee cultivation in India
.
MONSOONED MALABAR AA
Monsooned coffee or coffee beans ‘swollen‘ with moisture from the air, is prepared at the curing
works situated on the West Coast of Southern India. Stored in special warehouses, moist
monsoon winds circulate around the coffee beans, making them swell in size and take on a
mellowed but aggressive, musty flavour. This process yellows the bean and reduces the acidity,
imparting a heavy, syrupy flatness reminiscent of aged coffees.
For preparing monsooned coffees only dry processed Arabica and Robusta beans are used. The
coffees are mainly used in blends to mellow and impart richness to rougher, acidier coffees. The
best grade in monsooned coffee is Monsooned Malabar AA.
MYSORE NUGGETS EXTRA BOLD
these wonderful and exotic coffees are prepared from washed Arabicas grown in the regions of
Chikmagalur, Coorg, Biligiris, Bababudangiris and Shevaroys. The beans are very large, uniform
bluish-green in color, with a clean polished appearance. In the cup, the coffee exhibits full
aroma, medium to good body, good acidity and fine flavor, with a hint of spice. This is a rare,
premium coffee and truly represents the best quality coffee from India.
Robusta Kaapi Royale
This coffee is prepared from Robusta Parchment AB from the regions of Coorg, Wayanad,
Chikmagalur and Travancore. The beans are bold, round with pointed ends, and grey to bluish-
grey in color. The cup ensures full body, soft, smooth and mellow flavor
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Specialty coffee manufacturing in India
There are not many Key Indian players operating in Specialty coffee manufacturing. Tata
Coffee is coffee company owned by the Tata Group. The company owns 19 coffee estates in
Southern India. The estates are spread across the districts of Coorg, Chickmaglur and Hassan
in Karnataka and Valparai district in Tamil Nadu. Tata Coffee is the largest integrated coffee
plantation company in the world.
3) Factor conditions in India:
Land
Land is not a major concern, what matters is location for coffee stores. Stores are often opened
up in the vicinity of crowded places. Availability of space for opening up retail coffee stores in
real estate‘s establishment like openings in Hotels, shopping malls, corporates etc. is not a
problem here. However, proper land is also available in India if Starbucks wants to open
independent stores.
Labor:
Availability of cheap labor: Cheap labor, like all other industries, is the main stake of Indian
Coffee Industry. Availability of cheap labor in most of the coffee growing region and qualified
labor for working in coffee cafes is a something promising for the coffee retailing in India.
Understanding of English language: Much of the labor pool available in India is well versed
with English language. This is particularly beneficial for the multinational coffee retail chains
like that of Starbucks. This also helps in promoting the brand among the tourists from western
parts of the world, who are very well aware of Brand Name Starbucks
Capital: Coffee stores not a capital intensive industry. Capital required is not huge but on
medium level. Majority of the expenditure is made in purchasing a strategic location and
building a quality store that provides a good ambience and experience to the customers.
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4) Firm Structure, Industry Structure and Rivalry
Firm structure of Starbucks can help them a lot as their original management system is
closely in synchronization with Indian philosophy of management. Thus, Starbucks can
add this factor in their favor when they will be launching their full scale operations in
India.
In indian coffee retail industry, there are very few players which are driving the market .
however, there is a increasing competition among them ,which is increasing year after
year.
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CHAPTER 2: BACKGROUND
Starbucks: The History
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Starbucks, as we see today was not there from the very beginning. Starbucks has the very humble
start when three coffee fanatics, Gerald Baldwin, Gordon bowker , and Ziev siegl, - opened a
small coffee shop in Seattle's pike place market. The shop specialized in selling the Arabica
beans to the niche market of coffee purists. It was only in 1982, that Howard Schultz5, joined the
company‘s marketing division. After joining the company, he travelled to Italy, where he was
fascinated by the Italy's coffee culture. He was highly impressed by the way that the local coffee
bars influenced the lives of native Italians. After returning back from Italy, he convinced the
company to set up the espresso bars in the corner of its downtown Seattle shop.
Later, Schultz said that the espresso bar of that time became the prototype of his long term
vision. According to him, there were only two places at that time, where Americans mostly
spend their time. Home and workplace. He thought of giving them another place where they
could go and relax. Though. When he proposed his plans of expansion, he was met with a great
resistance. A few years later, Schultz got the chance to acquire Starbucks when the founders
agree to sell him their share in Starbucks. As soon as he took over, he started opening new stores
all over USA. The stores sold whole beans and premium priced coffee beverages and their target
market was the young white collar Americans who are educated and have high disposable
incomes.
He was later, in 1992, joined by Orin Smith, who is the present day CEO of Starbucks. By 2002,
Starbucks has been established as the dominant specialty coffee brand in North America. Sales
of Starbucks had climbed by the CAGR2 of 40% and net earnings had earned by the CAGR6 of
50%. As of 2011, Starbucks have more than 15000 stores in more than 50 countries
5 Howard Schultz is now the president of Starbucks
6 CAGR stands for Compounded Annual Growth Rate
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Industry structure and rivalry:
In India, the specialty coffee industry has the potential for high barriers to entry but lacks them
due to the industries immature state and the presence of no established firms. An ideal strategy
would involve a firm establishing themselves in a rapid manner through an aggressive growth
strategy.
As defined by Michael Porter there are three potentially successful generic strategies:
Overall cost leadership,
Differentiation and
Focus
For Starbucks India seems to fit into the generic strategy of focus with an emphasis on
differentiation within the particular target consumer segment, since they would be opening up
their stores in Taj group of Hotels, one of the premium hotels in India. A focused strategy should
target market segments that are less vulnerable to substitutes or where a competition is weakest
to earn above-average return on investment. Starbucks India can also but combines this broad
scope with a differentiation strategy based on design, branding and user experience that enables
it to charge a price premium due to the perceived unavailability of close substitutes.
However the industry structure in India for retail coffee stores is bit different. Café coffee day
and Barista have their stores open in the public areas where the masses as well as the elites have
the access. So in terms of accessibility of the stores the current Indian industry structure differs
from that of Starbucks.
Since Retail coffee stores are mushrooming at every other place because of the high industry
growth rate and demand condition we expect a greater extent of competitive rivalry in the
respective markets
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Café coffee Day Café coffee day is India‘s largest coffee retail chain. At first, India‘s largest coffee conglomerate,
amalgamated bean coffee trading company ltd started the concept of coffee bars in India with
first store in 1996 on brigade road in Bangalore. With Asia's second-largest network of coffee
estates (10,500 acres) and 11,000 small growers, Coffee Day has a rich and abundant source of
coffee. It has network strength of more than thousand coffee stores across 120 cities in India.
Major chunk of CCD customers falls within the age group of 20 to 30 which accounts for 57% of
the overall percentage. The group comprises of mainly college going students and young
working professionals
A lot can happen over coffee" became a popular line among youngsters. In a bid to take their
coffee chain national in 2000, the management decided to strengthen their brand pull with an
appealing tag line. Factors like ambience, food, music, and atmosphere and meeting people were
identified as the aspects that were drawing people to their Cafes. Encompassing all these factors
in a single line, the sentence "A lot can happen over Coffee,‖ was phrased.
International exposure of Café coffee day
Café coffee day, in June 2010, acquired Café Emporio- A café chain from Czech Republic. Cafe
Emporio has 11 cafes in Czech Republic- 7 of them in Prague and 1 each in Brno and Olomouc
and 2 at Freeport-Hate. Café Emporio runs on 2 formats similar to CCD‘s regular cafés and
Lounge & Square set ups. The regular cafes are pure play cafés serving hot and cold beverages
and ready to eat snacks while the lounges and squares come with a broader menu and elegant
layouts.
CCD has won the best BREWMASTERS in the country. It is also having fairly impressive track
record at the IBC (India Barista Championship) & WBC (World Barista Championship) is as
follows:
2003: Top 5 ranks at IBC & stood 5th at WBC at Boston, USA.
2004: Top 6 positions at IBC & resulted at WBC at Trieste, Italy.
2005 : Top 6 positions at IBC & resulted at WBC at Seattle, USA
2006: Second and third place at IBC
2008: Top three positions at IBC and represented India at WBC at Copenhagen
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2009: CCD secured the first, third, fourth and ‗Most Promising Talent‘ position at the
IBC and represented India at WBC at
Atlanta
2010: First, second and fourth place at the IBC and represented India at the WBC in
London
SWOT Analysis – CCD
Strengths:
Large Number of outlet.
In house sourcing of coffee beans.
Tie Ups with good companies.
USP of brand is its considered a highly affordable brand.
Weaknesses:
Many of the CCD stores are incurring loses due to wrong site selection.
Improper sitting arrangement
Opportunity
Coffee cafe industry is one of the fastest growing industry in Asia.
Large untapped Market
Tie-ups with other companied for promotion.
More people like to visit CCD for informal meetings.
Threat:
Entry of foreign players like Georgia, Starbucks etc.
Other hukka parlors like Sheeshas , Peshawar , Koylas7, U Turn are also gaining lot of
attention and preferred by young generation to hang around which in turn is attracting the
market captivated by CCD
7 Hukka, Sheesha and Koyla are Traditional Indian additives
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Strategies adopted by Cafe Coffee Day:
1) Cafe Coffee Day offered an informal ambience with bright and eye-catching interiors.
Visitors could sip coffee, browse the internet, conduct business meetings or just spend
time with friends.
2) The baseline “A lot can happen over coffee”, positions it close to every one‘s heart.
3) Cafe Coffee Day‘s also targeted other locations like corporate houses, airport, hospitals
and shopping malls. Cafe Coffee Day priced its products 20% lower than its competitors.
4) Cafe Coffee Day positioned itself as a mass market brand; mini-metros were also added
to its list. It targeted the middle class, upper middle class, house wives and students. The
prices are less compared to the other two. This segment has high potential and great
buying power and has great market share.
Barista Lavazza Barista Lavazza is a chain of espresso bars in India. They are headquartered in NOIDA, having
outlets in Sri Lanka, Bangladesh and Middle East. It was founded first in 1997 by Amit Judge
and was part of his group companies. His first equity deal was with TATA coffee. After the deal
with TATA coffee fell, apart, Sterling Sivasankaran, bought over the firm. In 2007, Sterling
divested their entire stake to Lavazza. Barista Lavazza is currently owned by Lavazza, Italy‘s
largest coffee company. Coffee is supplied by the Indian roaster Fresh and Honest,
headquartered in Chennai. The latter is also owned by Lavazza. As of 2009, the chain has 200
stores in India, with estimated annual revenue of Rs 200 crores. Barista was the fastest brand to
make it to the list of super brands and is ranked among the top 50 phenomenon that changed
India
The first Barista Lavazza was opened at Basant Lok, New Delhi in Feb 2000. Lavazza
traces its origin back to 1895.
Lavazza is the sixth largest coffee roaster in the world. Operating in over 80 countries, it
has a 46.5% share in the Italian retail market
Barista Lavazza's pioneering efforts at providing truly Italian coffee house experience has been
met with tremendous appreciation.
Most Admired Retail Leisure Chain 2011-Awards for shoppers and consumer insights
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Times Food Guide 2008-Best Coffee Bar Award
IMAGES Retail Award 2007-'Most admired retailer of the year: Catering Outlets'
Super Brand 2006-2007
HT Food Guide 2000-Best place to have coffee
TOPS award for Specialty Coffee Excellence by the Specialty Coffee Association of
America(SCAA)
Times Group and Business Standard recognizes Barista Lavazza as the 'Brand of the year'
in 2002
SWOT analysis of Barista
Strengths:
Claim to sell the best coffee.
Strong Brand image.
Excellent Human resource.
Large Number of outlet
In house sourcing of coffee beans
Espresso-Highest selling coffee
Weaknesses:
Perceived as an expensive brand.
Self Service for the customers.
Opportunity
Strong brand recall.
Tie-ups with other companies for promotion.
Threat:
Coffee Substitute.
Rise in the cost of coffee and dairy products.
Competition from national and international players.
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Strategies adopted by Barista:
1) Barista positioned itself as a lifestyle brand with Italian neighborhood.
2) Alliance with Tata coffee would supply food items like baguettes, croissants, cookies,
sandwiches, pastries and desserts.
3) Every month, it introduced and focused on a particular type of coffee. The idea was to
change customer‘s occasional indulgence and make it a habit and educate them about the
original coffees. It also developed store-in-store concept by focusing on themes that
compliment coffee, such as music, books and art.
4) Barista entered into marketing tie-ups with planet M, crossword and Ebony to set up it
Espresso‘s at the corner. The company also entered branded merchandising with caps,
coasters, co‘s and cups.
5) Barista entered home brew segment with freshly grounded coffee. The company extended
its product portfolio from roasted coffee range to single origin coffee.
6) Barista‘s adopted a strategy on which it segmented itself to the elite class. This class has
high potential because these people associate with anything that is of status symbol, they
spend very high. So Barista choose this segment contains people with big designations
like MD‘s, Doctors, CEO‘s and people belonging to elite class. They like to be in a place
which is classy and luxurious like Barista.
Costa Coffee
Costa coffee is a UK-based coffee retailer, which entered India in 2005 through the Jaipuria
Group as its master franchisee. It has already drawn up an aggressive expansion blueprint, under
which it plans a four-fold increase in the number of stores in the next three years. The current
number is 75.
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Costa Coffee, like other ambitious coffee corporations, expanded its already far-reaching coffee
empire throughout India in 2005. But despite any successes displayed in the hard numbers,
Costa's higher management is declaring that they can do better. The corporation directly planted
their original UK model onto the Indian subcontinent. In review of the 5 years of operations in
India, Costa discovered the coffeehouses were first and foremost meeting places. As a result, the
entire Costa Coffee model had to be reworked. The brand needs to refocus their efforts in the
south, where coffee is a popular drink.
Gloria Jean's
Gloria Jean's currently has 16 outlets in Mumbai and Delhi. It is looking to increase that number
to 25 by year's end across other metros, and then jump eightfold to 200 by 2014.
Company is also tweaking its sourcing strategy for the Indian market. For the first time, Gloria
Jean's is sourcing and roasting coffee beans outside of Sydney; in this case, in India itself. That's
because coffee attracts a 112% import duty in India and in a price sensitive market like this,
passing on the extra costs to the consumers would be suicidal for any player.
Competitors’ Visibility
No. of Outlets
CCD
CCD crossed over 1000 cafes throughout the nation by 2011. They have a minimum of 1151
outlets. The number increases almost every week. A ‗meter‘ on their official website
(Cafecoffeeday.com) keeps continuous track of the number.
Barista
Barista has around 286 outlets across India, including 17 in the overseas market.
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Comparison:
Even though the numbers of outlets are more for CCD, but that is more due to them opening up
stores in every nook and corner. In some places like Connaught Place in New Delhi, there are
almost three CCD outlets, on the same road. But Barista has stores that are generally huge and
are almost always have two floors. So, that is why judgments should not be based only on the
number of outlets.
Tie-ups
CCD
Himalaya with CCD:
To drive usage of honey, Himalaya Drugs is developing daily diet products and looking at
marketing them by tying-up with leading consumer brands. It has tied up with Café Coffee
Day, to create four dishes; Honey Cappuccino, Honey milk shake, Rich Chocolate Cake
and ice cream topped with honey and nuts. The Cafe Coffee Day partnership is unique. It
provided a platform to reach out to the target audience in a relaxed environment where they
could experience innovative uses of honey. The association with Cafe Coffee Day across 100
outlets in seven cities was not only to expand the category, but also towards creating touch points
to experience the goodness of Himalaya Forest Honey.
Levi’s:
CCD has also tied-up with Levis where CCD will promote Levis product in their cafes.
Levi‘s recently launched their latest range of apparel, Levi‘s 501, through CCD as part of their
annual laterals like Wall visuals, Tent cards, Posters and Door stickers. There is also a special
Levi‘s Drink.
Movie launches:
Apart from product launches, the company also does a number of tie-ups with the movie Industry
in the same manner.
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BARISTA
Barista with Taj Group:
Barista Coffee, a leading coffee bar chain, has tied up with Taj group of Hotels for setting up
exclusive Barista espresso bars at the Taj hotels in metro cities. The first such bar would be at the
Emperor Lounge at the Taj Mahal hotel in New Delhi followed by a Barista Bar at the Sea
Lounge at the Taj Mahal Hotel in Mumbai. This would be followed by similar bars at Taj Mahal
hotels in Calcutta, Chennai and Bangalore. Barista also will be housed at the coffee shops of all
major Taj Hotels in the country.
Barista with Tata Tele services:
Barista has also tied up with Tata Tele service. This tie-up was primarily done in order to provide
consumers' access to the Internet. The objective being, today if you look at Barista consumers, a
fair number of them come to Barista to discuss business over a cup of coffee. Moreover, it is
easier for them to meet at Barista, discuss business and send the information across. It is going to
be focused primarily on work, towards the busy executive who is traveling and has dropped by
for coffee or the small office segment who might just want to work out of Barista.
Lacoste with Barista:
Lacoste India has decided to tie-up with coffee outlet chain Barista in all the major metros and
some mini-metros. The strategy is to target younger audiences, which have a penchant for the
"finer things in life". The customer segment of Barista is very different from the ones who visit a
regular coffee shop.
Elle-18:
Barista is jointly tied up with Elle 18 to promote their product. Elle-18 is launching a collection
of coffee colored lipsticks and has named it after Barista‘s beverages! Therefore, they are
working with Elle 18, which is a youthful brand. Moreover, they both will grow with this
association. For Elle 18, the objective is to build a platform for their range of coffee colored
lipsticks and for them, the objective is to associate with the brand and have their consumers
coming in to Barista.
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AMBIENCE
CCD
―First Impression is the Last Impression‖. This is true, particularly, in this business. The first
thing that the customers come across is the surrounding and the ambience of the store. To further
brighten the vibrant atmosphere of the cafés, there has been a greater thrust on providing more
value added services such as video juke boxes, cozy sofa seating, and exciting round the year
promotions. Café interiors at the company's 430 outlets are being given a whole, new look. In a
change from the largely wood and granite based interiors, there is more of steel and lots more
color. The young colors of today, lime green, yellow, orange, and purple will predominate. The
crockery will also sport these colors. The larger cafes will also have lounge areas and a few
beanbags.
Fig: File photo of ambience in café coffee day
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BARISTA
The color shades that they have used are terracotta; it is warm - it is orange. The background has
a dark Orange color. Orange color signifies of a style and friendly ambience of its own. In order
to match the color combination of the surrounding even the uniform of employees are orange in
color. The place invites the customers to spend time. However, the focus would, continue to be
to recreate the ambience of the typical Italian neighborhood espresso bars in India, so, as to
provide a comfortable place for people to relax and experience ―the joy of coffee‖. The ambience
of the location and the quality of coffee would, continue to be the key factors while growing the
chain. It has lots of board games for anyone to indulge in, like chess, word scramblers, and a
guitar to pluck some chords.
Business Model Followed By
CCD: they follow franchisee Model for their business
Barista: Company Owned Outlets.
Merchandising
CCD
Funky Caps @ Rs 60 onwards
Cool T-Shirts @ Rs 175 onwards
Bags @ Rs 160 onwards
Mugs @ Rs 60 onwards
Coffee Filters @ Rs 95 onwards
Reglon Sleeves T-Shirts @ Rs 249
Marquis pens @ Rs 315 Onwards.
Shoulder Bags @ Rs 209
Coffee Mints @ Rs 40
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BARISTA
Coffee Mugs in Orange and Blue which cost Rs 55 and Rs 99
T-Shirts which cost Rs 150
Barista has also started a new concept of Barista merchandise. Barista Merchandise is available
only at selected Barista espresso bars in Delhi, Mumbai, Kolkata, Chennai, Hyderabad and
Bangalore. In Barista Merchandise customer can take home different types of beans and have
coffee of his own taste. Some of the Barista Merchandise is as follows:
1. French Press
2. Barista House blend
One of the most interesting things to keep in mind with regards to all the coffee chains is the
manner in which they have blended into the Indian culture. It‘s not that these were foreign
franchises, but the very fact that spending Rs. 50/- for a cup of coffee was not a routine thing for
the Indian consumers.
So, these chains had to make sure that they were able to attract the consumers by making
themselves a part of the Indian culture. One thing in this regard that they have done is that they
have shaped their menus to be flexible enough so that they can adjust to changing situations such
as weather.
For this very fact, the Indian consumers were in for a pleasant surprise when they found out that
they can have local delicacies like ‘Aam Panna, Mango Shake’ in these coffee chains as well. Its
Not that the taste would be the same like the older days, but still it was close it could get to the
original taste.
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The biggest beneficiaries for this were the working mothers and the students who were away
from home for studies or work. The mothers‘ who are working and do not get the time to make
things like these which are relished by their children. So, they can any time walk into a coffee
chain in the sweltering heat with their children and enjoy these drinks.
Also, for the children away from home, it acts as a close substitute for the drinks back at home.
Although the prices may be a little high, but the very fact that you can have these drinks at your
beck and call, does not pinch the consumers a great deal and in turn puts the coffee outlets in
good stead.
Another thing that they have done is that, instead of focusing only on the western foods, they
have given equal importance to local foods such as Samosa, Kulchas, etc. So, it is not that you
will only get to eat burgers, sandwiches, but instead one can have their favorite coffee with a
local delicacy. That surely is a lip smacking prospect for the Indian Consumer.
But there is one glaring mistake they are reportedly committing till now. None of the coffee
giants has tried and ventured into the segment like the one adopted by the Subway. None of them
offer a facility wherein customers can be a part of the actual production of their coffee.
Subway gives the consumers the convenience to choose their own breads, sauces and even the
toppings. This makes them feel related to them as it gives a sense of pride to be able to whip up
your own favorite goodie. That is one aspect where Starbucks can focus, by opening self help
kiosks in places such as metro stations, malls, etc.
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People can punch in their order and make their own coffee using the ingredients of Starbucks.
This will make the consumers feel a sense of importance and gain a sense of belonging towards
Starbucks.
CSR initiatives by Barista Lavazza, Café Coffee Day, Costa Coffee: CSR or Corporate Social Responsibility has always been a topic where there is never a
commonly reached consensus. But with increased guidelines about allotting a certain percentage
of profits aside for giving back to the society, CSR has assumed greater importance in the cash
purses of major corporates.
So, the three coffee stalwarts, viz. Barista Lavazza, Café Coffee Day, and Costa Coffee, also did
not lag far behind.
Barista Lavazza: Taking its 'Use Mobile, Save Paper' campaign further, Idea Cellular
8 has partnered with the two
coffee chains to make it possible to eliminate the use of paper in transactions. Through a unique
mobile software application, which has been made available at CCD and Barista outlets, people
can download the menu card and bill on their mobile phones, thereby eliminating the need to use
paper for these purposes.
Customers, who come to these outlets, will be informed about this initiative. They will be given
the option of downloading the application onto their mobile phone, through a Bluetooth transfer.
The home screen of the application will have three options: Order, which enables the customer to
browse the menu, select the items to be ordered and see the order summary; Bill, where the
customer can view the total bill for the items ordered; and About Us, which carries information
on the campaign.
Café Coffee Day: Their biggest CSR initiative
9 is the SVGH Vocational Training College which was established in
April 2005 in Chikmaglur, Karnataka. It has the aim of bridging the gap between the urban and
the rural youth by giving opportunities for the economically underprivileged ones for learning,
training and ensuring them due placements. It has the vision to create an environment where
8 Source: http://www.afaqs.com/news/story.html?sid=26298
9 Source: http://csr-updates.posterous.com/a-lot-can-happen-over-coffee-csr-at-ccd-corpo
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students are motivated to find their purpose and realize their full potential. The college trains and
supports rural youth to be independent, responsible and adaptable. It provides them an
opportunity for personal and professional development thereby equipping them with skills to
handle the rapidly changing environment. The college has trained 1180 students, many of whom
have found employment at CCD outlets across the country. Courses offered include Certificate
Course in Hospitality Management & Micro Finance. The Trust bears the entire expenses of the
course which includes imparting education, providing food and accommodation, uniforms and
transport facilities. The trained students are guaranteed employment. Current employees are
involved actively in SVGH programs and help by conducting modules etc.
Costa Coffee: Even this coffee giant is not lagging behind the CSR standards. It has given employment
opportunities to many hearing impaired employees as its latest initiative10
. So next time you visit
a Cafe Coffee Day or Costa Coffee outlet, you might be welcomed by a silent brew master
carrying a note: ―I‘m hearing impaired. Please jot down your order.‖
If corporate social responsibility (CSR) beckons hotels and restaurants across the country, they
are all ears. To do their bit for the society, they are recruiting physically challenged people for
various operations.
Costa Coffee plans to open eight to nine stores which will be run entirely by handicap employees
in the next one year. ―We have tied up with an NGO called Enable India and want to hire about
100 such employees per year,‖ says Cafe Coffee Day‘s HR head, Shyamala Deshpande.
So, we see that all these companies have already initiating the process of CSR in India. They
have already taken it to a new level and it will be up to Starbucks to see as to how it will react to
all these initiatives. Not much can be expected in the nascent stages as they will still be finding
their feet in the Indian market initially.
But, as time progresses, the Indian market might want to see CSR initiatives taken from
Starbucks as well.
10
Source:http://www.karmayog.org/newspaperarticles/newspaperarticles_11277.htm
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CHAPTER 3: The SWOT’s
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Opportunities and Roadblocks’ Ahead
Opportunities:
Coffee stores are becoming quite popular in India. These stores have become a hotspot for the
quite popular among youths in India as hangout places. More than 1,500 cafes have sprung up
across India in the past decade, mostly from six organized chains, clocking an average annual
growth of around 40 percent. Valued at around US$185 million, the organized café market in
India is estimated to be growing at a compound annual rate of 25%.
Stirring up the market is India's growing youth segment: around 50% of India's 1.2 billion people
are 25 or younger. By 2015, this is expected to increase to 55%. For this segment, particularly
those with steady, disposable incomes, coffee shops serve as a social hub.
According to industry estimates, there is scope for another 5,000 or so outlets strategically
located close to offices, colleges and shopping malls. That‘s the space the foreign chains want to
tap. Stirring up the market is India's growing youth segment: around 50% of India's 1.2 billion
people are 25 or younger. By 2015, this is expected to increase to 55%. For this segment,
particularly those with steady, disposable incomes, coffee shops serve as a social hub.
Increasing Coffee Consumption11 India's coffee consumption pattern gives a clue to the potential that the market holds. The
nation's per capita consumption of coffee is just 85 grams, compared to 4.5 kilograms in France,
4.6 kilograms in Japan and 6 kilograms in the U.S. The Indian Coffee Board's numbers reveal
that while India is the sixth largest coffee producer in the world, with an annual output of
300,000 tons, domestic consumption is only a third, or 100,000 tons. That's because like most of
Asia, India is predominantly a tea drinking nation. Coffee is a staple only in the southern part of
the country.
11 Source :http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4607
http://www.indiacoffee.org/newsview.php?newsid=68
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Starbucks Corp., the world‘s largest coffee retailer, was also eyeing the Indian market, after
having dropped the plan a few years ago following some regulatory hurdles. Now it has made
announcement to enter India to exploit the vast potential of Indian market as mentioned above.
Challenges:12
Even as the market gets more competitive, there are strong roadblocks ahead. The price
of roasted coffee is currently at an all-time high of US$7 to US$8 per kilogram, up 60% since
last year. Then there is the huge real estate cost. For most foreign players, the rent-to-sales ratio
in India is one of the highest across their global markets. With all players targeting a similar
profile of consumers, zeroing in on the right location is crucial. Gloria Jean's White points out
that the mix of high rent costs and low menu prices puts tremendous pressure on the business.
Manpower is yet another challenge. Much of the success of a café depends not just on the quality
of the products it serves, but on the overall ambience and guest experience. This requires trained
staff. But vending coffee is not a highly skilled job and is low paying, which often results in high
turnover. With every player on expansion track, there is a scramble for putting together the best
team. Some brands like CCD and Gloria Jeans‘ have set up their own training schools, but for
others it's a tough task.
With more players entering the arena, the challenges around managing costs, even as one strives
to deliver the best international standard of cafe experience, will only intensify. Indian
consumers, however affluent, have always put a premium on value-for-money offerings.
Also due to inflationary pressures in the economy in recent times people have started spending
less on frills and save more. According to live mint report that quotes Boston Consultancy Group
saying Pressured by rising prices, 42% of Indian consumers plan to cut spending and change
habits to suit the ―new normal‖. This piece of news might bring some disappointment to both the
companies.
12
Source: http://www.livemint.com/2011/06/22015037/42Indiansplantocutspendi.html?atype=tp http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4607
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Starbucks: SWOT Analysis
While analyzing Starbucks from the strategy point of view, there is a need to analyze the
performance of the company in the recent past. Also, in order to gauge the company
performance, we have to look, not only at the company characteristics but also at the market
characteristics in which it operates. Therefore, we will be using SWOT analysis to assess the
company characteristics, here in this project.
Strengths:
Most of the consumers, at least in the USA, are familiar with the brand name, Starbucks
and it is the part of their daily lives. In US, the name Starbucks is being associated with
quality. They are having presence in almost every part of the market and hence, greater
brand visibility in comparison to that of their competitors.
Starbucks is having the great advantage over its competitors when it comes to brand
visibility. This is particularly because of the large number of coffee outlets, they have in
US. They also have large number of international stores in other parts of the world. This
allows them to implement new products quickly across a large demographic and ensures
a large exposure of clientele to prevent new entrants from gaining market share.
Starbucks is having the well-established international outlets all over the world. This
apart from obvious scale advantage gives them access to lot of international markets. This
also allows them to confront international competitors before they enter into the US
market.
Starbucks has a well‐known Starbucks has a well‐known practice to make efforts to
preserve the environment and be ethical in its dealings. Company has also initiated the
CSR activities which gives the company a good public image. This also serves to counter
some criticism that its sheer size creates.
Starbucks has been successful in changing the positioning of coffee as the commodity to
a luxury product. With this, they are able to charge premium prices for their product,
something which might not have been possible before. This has helped them to create all
new categories.
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Starbucks operate around 15,000 stores across 50 countries. This helps them achieve
economies of scales in sourcing the raw material. It has also premium pricing for its
products, and thus enjoys a significant profit margin
Weaknesses:
Among masses, Starbucks is still considered as the luxury coffee outlet. Most of the
customers will pay for their products, without thinking twice. However, there is an
increasing notion that Starbucks is literally fleecing their customers. Also, Starbucks
prices are not flexible, in terms of location. For example, they charge same price for their
products, regardless of the country they are operating in.
The main problem for Starbucks is that, its entire business rests on the coffee industry. If
coffee does turn out to be a fad, they must diversify or go out of business whereas other
competitors, such as Dunkin Donuts, have investments in a variety of industries.
Also, Starbucks had faced problems in maintaining their outlets in many of the
international locations. They apply the same business models and formulas, regardless of
culture and values of the country they are operating in. for example, In Israel, Starbucks
has had a hard time taking off because it won‘t maintain kosher standards
Opportunities:
Acquisition of brand names such as that of Seattle‘s Best, XM Café, and Tazo Tea,
allowed Starbucks to gain exposure to different market niches. Starbucks also offers a
range of products that it sells to other companies such as its bottled Frappuccinos and
other specialty goods, which expand its market at a lower cost than opening full branches.
Starbucks had used their vast resources in order to develop businesses all over the world.
This has allowed them to generate even more revenue and give them better brand image.
Also, one of their biggest opportunities continues to be in development of overseas
business.
There is a great opportunity for Starbucks in the developing economies like India. They
have already experimented in china, which turned out to be extremely profitable venture.
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Threats:
Other fast food chains like that of McDonalds, Dunkin Donuts, Burger King, etc., already
have the infrastructure in place and are instead adding quality coffee to their menus to
compete with Starbucks.
Rising prices of coffee are putting pressure on the profit margins of the company.
Growing health concerns among the masses has shifted the demand from coffee towards
health drinks, juices etc.
Strategic Position – Starbucks
We can't achieve our strategic objectives without a work force of people who are immersed in
the same commitment as management. Our only sustainable advantage is the quality of our
workforce. We're building a national retail company by creating pride in--and a stake in--the
outcome of our labor." --Howard Schultz Founder and former CEO of Starbucks .According to
this statement, the human resource is the number one resource in Starbucks Corporation. Schultz
believes that happy employees are the keys to competitiveness and growth. In 1996, Starbucks
employed approximately 16,600 individuals, including roughly 15,000 in retail stores and
regional offices. All of these "happy" employees help account for another of Starbucks'
intangible resources--the company's reputation for providing quality and knowledgeable service.
Starbucks deploys their human resources by requiring that each employee have at least 24 hours
of training. Classes cover everything from coffee history to a seven-hour workshop called
"Brewing the Perfect Cup at Home". This workshop is one of five classes that all employees
(called partners) must complete during their first six weeks with the company. This workshop
focuses on the need to educate the customer in the proper coffee making techniques. Store
managers teach the classes. These classes are designed to teach the employees to make decisions
that will enhance customer satisfaction without requiring manager authorization. Another way
that Starbucks ensures that its employees are content is by offering a stock option plan called the
Bean Stock Plan. After one year, employees may join a 401K plan. There is a vesting period of
five years; it starts one year after the option is granted, then vests the employee at 20 percent
every year. In addition, every employee receives a new stock option award each year and a new
vesting period begins. Schultz believes that without these benefits, people do not feel financially
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or spiritually tied to their jobs. He argues that stock options and the complete benefits package
increase employee loyalty and encourage attentive service to the customer. Starbucks hopes to
attain a sustainable competitive advantage by keeping its employees happy and trained which in
turn leads to superior customer service. As of early 1998, Starbucks Corporation (with the
exception of airport locations) owns and operates 1,250 retail outlets worldwide. These outlets
include: company operated units, coffee connection outlets, and licensed kiosks located in
airports. It also operates three roasting and distribution facilities. The stores range from 200 to
400 square feet, with new units tending to range from 1,500 - 1,700 square feet. However, the
intangible resource associated with these physical resources is the ambience that each store
provides. The firm employs a staff of over 100 people whose job is to plan, design and build the
unique interiors and displays. Starbucks opens its stores in those cities where its direct mail
business is strong so it can ensure a ready audience. By owning and operating most of its outlets
and its roasting and distribution facilities, Starbucks has a broad range of control. Store design,
training and evaluation, promotional events, etc. are all controlled by Starbucks. This equates to
a competitive advantage over rivals such as Seattle's Best Coffee (SBC) who franchises rights to
its stores in order to expand rapidly, but lacks total control of its own operations. As far as its
other primary physical resource, coffee, Starbucks has a reputation for obtaining some of the
world‘s highest quality coffee beans. In order to make this work, Dave Olsen, the company's
senior vice-president and chief coffee procurer, scours mountain trails in Indonesia, Kenya,
Guatemala, and elsewhere in search of Starbucks' premium bean. His standards are demanding
and he conducts exacting experiments in order to get the proper balance of flavor, body, and
acidity. This capability of attention to detail and caliber is one way how Starbucks delivers a
consistently high-quality product. According to the 1998 S&P, Starbucks has a P/E ratio of 47.1.
This valuable financial resource indicates that Starbucks is a fast growing and a relatively low
risk company for investors to invest in. Starbucks is taking advantage of this resource by
obtaining both short and long-term capital to finance its rapid expansion both domestically and
abroad. Starbucks also has resources within its company partnerships, and agreements with
foreign growers and their host countries. Partnerships with companies such as Nordstrom and
Barnes & Noble allow Starbucks to set up shop in arenas suitable to the Starbucks experience. A
joint venture with Pepsi has produced successful sales of Frappucino within supermarkets.
Developing relations with foreign countries and growers have enabled Starbucks to obtain rights
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to the Narino Supremo coffee bean - one of the highest-quality beans in the world. These
agreements are providing opportunities for Starbucks to expand its product line, obtain high-
profile locations, procure reliable sources of quality coffee beans, and penetrate foreign markets.
Starbucks' main core competency is its ability to offer a quality cup of coffee served by attentive
and knowledgeable staff in a comfortable environment while continuing to grow at a rapid rate.
Presently, Starbucks does not have any rivals that can match its reputation, nor its ability to
grow.
This seems to be the most opportune time for the Starbucks Coffee Company to open its shops in
India. Initially they have planned to open up in Mumbai and Delhi; these locations were
strategically picked to ensure success of the business venture and will serve as test locations. If
the new stores are highly profitable, Starbucks can expand to more than 200 locations in India.
Starbucks India locations will customize their menu to meet the tastes of their new target market.
This includes the addition of more tea items taking in accordance that Indians are known to be
more a ―tea-drinking‖ population, as well as adding some new flavors in their coffee selection.
The major competition for Starbucks at the moment is the Barista Coffee Co., which is an
existing coffee shop branch in India, but Starbucks is expected to gain its market share for
several reasons. The international popularity of the Starbucks brand will help the company step
into the country. With superb marketing and reasonable prices, Starbucks might take over the
market, and with its assurance of quality and commitment to giving back to the community, the
company will earn brand loyalty.
Proposed Strategies
1. The Product
Starbucks Coffee shops sells a variety of coffee and tea beverages along with different types of
pastries, confections, and baked goods, coffee-related accessories and equipment. The coffee
shops provide customers with a pleasant place to come and relax, study, work, or have business
meetings. The Starbucks Coffee Company must customize their menu to fit the tastes of the
Indians. A new menu can be formulated to match up tastes preferences of the Indians known
already. The inventory policy is to keep the stores stocked but not overstocked to ensure
freshness of products. Better gauges of the numerical figures in the inventory policies can be
made after observing consumer trends.
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2. Pricing
Competitive pricing is necessary for the success of the venture, the prices for all good will be
relative to the others. The use of penetration pricing will ease the company‘s slide into the
market place.
3. Promotion
Types of available media for marketing purposes, in India are very similar to those of the United
States, which include everything from newspaper advertising to television ads. Since this is a test
venture and there are only two locations of Starbucks being opened, the promotion for the store
has to be very focused on our target markets. Billboard advertising on the roads leading to the
store locations is a good way to increase awareness of the locations. Direct mail advertising with
promotional coupons can be used to reach the homes of the target market.
4. Place
The creation of new selling points will enable Starbucks to introduce its products to people who
have never visited a Starbucks retail store. By doing this, Starbucks' products became more
available. As Starbucks products are available in different locations, different types of customers
buy Starbucks products. For example, the stores near office buildings are visited more by
business people while stores in shopping centers are mostly visited by families. Abroad
Starbucks' products are also available in supermarkets, where they are placed at a distinctive
place with different lighting and elegant packaging to stress its exclusiveness. Due to licensing
and specialty sales Starbucks' products became available in airplanes from United Airlines as
well as in hotels, university campuses and even office buildings.
Starbucks’ current Strategy
1. Rapid store expansion strategy
Domestic store expansion
A three-year expansion strategy
―Starbucks everywhere‖ approach
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International store expansion
Company-owned and company-operated stores or licensing
Created a new subsidiary, Starbucks Coffee International
Expanding its consumer products channel globally.
2. Employee Training and Recognition
Systems to recruit, hire and train baristas and store managers
Screening
Training programs
Awards for partners
3. Real Estate, Store Design, Planning, and Construction
A broad range of store formats (the right image and character)
A ―stores of the future‖ project team
High-traffic, high-visibility store locations
Control of average store opening costs
Wi-Fi availability at stores
4. Store ambience
The concept of ―everything matters‖
Assessment of standards
5. Coffee purchasing strategy
Starbucks builds relationship with growers and exporters, checks on agricultural conditions and
crop yields, and searches out varieties and sources that would meet its standards. Using fixed-
price purchase commitment and purchasing coffee future contracts. Contributing to the
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sustainability of coffee growers and helping environment conservation. Promoting coffee
cultivation methods that protected biodiversity and maintained a healthy environment.
Strategic Capabilities – Resources and Competency
1) Resources -
The strategic capability of any company is underpinned by the resources available to it.
Practically all resources fall into one of four categories: Physical, Human, Financial and
Intellectual capital.
Physical Resources - The physical resources of Starbucks are the shops that they own, any
vehicles they own for transporting goods and all the equipment that is used to create the cup of
coffee (or pastry etc.).Starbucks has around 15,000 outlets around the world, and still opening
more in other countries.
Human Resources - The human resources are the knowledge, skills and adaptability of the
workers at Starbucks. Staff who work to their potential in these areas often become a company's
‗most valuable asset'. Schultz, the founder of Starbucks, believes every member of staff plays an
equal part in the ‗customer experience' regardless of whether they be CEO or waiter. The entire
group has 110,000 employees.
Financial Resources - These are the capital, cash, debtors & creditors, and suppliers of money
(e.g. shareholders) of Starbucks. Obviously for Starbucks the less debt they are in, the more
positive their resource audit looks. Starbucks have a lot of working capital tied up in the
business. Some of this capital includes varieties of whole coffee beans, foodstuffs, teas, coffee
mugs, coffee grinders, coffee-making equipment, filters, storage containers and other
accessories. 85% of Starbucks revenue comes from direct sales in pubs.
Intellectual capital - These are the intangible/immeasurable resources of Starbucks. This is the
information captured in brands, patents, customer databases, business systems and relationships
with business partners. All these can contain great value and when a business is purchased these
values fall under the price-tag marked ‗goodwill'. One of the few ways Starbucks can protect this
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intangible information is to ensure employees sign confidentiality agreements to protect any
leaks of knowledge to competitors.
2) Competences - Their competitive advantage -Its strategy of "first to the market", the
brand has been able to emerge as a leader in quality products and services. Having adopted this
strategy has allowed Starbucks to take an advantage over its competitors, especially in terms of
advances in technology, advance the development of alliances with suppliers in advance and then
on savings related to production quantities.
1) Quality - The quality is indeed a key factor in its success, communication turns around a lot
of this criterion. The products which they know mostly calls for coffee and therefore the coffee
beans are mainly from traditional crops and quality controls on these products are extremely
common.
2) Prices - Another criterion differentiating Starbucks from its competitors is prices. In fact,
coffee sales at the "Coffee Shop" are more expensive than their competitors; the quality of
products offered by the group is a reason for higher prices.
3) Suppliers - One of the key factors leading position occupied by Starbucks result of the
relationship with the company weaves its suppliers. Thus, the company has retained its
leadership through numerous alliances particularly in the development of new products and sales
of its coffee. The purpose of the brand by building such relationships with its suppliers as to
promote the single outside the coffee shop to reach consumers on different levels, and thus in
new places such as libraries, hotels, or the supermarkets.
4) Customer service - The most important key success factors when looking at Starbucks is
their customer service excellence and other activities that enhance or maintain the value of the
product, e.g. installation, repair and training. This area is concerned with the members of staff
that deal with the customers, it focuses on the need to ensure the customer experience' of visiting
a Starbucks store is all the more enjoyable due to the friendliness and efficiency of staff and
consistently high quality product on
5) Ownership specific advantages - The Starbucks brand has become almost synonymous with
coffee all around the world and the same is the situation in India even though India does not have
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a single Starbucks outlet. Having opened its first store in 1971, Starbucks has been highly
successful in starting a cult following that has put the Starbucks brand at a level higher than just
a coffee shop. The passionate staff and their unique blends of the best coffee beans have
propelled Starbucks as a way of life in many parts of the world. The vision created by Howard
Schultz, the President and former CEO of Starbucks, has resulted in over 16,000 stores adding
almost 1500 stores in the last one year. The company has recorded revenues of more than $ 10
billion and over $ 300 million in net earnings, with an increasing share coming from its
international operations. The strong financial position and the relatively low debt-ratio, gives
Starbucks a very big advantage over its rivals especially in terms of expansion strategies and the
ability to undertake risks and buy-out local competition, irrespective of which market it chooses
to enter. Additionally, Starbucks has years of experience and knowledge about various cultures
around the world which gives them an edge in international operations. Their success in tea-
drinking nations like China and Japan has to be given due credit and the company will surely
benefit from these learning when it looks at the Indian market. Starbucks has built up a
reputation it cannot afford to damage.
As far as India is concerned, Starbucks has already had prior association and some knowledge
about the Indian market conditions, economic and political situation and the changes in
consumer trends, as has been brought out earlier. Their alliance with India‘s Tata Group for
sourcing coffee beans has been in existence since 2004, and although previous joint ventures
have been unsuccessful, Starbucks has had relations with a number of Indian retailers for
entering the Indian market. This gives the company definite advantages as compared to Costa
Coffee (the first foreign coffee chain in India), which has been around for a few years now but is
relatively unheard of in most parts of the country. Besides the above, the corporate culture,
efficient governance, and the employee welfare schemes of the company have received wide
acclaim, making Starbucks one of the best employers in the US.
6) Internalization (Control) - Following up on the ownership advantages, it may seem
necessary for Starbucks to focus on these areas in order to internalize certain activities so that its
competitive edge is maintained especially in India where tough competition is already governing
majority of the market share. The most important for Starbucks is its blends of coffee and its
unique roasting techniques. The company has to be very careful while entering into joint
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ventures in India so as not to lose this advantage to its rivals. Moreover, its relations and
contracts with Tata Coffee for supply of coffee beans have to be looked into. The major issue
here for Starbucks is the continued source of the best coffee beans as one of the major
competitors of Starbucks in India (Barista Coffee) is owned by the Tata Group. This puts
Starbucks in a precarious situation and there may be a need for the company to secure other
sources for the coffee beans that it might need for the Indian operations. Another possible threat
to the ownership advantages of Starbucks lies in the prevalent ‗employee theft‘ in India, and the
strong likelihood of competitors ‗stealing‘ trained personnel and baristas from Starbucks and
thereby undermining its success in the Indian market. Under such circumstances it might seem
that an agreement with a local well-established partner would be a safe bet and Starbucks could
look at reviving the relations with those Indian companies that had shown interest early on.
Conclusion In spite of some drawbacks mentioned above regarding the business environment for Starbucks
in India, the advantages far outweigh the limitations especially if Starbucks focuses its attention
on the socio-cultural aspects of the Indian business environment. The fact remains that India is
an emerging economy and like all emerging economies, it will be plagued by certain
shortcomings. Over and above this, the retail food market in India is expected to grow by 9 %
and although the traditionally tea-drinking country is the largest producer and consumer of tea in
the world, coffee has made steady inroads into the minds and lives of the people serving nearly a
million people every day. Starbucks has already entered most of the emerging economies except
India, which seems to surprise everyone including its potential competitors in India, and it is
clear from the analysis and the arguments provided above that the time is just right for Starbucks
to try its luck now, albeit cautiously and with adequate preparation. Of course, there will always
be groups and organizations ready to protest against such companies especially in emerging
economies where the sentiments towards local companies are inherently strong. After all, India is
(after China) undoubtedly the most developing amongst the emerging economies. Finally, how
Starbucks decides to make its mark on the Indian gourmet coffee market and when it does so has
to be left to the management of the company. However, it might prove beneficial for the
company to dwell a bit upon adopting a multi-tier strategy and thinking beyond conventional
entry modes in order to harness the immense potential that India holds.
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TOWS Analysis:
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CHAPTER 4: Reactions and
Outlooks
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Company Reaction over a period of time13
Starbucks brewed an agreement with Tata Coffee, India's largest coffee producer, in January.
Starbucks will source and roast green coffee beans from Tata Coffee and will also set up retail
outlets in partnership with the Tata‘s. Starbucks will look to create different entry points for
different demographics and will create food relevant to Indian consumers that [it does not]
provide anywhere else.
Starbucks had in fact begun scenting opportunity in India much earlier, and initially wanted to
make a solo entry. But the company's effort was stalled by FDI regulations. India does not allow
100% foreign ownership in single-brand retail outlets and was compelled to take the partnership
route.
On announcement of agreement between the two parties, Tata Coffee gained as much as 17
percent, the biggest intraday jump since Aug. 21, 2009, to 544.50 rupees in Mumbai trading. The
stock traded at 490.55 rupees at 10:35 a.m. Starbucks rose 0.7 percent to $32.41 in NASDAQ
Stock Market trading on that day. This reflects the confidence that investors show in both the
company and the upcoming deal.
Future Outlook of Starbucks in India
Starbucks is another industry stalwart to enter the Indian markets due to vast potential and the
huge untapped market. Indian market is always influenced by the traditions followed in the
Western counterparts hence the success of Mcdonalds, KFC14
, etc to name a few. With access to
Hollywood movies where these brands are flashed quite often, the aura surrounding brands such
as Starbucks scale new heights.
13
Source: http://www.bloomberg.com/news/2011-01-14/starbucks-takes-first-step-to-india-with-tata-accord-after-china-expansion.html 14
McDonalds and KFC are the American Fast-food chains
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Movies like You’ve got mail starring Tom Hanks and Meg Ryan15
, show both of them having
Starbucks coffee before leaving for work leaves a lasting impression on the minds of consumers.
With the success of Barista, Café Coffee Day, the world is a witness that the Indian market is
ready to usher in Starbucks and make it a successful venture.
Indian consumers have always welcomed change when it comes to their taste buds. Cappuccinos,
Latte have eclipsed the traditional Espresso filter coffee. Filter coffee seems like an archaic
notion, only restricted to the elderly people. In fact the coffee shops have itself undergone a
tremendous transformation, with them replacing a hang-out joint for the teenagers.
The timing of their entry could not have been better. With Barista, Café Coffee Day and Costa
coffee almost losing their sheen, Starbucks comes in like a breath of fresh air. The future outlook
of any company is not complete without an analysis of the industry in which it operates.
The coffee industry of India is the sixth largest producer of coffee in the world, accounting for
over four percent of world coffee production, with the bulk of all production taking place in its
Southern states. India is most noted for its Monsooned Malabar variety. It is believed that coffee
has been cultivated in India longer than anywhere outside of the Arabian Peninsula.
Currently it is in talks with Tata Coffee for an entry in the Indian shores. The impact of this
announcement was reflected in the stock prices of Tata Coffee reaching their 52-week highs
during this period. he two companies will collaborate on providing training to local farmers,
technicians and agronomists to improve coffee-growing and milling skills. The two companies
will also explore social projects in the coffee-growing regions Tata Coffee operates. 15
Tom hanks and Meg ryan are the Academy award winner Hollywood actors
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One of the hurdles that the two companies have to sort out is Starbucks‘ franchisee-led business
model — something Tata is uncomfortable with. This is an important aspect as this model has
benefitted Starbucks in the past, with their market share increasing in proportion to their
increasing number of franchises.
That is one of the issues to be sorted out. Apart from this, the union of Starbucks and Tata Coffee
looks to create a froth that will leave the Indian consumers wanting for more.
Challenges:
No matter how lucrative a market is, but every company faces certain challenges when it enters
into unknown waters. Similarly, in this case Starbucks is also poised to face certain challenges
when it enters the Indian market.
From our analysis, we feel that Starbucks will face the following challenges in the Indian market:
Blending in the Indian culture:
Venturing into Indian market is going to be a new thing for Starbucks. For this very reason it is
following it‘s tried and tested franchise model. In this case, it has ventured with Tata Coffee to
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enter this segment. But still changing its product offerings to suit the needs of each of the market
is an onerous task in itself.
In this regard, Café Coffee Day and Barista have done well. They both have imbibed the culture
in their regular offerings. For example, they offer seasonal drinks, for eg Aam Panna, Mango
Shake, etc. in the summer seasons.
Through this the consumers can relate to them more easily as they can have their regular homely
drinks at these places as well. So this has to be taken care by Starbucks as well so that they are
able to win the hearts of the Indian consumer.
Price sensitivity:
Indian consumers by nature are very price sensitive. They want more by paying as less as
possible. Why this might be a problem for Starbucks can be seen by the following diagram:
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Through this we can see that a regular simple small coffee costs the consumer as much as Rs.
45/- (assuming a dollar to rupee rate of 1$- Rs.45). Similarly, the more popular coffee like
Cappuccino and Latte would require the consumers to shell out almost Rs. 90/- for a small cup.
When the consumers are very price sensitive, such prices would not do Starbucks much good and
it will have to come up with attractive pricing strategies to lure the Indian customers. But as the
alliance is with Tata Coffee, the consumers might not have to lose their purse strings too much as
the conglomerate is famous for working for the middle man (from Tata Namak to Tata Nano
fame).
Competitive rivalry:
Like any other industry, Starbucks will be facing tough competition from stalwarts like Café
Coffee Day, Barista Lavazza and Costa Coffee. All of them have been in the industry for almost
5-6 years. During this time they have gauged the market very well and have really left the new
entrant with a lot of thinking to do.
They have blended in the culture really well and have become a synonym for hang out places
and having fun. But following strategies can be used by them to overcome the threat of these
competitors:
By tying up with certain book stores, like Crossword, etc to provide a convenience to the
customer. Though this has been adopted by Café Coffee Day, but it can be used by them
as well depending on the location in which they plan to open up their store.
Have an outlet in music stores like Planet M and Music World. Imagine listening to your
favorite music while sipping a hot cup of Cappuccino. This will surely attract a lot of
consumers.
Provide hot tea in those mud cups (kullhars), so that the people can relate to them in a
better manner.
These are some of the challenges that they might face and also some measures that they can
adopt to curtail the competitive rivalry to some extent. The other promotional tactics that can be
adopted by them is too early to be commented upon as they depend upon the location, time and
the budget of their launch.
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References:
www.google.com
www.cafecoffeeday.com
www.starbucks.com
www.barista.co.in
www.costacoffee.com
International Business Plan Starbucks India Proposal by Vrushali Paunikar
Starbucks: Strategic Marketing Plan by Boscheratto, Chitraju, Small ,Toth and West
Strategic Analysis of Starbucks by Taghred Khattab, Ehab Aziz and Bassem Naguib
Starbucks: Corporate Social Responsibility Fiscal Year 2003, Annual Report
www.cafecoffeeday.com/Images/Brand_Partnerships.pdf
http://globalcoffeegrind.hubpages.com/hub/Costa-Coffee-Fails-in-India
http://www.livemint.com/2010/07/06233436/India-mulls-FDI-in-multi-brand.html
http://www.business-standard.com/india/news/costa-coffee-brews-mass-market-
plan/432284/
http://www.bloomberg.com/news/2011-01-14/starbucks-takes-first-step-to-india-with-
tata-accord-after-china-expansion.html
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The Starbucks Corporation: Past, Present and Future By Hervé R. AUCH-ROY –
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