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starbucks entry in india
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Starbucks‐TATAAllianceMarketingStrategy
ByMartinaKancheva
UniversityofBath
2
AccordingtotheHarvardBusinessSchool,afterStarbucksfirstenteredoneofthemosttea
lovingcountries(England) in1998,teasalesfellevenascoffeesalesroserapidly.By2008,
annualsalesofcoffeeinBritainhadexceededsalesoftea.India,whereStarbucksplansto
penetratethisyear,isalsonotahabitualcoffeedrinkingnation.Thecurrentpaperaimsto
proposeastrategyforenteringtheIndianmarketwhilethetakingintoaccountlocaltastes
andlifestyle.
The analysis begin with an overview of the Indian Coffee Retail Market; continues with
examiningthestrengthsoftheStarbucksbrandandthebenefitsofajointventurewiththe
India's largest coffee producer and exporter. The report will finally propose the most
effectivemarketingstrategyforStarbuckstoentertheIndiancoffeeindustryandgetapiece
ofthe'marketpie'.
1.SituationAnalysisoftheIndianCoffeeRetailMarket
As coffee shops may be nearing saturation point in the US and Europe, Starbucks has
identified the potential to expand in emerging markets like China and India. The coffee
industryisexpectedtocontinuegrowingthroughatleasttheyear2015andevenlongerin
emergingmarkets(Lingle2007).
As there no framework that provides a full
picture of the dynamics within a particular
market, a more holistic approach will be
adopted. Economic, Legal and Socio‐cultural
factorswillbeexaminedfromaPESTELanalysis
and the Power of Suppliers, the Threat of
CompetitorsandtheThreatofSubstitutesfrom
thePorterFiveModel.
Picture1:Porter’sFiveForcesModel
1.1.EconomicFactors
3
TheIndianeconomywillexpandanestimated6.5percentthisyear,thefastestpaceamong
developingAsianeconomiesexcludingChina,accordingtoJanuaryestimatesfromtheWorld
Bank (Agrawal and Sharma, Bloomberg 2012). TheReserve Bankof India projects seven
percent growth for the twelvemonths endingMarch. As sales contribution in theUS has
declinedinthepastdecadetolessthan70%inthelastfiscalyear,Starbucksisexpandingin
fastdevelopingmarketslikeChinaandIndia.
India is one of the emergingmarkets throughout the world that is becoming a spending
orientedcountry.ThepersonaldisposableincomepercapitainIndiahasdoubledbetween
2000‐01 and 2009‐10 resulting in improved purchasing power (Deloitte 2011). Thus, its
upperandmiddleclassesaremoreabletospendmoneyoncoffee,beveragesandfoodin
coffeehousesthatmightnothavebeenthoughofasanecessityinthepast.
1.2.LegalFactors
India’s government on January the 10th raised the ownership limit to 100% for foreign
retailers selling a single brand, a decision benefiting companies including Starbucks
(Passport,Euromonitor2011).However,StarbucksandTATAwillpossessequalsharesinthe
ventureasbothcompanieswillbothbenefitfromsuchanalliance.
1.3.Socio‐CulturalFactors
Indiaisa“traditionalteadrinkingnation”(Vasudha2011,pp.2)whichisprovenbythefact
that69.9%ofthehotdrinksmarketisdominatedbytheteaindustry(Figure1).
4
Figure1.IndiaHotDrinksMarketSegmentation
EventhoughinIndiateawasthecommonbeveragefortheupperandmiddleclasses,now
coffeeisbecomingastatementofwealthandprosperityamongthetraditionalsectorofthe
Indian population, i.e. people more resistant to changes (aged above 30) (Bose, Reuters
2012).Thisphenomenonmightbeexplainedbythefactthatasmoreandmoreeconomies
head towards industrialization, those economies also begin to be influenced by
westernization.
Westernization is also easily adopted by the younger generation in India (18‐25 years).
Researchshowsthat72%ofcoffeeshopscustomersarestudentsandyoungprofessionals
(Euromonitor 2011). Thepopularity of specialist coffee shops among youths as a place to
socialiseregistered18%growth in2010;withaveragetimespentonatablehigherthat in
other countries. Spending capacity of youth of India is increasing, as well as their brand
consciousness.60%ofIndia’spopulationisbelowtheageof30leadingtopopularizationof
brandsandproducts(Deloitte2011).
As illustratedabove, there isamarketpotential subject to ‘dualeconomies’, i.e. targeting
boththemodernsector(youths)andthetraditionalsector(nationalisticindividualsresistant
tochanges)(Nuttall2011).
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Intheprocessassessingthegrowthopportunitiesinthespecialtycoffeeindustry,onemust
alsoexaminethecompetitivelandscape.
1.4.BargainingPowerofSuppliers
Themajorthreat inthespecialtycoffee industry isthepowerthatsuppliershaveoverthe
priceofcoffee.Arabicacoffeepricessoared77%in2010whichcausedconcernstocoffee
retailers (Murphy 2011). Arabica coffee is one of the most sold brands of coffee in the
specialtycoffeeindustry.Withpricesforthattypeofcoffeeskyrocketing,ithurtthebottom
lineofcompetitors,especiallythosethatthriveonalowcoststrategy.However,Starbucks
strategy can be regarded as ‘charging premium price for premium product’; and it is
supplyingcoffeeformtheirpartner,sothepowerofsupplierscanberegardedasweak.
1.5.CompetitiveRivalrywithintheIndustry
The second threat is from specialty coffee competitors that Starbucks will face when it
enters the Indian market.Well‐established coffee shops chains, such as Café Coffee Day
(CCD)andBarista,enhancedtheirpan‐Indiapresencein2011.In2010,CCDandBaristahad
970and200stores,respectively,andtheyaimtocontinueexpandinginthenextfewyears
(Datamonitor2010).Meanwhile,severalrelativelynewplayers,suchasCostaCoffee,Coffee
Bean,Gloria Jean’s and Java Coffee, are trying to ‘get a piece of the pie’ in Indian coffee
retailing.Boththesefactorsdroveon‐tradeconsumptionoffreshcoffeebeansin2010,with
volumesgrowingby12%(Datamonitor2010).On‐tradesaleshaveemergedastheprimary
sales channel for fresh coffee beans, in the absence of any substantial off‐trade
consumption.However,“thepopularopinionwasthatwithonlyabout1500cafestheINR
20billionmarketprovidedenoughroomforgrowthandcouldaccommodatemoreplayers.”
(Vasudha 2011) Even that major players started expanding, there is potential for further
growthintheIndianCoffeeRetailMarket.
6
1.6.ThreatofSubstituteProducts
A third relevant threat in the case of Starbucks entering India is the threat of substitute
goods. For instance, consumers may opt to reduce their caffeine intake due to health
concerns,whichwill influencecoffeeconsumptionsomewhat. Insuchcase,herbalteaand
functional drinks can be potential substitutes. However, considering the increased
consumption of coffee in recent years, it is unlikely that such substitution would
substantiallyimpactuponsales.Overall,thethreatofsubstitutesintheIndiancoffeemarket
mightbeconsideredasmoderate.
2.Starbucks
ThissectionaimstoexaminethestrengthsoftheStarbucksbrandandcriticallyevaluatethe
rationalebehindtheiralliancewithTATA.
2.1.SWOTAnalysis
SWOT analysiswill be used to evaluate Starbucks’s Strengths,Weaknesses, Opportunities
andThreats.
Strengths
‐ Leading retailer and roaster for brand
specialtycoffeeintheworld;
‐ Brand image with the motto ‘The
StarbucksExperience’;
‐ 17000storesacross57countries;1500
inChinaalone;
‐ Strongbalancesheet;
‐ One of the strongest franchises in the
world with more than 6 500 licenses
Weaknesses
‐ High pricing which not everyone can
afford;
‐ Starbucksrefusestoguaranteethatmilk,
beverages, chocolate, ice cream, and
bakedgoodssoldinthecompany’sstores
are free of genetically‐modified
ingredients;
‐ FocusedmoreonUSdomesticmarket;
‐ Starbucks Workers Union was made
7
shopsintheworld;
‐ Starbucksisknownforprovidingsuperior
productsandservices;
‐ Have loyal customers in every country
thathasentered;
‐ Sophisticated atmosphere, music,
interiordesignandartwork;
‐ Havealotofflavoursvariation;
‐ Limitednumberofstrongcompetitors;
‐ Highmarketshareandmarketgrowth.
because some employees complain
about themanagement style within the
company;
‐ NoexperienceincountrieslikeIndia.
Opportunities
‐ Highconsumerisminemergingmarkets;
‐ Easier to penetrate market because
Starbucks is selling as experience, not
justasimpleproduct;
‐ Many of Starbucks coffee are using
organicbeans;
‐ SomeofStarbucks’sbeansareharvested
in Indonesia island of Sumatra and
Sulawesi. Starbucks are purchasing at
premium prices to support local
community and sustainable production.
Starbuckspaysanaveragepriceof$1.20
per pound against the commodity
averagepriceof$0.40–0.50perpound;
‐ FairTradeProductscanbeoffered.
Threats
‐ Globalfinancialcrisismadepeoplespend
less on good that are not regarded as
necessities;
‐ Increasinghealthconcernofthenegative
effectofcoffee;
‐ Starbucks domination is driving small
cafesoutofthebusiness;
‐ Threatof substituteproducts in cultures
where there is a strong preference for
tea, like China, India and UK.
Table1:Starbuck’sSWOTAnalysis
AfterexaminingthestrengthoftheStarbuckscompany,oneshouldexaminethestrengths
ofthejointventurethatStarbuckswillenterwithTATAGlobalBeveragesGroup.
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2.2.TheJointVenturewithTata
StarbucksenteringintotheIndianmarketwillbeintheformof50/50jointventurewiththe
TATA Global Beverages Group. “Share prices of both companies soared following the
announcement of the pact.” (Vasudha 2011, pp. 10) This is the first time Starbucks is
enteringthemarketwitha localpartnerandwillbeco‐brandingtheirstoresandproducts
with their counterpart. The Indian outlets will be called Starbucks TATA Alliance. The
partnershipwillenableanexpandedrangeofbeverageofferingsforIndianconsumers.One
of these being the Starbucks’s premium tea product Tazo that will be available in Indian
outletsrenamedasTATATazoTea.
Themajoradvantageofthealliancewillbethat“theknowledgeandunderstandingofthe
IndianmarketcanbebroughtbyTATAGlobalBeverages.” (Vasudha2011,pp.10)Entering
intoastrategicpactwith“theworld’slargestintegratedcoffeeplantationcompany”should
enable Starbucks to ensure sustainable profit growth in India. Also, TATA Tea is the tea
market leaderwith18.4%share.Starbuckswillalsobenefit fromTATA’sexperience in the
Indianmarketregardingdifferenttastes indifferentregions;thusmakingsure itoffersthe
mostpreferableblendofbothteaandcoffeetocustomers.
Apartfromproductandlocalpreferencesknowledge,StarbuckswillbenefitfromTATA
Global’sinfrastructure.InIndia,thereisthechallengeofbalancinghigherrentalsand
profitabilitygiventhelackofinfrastructureinIndiaalongwithinflatingrealestateprices.
StarbucksisastepaheadofcompetitorsduetotheiralliancewithTATAGlobalGroup.TATA
hasalocalknowledgeontherealestatemarketandtheyhaveopportunitiestoleverage
theircapabilitiesinthisarea.StarbuckswillbeabletouseTATA’scurrentinfrastructureto
effectivelygrowthebusiness.
TATAGroupwillalsobenefitfromthepact.TATA’sexperienceinretailingisnotsufficientto
openacoffeeretailshopontheirown;so,byenteringinsuchalliancetheywillgainavast
amountofknowledge.Also,TATAGlobalBeveragesproducesbottledHimalayanwater
whichmightbeofferedinStarbucksstoresaroundtheworld.
9
Starbucks should also consider the possible disadvantages of such joint venture. After
gainingenoughknowledgeinretailingindustryandknowingtheIndianmarketbetter,TATA
mightdecidetocompetewithStarbucksinsteadofworkingwiththem.Inaddition,potential
conflictmightoccur regarding thestrategyof theallianceandhow it shouldbemanaged.
Such jointventuresmightalsoaccruesignificantcostsofcontrolandcoordination;andon
topofthat,profitissharedwithapartner.
3.MarketingStrategy
TheHarvardBusinessSchoolFramework(Figure2)(Comrie2012)willbeusedasamodelto
explainthemarketingstrategyinthecurrentproposal.
Figure2.HarvardBusinessSchoolFramework
ThemarketinganalysiswasconductedinSection1.
10
3.1.CaptureValue
In this section, toolsandtechniqueswillbeusedtoexplainhowStarbuckscancreateand
capturevaluefortheirproducts.
3.1.1.MarketSegmentation
Apartfromthedemographiccharacteristicspresentedinpartoneoftheanalysis,marketers
should also consider psychographic variables such as interests and lifestyles. In general,
India’scoffeeculturehaschangedthewayyoungIndianssocialise.Inacountrywherethere
isalimitedbarculture,andwheredrinkingalcoholisstillnotallowedinmanycircles,ithas
provided an acceptable and safe outlet for people, particularly young Indians, to share a
drink(Vaidyananthan,BBC2012).
As mentioned earlier, coffee is becoming a statement of wealth and prosperity among
peoplewithhighdisposalincome,i.e.individualsinemployment.
3.1.2.TargetMarketSelection
Themarketingstrategywillfocusontargetingbothgroups–collegeanduniversitystudents
(aged18‐25)intheshorttermandworkingprofessionals(25‐40)inthemediumtolongrun.
Also,touristandfrequentflyerswillbeatargetaudienceinthelong‐run.
3.1.3.ProductandServicePositioning
It is essential to have a unique selling point to position Starbucks above competitors
(Pickton 2005). In TATA‐Starbucks customers will be able to rely on genuine service, an
invitingatmosphereandasuperbcupofpremiumcoffeeorteaeverytime.
11
3.2.SetMarketingObjectives
Inorder tomake themarketing communicationsobjectivesas comprehensiveaspossible,
the SMART approach has been used, to ensure the objectives are specific, measurable,
achievable,realistic,timedandtargeted:
Theproposedstrategyprovidesaplan forTATA‐Starbucks toopen50storesby theendof
2012inmajormetrocitiesandsecond‐tiertownsofferingpremiumcoffeeexperiencetothe
primarytargetgroupofstudents(aged18‐25)andworkingprofessionals(aged25‐40).
3.3.MarketingMix(4Ps)
ThemarketingmixwillbeexaminedtodetermineStarbucks‐TATAuniquesellingpoints,i.e.
theuniquequalitiesthatwilldifferentiatetheirproductsandservicesfromthoseof
competitors.
3.3.1.Product
AnilDharker(2012),aMumbiancolumnistandsocialcommentatorinIndia,pointsoutthat
whenaforeignplayerseesacommercialopportunityandentersthenewmarket;andthen
itadaptsgivingMcDonaldsasanexample(Vaidyanathan,BBC2012).However,thisshould
notbethecaseandStarbucksshouldhaveaclearstrategyabouttheirproductrange(both
drinksandfood)it isgoingtoofferpriorenteringtheIndianmarket.CostaCoffeeShops in
India, for instance, offers products like Apple Pie Latte, Latte Caramellato, Coconut Hot
Chocolate,etc.suitedforIndiantaste(CostaCoffeeIndiaonline2012).Therefore,Starbucks
should adapt their drinks in order to cater local preferences. Ice coffees should also be
includedinStarbucks’smenuasIndianshaveastrongpreferenceforthembecauseofhigh
temperaturesduringsummer.
However, one should not ignore the fact that India is a tea loving country even though
people “prefer to consume tea at home because finding a perfect cup of chai outside is
12
really tough," said Smiti Singh, a Bangalore‐based software engineer, who drinks at least
four cupsof tea aday (Madhok,Reuters 2012).TATATea (a unit of the software‐to‐steel
TATAconglomerate) istheworld’ssecond‐largestbrandedteacompany,sotheirpremium
teaproductsshouldbealsoofferedtocustomersapartformtheTazoTea.
ThebiggestdistinctionisnorthIndia'spreferenceforbread,meat,andchai(tea),compared
to the south's preference for rice, pulses, and coffee. Food‐wise, paninis, sandwiches and
wrapswithmeatbutnotwithbeef.ThecowisconsideredsacredbymostHindusandhence
beef is considered taboo in themajorityof Indian states. Predominant foodoption in the
southshouldbethebistroboxeswithriceandpulses.
3.3.2.Place
The first Starbucks locations are scheduled to open in August inNewDelhi andMumbai.
TATA Starbucks might consider the option of opening on the 15th of August, India’s
IndependenceDay.Starbucks‐TATApartnershipisexpectedtoopen50storesinthecountry
by the end of 2012. Starbucks also plan to explore the retail properties of Croma, Star
Bazaar, Trent and Indian Hotels belonging to the TATAGroup to open stores and also to
“rope inanother franchisee for standalonecafes in the future.” (Vasudha2011)This isan
efficientwayoftargetingindividualsonbusinesstripsinNewDelhi,forinstance,whoprefer
to go to a place which is familiar for a cup of coffee; or tourists, who do not want to
experiencethelocalculture.Asaninternationalbrand,Starbucksshouldalsoopenkiosksat
airports; thus, not depending solely on Indian tastes and preferences as airports are
occupiedwithpeoplefromallovertheworld,whowillrecognisetheStarbuckslogo.
In Mumbai (most populous city in India) Starbucks should position the stores mainly in
shopping centres, cinemas, near universities or cultural venues as it is commercial and
entertainmentcapitalofIndia.
Coffeeshopsnormallyclosearoundeleveno’clockatnight,soStarbucksshouldconsiderthe
option of closing at midnight or even one o’clock in the morning; thus, becoming the
13
preferredvenueforyoungpeople.Also,providingsomeguitarfor jamsessionsorkaraoke
nightsonFridayorSaturdaymayattractevenmorepeople.
Ascoffeechainsareseenasplacestosocialiseandpeopleaged25‐40willbealsoatarget
group of the Indian population, Starbucksmay consider opening a new type of Starbucks
coffee calledStarbucks Lounge, forexample. Theatmosphere in the loungeswill bemore
relaxedandtheinteriormoreexpensive;thuswealthyindividualswillbeabletoshowtheir
class.
Ingeneral,expertsfeltthatlargestcaféchainsinIndialikeCCD,BaristaCoffeeandQwiky’s
are targeting thesame locations,mainly the largecities.Geographicalexpansionhashuge
possibilities as cities are not saturated and the market is not limiting at all. Therefore,
Starbucks‐TATA should aim to gain competitive advantage in smaller cities as well in the
medium to long rum as people there are more likely to be brand‐loyal as opposed to
customersincosmopolitancities.
3.3.3.Promotion
PromotionalactivitieswillnotbeanalysedindetailsastheyshouldbeinlinewithStarbucks
promotionsworldwide.Besides, retailers in India relyheavilyonword‐of‐mouth (personal
communication).TheStarbucksCardwillbeintroduced–aconvenientwaytopayforyour
drinksandearnrewardsforyourpurchase.Furthermore,“in‐storepromotionsaccompanied
bynewproductssuchasdrinksandaccessoriessourcedfromtheregions”shouldbepresent
inIndiaaswell(Vasudha2011).
Even though it is highly unlikely for a coffee chain in India to advertise on TV, Starbucks
mightconsiderthatidea.IntheUS,therearethreeplacesthattheaverageAmericanspend
his time duringweekdays ‐ at home, in thework place and in Starbucks. So, they should
somehowshowthewesternlifestyletotheIndianandaTVadvertisementatthedayofthe
launchshoulddothejob.
14
Furthermore, it is the first50/50 jointventure forStarbucks; so,bothStarbucks andTATA
Groupwillbenefitfromco‐marketingactivities.
3.3.4.Price
Historically Starbucks has retained it US pricingmodel in almost everymarket they have
entered, but should they follow the same pattern in India? Starbucks should adopt their
pricingbasedonthedemandformtheIndianconsumer.AfteranalysinganalysedtheIndian
market forhotdrinksand thepriceelasticityofproducts,probably thepricesofproducts
shouldbeatleast30%lowerthanintheUS.
Conclusion
IfStarbucks can adapt to thepeculiarities of the Indianmarket, coffeemay soonbecome
manyIndians’cupoftea.
Based on the analysis presented above, the current proposal contradicts Levitt’s
globalisationtheorysuggestingthat“companiesmustlearntooperateasiftheworldwere
onelargemarket– ignoringsuperficialregionalandnationaldifferences.”(Levitt1983,pp.
92)InIndia“F&Bandretailtypicallyisveryclosetolocalcultureandtaste”(Vasudha2011);
thus, the so adaptation or ‘glocalisation’ strategy should be adopted (Robertson 1994).
Glocalisation will serve as a mean of combining the successful Starbucks strategy in
“providingtheemotionalneedsaroundtheworld”(Vasudha2011)whiletakingintoaccount
localtastes.
15
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