Tata Starbucks Ltd A Strategic Analysis

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Tata Starbucks Ltd A Strategic Analysis

  1. 1. AMITY BUSINESS SCHOOL NOIDA, UTTAR PRADESH 201303TATA STARBUCKS LTD.A STRATEGIC ANALYSIS
  2. 2. TABLE OF CONTENTSINTRODUCTION................................................................................................................................... 4SITUATIONAL ANALYSIS .................................................................................................................. 4STRATEGIC INTENT ............................................................................................................................ 5 Starbucks Mission Statement................................................................................................................ 5SWOT ANALYSIS ................................................................................................................................. 8 Internal Factor Analysis Summary (IFAS) ........................................................................................... 8 External Factor Analysis Summary (EFAS).......................................................................................... 9 Strategic Factors Analysis Summary (SFAS) ...................................................................................... 10 Strengths ........................................................................................................................................... 11 Weaknesses ....................................................................................................................................... 11 Opportunities .................................................................................................................................... 11 Threats .............................................................................................................................................. 12SCANNING THE ENVIRONMENT - PESTEL ANALYSIS ................................................................ 13 Political Factors ................................................................................................................................ 13 Economic Factors.............................................................................................................................. 13 Socio-Cultural Factors ...................................................................................................................... 13 Technological Factors ....................................................................................................................... 14 Environmental Factors ...................................................................................................................... 14 Legal Factors .................................................................................................................................... 15INDUSTRY ANALYSIS – PORTER’S FIVE FORCES FRAMEWORK .............................................. 16 Industry Rivalry ................................................................................................................................. 17 Potential for New Entrants ................................................................................................................ 17 Threat of Substitute Products ............................................................................................................. 18 Bargaining Power of Suppliers .......................................................................................................... 18 Bargaining Power of Buyers .............................................................................................................. 18MARKET ANALYSIS - DAVID AAKERS 7 DIMENSIONS OF MARKET FORCES........................ 19 Market Size........................................................................................................................................ 19 2 Market Growth Rate .......................................................................................................................... 19 Market Profitability ........................................................................................................................... 19 Industry Cost Structure ...................................................................................................................... 20 Distribution Channel ......................................................................................................................... 20
  3. 3. Market Trends ................................................................................................................................... 21 Key Success Factors .......................................................................................................................... 22COMPETITOR ANALYSIS - PORTERS 4-CORNER ANALYSIS ..................................................... 23 Market Share of Major Coffee Retail Chains in India, FY’2010 ......................................................... 23 Café Coffee Day ................................................................................................................................ 24 Barista .............................................................................................................................................. 25 Costa Coffee ...................................................................................................................................... 26 Quikys .............................................................................................................................................. 26EXECUTIVE SUMMARY ................................................................................................................... 27REFERENCES...................................................................................................................................... 28 3
  4. 4. INTRODUCTION Tata Global Beverages Limited and Starbucks Coffee Company launched a joint venturebetween the iconic international coffee brand and the 2nd largest branded tea company in theworld. The 50/50 joint venture, named TATA Starbucks Limited, owns and operates Starbuckscafés, branded as Starbucks Coffee “A Tata Alliance.” The first store has already opened andsubsequent stores are in line to be opened at Mumbai in India at the end of October, 2012. Thealliance is expected to be very fruitful to both the companies in the long run. The report seeks tostrategically assess the viability of this strategic alliance by peeping into its myriads ofdimensions.SITUATIONAL ANALYSIS India and China are the world‘s two fastest growing economies. Starbucks had alreadyventured into the Chinese market and not surprisingly, their Chinese venture turned out to bemuch profitable than that of their US business. Thus, they want to replicate their success inChinese mainland in India. Also, the Indian market is heavily driven by the upcoming youthculture which is totally driven by the western trends. With the growing disposable income ofIndians, people tend to spend more towards apparels and fast foods. With the success of Indianowned Café Coffee Day and Barista Coffee, it is a widely proven fact that there is lot of scopefor the development of coffee café culture in India. Thus, Starbucks want to capitalize on thisparticular opportunity. They are planning to start with targeting the niche upper class segment byopening their outlets in TAJ Hotels and Resorts. Their primary target market is the youngergeneration of age 16-40years. 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 Japanwho are well aware of Starbucks brand name. Thus, there will not be the problem of brand namerecognition among them. 4
  5. 5. STRATEGIC INTENT Starbucks Corp. is aiming India as its next major hub for development. Starbucks want toreplicate the success they had in USA and more recently, in china. Surprisingly, their venture inChina proved to be more profitable than that of US. Here in India, Starbucks entered into a dealwith TATA Coffee Ltd, Asias 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 TATAcoffee with the iconic brand image of Starbucks which can move on to development of Starbucksretail coffee chains in other parts of Asia. In addition to sourcing coffee beans from TATA‘sIndian facilities, the companies will also work towards developing Starbucks stores in retailoutlets and hotels.Starbucks Mission Statement“To inspire and nurture the human spirit – one person, one cup and one neighborhood at atime.” Starbucks is very quality driven organization and is passionate about ethically sourcingthe finest coffee beans, roasting them with great care and improving the lives of people whogrow them. They call their employees as their partners and treat each other with respect anddignity. They believe in getting engaged with their customers and make connect with them so asto laugh with them, uplift customers lives even if it is just for moments. They believe in humanconnection and developing the sense of belonging. They believe in creating good neighborhoodand each store is nourished as a community. Tata has made the cultural fit for Starbucks which will help in building corecompetencies of each other. (Tata has met all the stringent standards and conditions followed byStarbucks such as quality, soil, water, pest, waste and energy management, forest andbiodiversity conservation to workers’ welfare, wages and benefits, living conditions, health,safety, etc.) 5Starbucks is committed to a role of environmental leadership in all facets of their business. Theystrive to fulfill this mission by a commitment to:
  6. 6.  Understanding of environmental issues and sharing information with their partners  Developing innovative and flexible solutions to bring about change  Striving to buy, sell and use environmentally friendly products.  Recognizing that financial responsibility is essential to their environmental future  Instilling environmental responsibility as a corporate value  Measuring and monitoring their progress for each project.  Encouraging all partners to share in their missionObjective of Tata Coffee behind this Alliance:  The agreement will allow Tata coffee to provide roast coffee bean to Starbucks in India.  Get opportunity to jointly invest in additional facility for export to other markets.  Starbucks will help by providing new technologies for the promotion of responsible agronomy practices.  A long term relationship will be formed with this Memorandum of Understanding with Starbucks.  After this deal, Tata Coffee is poised to become Asia’s biggest publicly traded coffee grower.Objective of Starbucks Corporation:  To tap huge emerging market of India.  Help increase its profitability due to its declining market and over dependence on US market.  To have access to the high quality Arabica coffee. John Culver, president, Starbucks China and Asia Pacific on opening up of the first store inIndia at Mumbai states, “This is the first step Starbucks and Tata Coffee Limited are takingtoward developing and improving the profile of Indian-grown Arabica coffees around the worldby elevating the stature of Indian coffee, as well as improving the quality of coffee through 6sustainable practices.” “Tata Global Beverages is a company known for bringing memorable tea consumptionmoments to consumers in India," stated Harish Bhatt, CEO, Tata Global Beverages. “The joint
  7. 7. venture is in line with Tata Global Beverages’ strategy of growing through strategic alliances inaddition to organic growth. We are excited about the opportunity to innovate in the retail spaceand bring new beverage moments to more consumers.” As part of the agreement, Starbucks and Tata Coffee Limited will work towarddeveloping and improving the profile of Indian-grown Arabica coffees around the world byelevating the stature of Indian coffee, as well as improving the quality of coffee throughsustainable practices and advanced agronomy solutions. Espresso sourced from India will be ahallmark feature of all Starbucks stores in the market, highlighting the quality espresso availablein India and Tata Starbucks Limited’s commitment is to deliver a truly unique and authenticStarbucks Experience to customers throughout India. Deepening its commitment to community, Tata Starbucks Limited will work to improvethe lives of coffee growing communities in the State of Karnataka. The joint venture, through aninitial financial commitment, will work to support SWASTHA, a school for children withspecial needs (in partnership with the COORG Foundation). Additionally, Tata StarbucksLimited will work on initiatives including the promotion of responsible agronomy practices andtraining of local farmers, technicians and agronomists to improve their coffee-growing andmilling skills. 7
  8. 8. SWOT ANALYSISInternal Factor Analysis Summary (IFAS)Internal Strategic Weighted Weight Rating CommentsForces ScoreStrengthsS1 - Brand Visibility 0.15 5 0.75 International popularity of the Starbucks Brand.S2 - Ethical and 0.10 3 0.30Environmental PracticesS3 – Marketing Skills 0.10 3 0.30S4 – Access to High Quality 0.15 4 0.60 Sourcing Agreement.Arabica CoffeeS5 – JV with Tata Coffee 0.15 4 0.60 Tata as a cultural fit for Starbucks will help in building core competencies of each other.WeaknessesW1 - Image of luxury coffee 0.10 4 0.40outletsW2 – Premium Pricing 0.05 2 0.10 High price of coffee is felt as a barrier as perPolicies capita income is low in India.W3 – Coffee Dominant 0.10 3 0.30 Need to diversify.Business They apply the same business models andW4 – Rigid Standards and 0.05 3 0.15 formulas, regardless of culture and values ofPolicies at Outlets the country.W5 – May affect JVbetween Tata Coffee and 0.05 2 0.10 Tata Coffee also has a JV with Barista.BaristaTOTAL SCORES 1.00 3.60 8
  9. 9. External Factor Analysis Summary (EFAS)External Strategic Weighted Weight Rating CommentsForces ScoreOpportunitiesO1 – India Huge Market 0.15 4 0.60 India is the second most populated country in the world.O2 – English Speaking 0.08 3 0.24MarketO3 – Increasing Spending 0.15 4 0.60PowerO4 – Young Population 0.07 4 0.28 Younger generation is more prone to visit cafes.O5 – Out-of-home Coffee 0.05 3 0.15 Rating for coffee outside home is better thanDrinking Culture catching tea outside home, specifically in the NorthO6 – Favorable Cost of 0.05 2 0.10LaborO7 – Favorable 0.05 3 0.15Infrastructure and CostO8 – Skilled Manpower 0.02 3 0.06AvailabilityO9 – Opportunity to cater 0.03 2 0.06Tea Drinking SegmentThreats Most of the Indians consumed tea at leastT1 – Tea Drinking Country 0.08 4 0.32 twice a day, in the morning and in the afternoon. Coffee Café Day (CCD) pioneered theT2 – Competition from 0.10 3 0.30 concept of specialty coffee in India followedHomegrown Brands by Qwiky’s and Barista Coffee.T3 – Low Per Capita Income 0.05 3 0.15 Immense need to offer products at locally competitive price. Campaign worldwide against the high-T4 – Health Consciousness 0.02 3 0.06 calorie and high fat products that Starbucks sells.T5 – Rare habit of Visiting 0.02 3 0.06Cafes McDonalds, Dunkin Donuts, Burger King,T6 – Competition from 0.03 3 0.09 etc already have the infrastructure in placeOther Fast Food Chains and are instead adding quality coffee to their 9 menus.T7 – Rising Prices of Coffee 0.05 4 0.20 Rising prices of coffee are putting pressure on the profit margins of the company.TOTAL SCORES 1.00 3.42
  10. 10. Strategic Factors Analysis Summary (SFAS) WeightedStrategic Factors Weight Rating Comments ScoreS1 - Brand Visibility 0.10 4 0.40 International popularity of the Starbucks Brand could be capitalized.S4 – Access to High Quality 0.08 4 0.32 Arabica Coffee is of very high quality andArabica Coffee this could be hot selling products worldwide. In addition to sourcing coffee beans fromS5 – JV with Tata Coffee 0.08 4 0.32 TATA‘s Indian facilities, the companies will also work towards developing Starbucks stores in retail outlets and hotels.W1 - Image of luxury coffee Starbucks Coffee outlets have the image of 0.12 4 0.48 high end luxury café and customers may notoutlets turn.W3 – Coffee Dominant 0.10 3 0.30 Need to diversify well.BusinessO1 – India Huge Market 0.15 4 0.60 India is the second most populated country in the world. Increasing job opportunities and advances inO3 – Increasing Spending 0.07 5 0.35 services sector with globalization is raisingPower standards of living in India.O4 – Young Population 0.08 5 0.40 Younger generation is more prone to visit cafes. Most of the Indians consumed tea at leastT1 – Tea Drinking Country 0.07 4 0.28 twice a day, in the morning and in the afternoon. McDonalds, Dunkin Donuts, Burger King,T2 – Competition from 0.08 4 0.32 etc already have the infrastructure in placeHomegrown Brands and are instead adding quality coffee to their menus.T7 – Rising Prices of Coffee 0.07 4 0.28 Rising prices of coffee are putting pressure on the profit margins of the companyTOTAL SCORES 1.00 4.05The Strategic Factors Summary shows that the most important factors overall received a score of4.05 which is above average. This is positive for the company. They are responding well to their 10strength, weaknesses, opportunities and threats. After some recent re purposing it is clear that thecompany is focusing on its core competencies but has room to improve.
  11. 11. Strengths  High Brand Visibility. (International popularity of the Starbucks brand.)  Ethical and Environmental Practices.  Superb Marketing and positioning skills of Starbucks.  Access to TATAs premium Robusta and Arabica coffees (Sourcing Agreement).  Tata as a cultural fit for Starbucks will help in building core competencies of each other. (Tata has met all the stringent standards and conditions followed by Starbucks such as quality, soil, water, pest, waste and energy management, forest and biodiversity conservation to workers’ welfare, wages and benefits, living conditions, health, safety, etc.)Weaknesses  Image of luxury coffee outlets.  High price of coffee is felt as a barrier in the South and the North. (Starbucks products were priced at a premium and the per capita income in India is lower compared to other markets where it is already present, there is immense need to offer products at locally competitive price.)  Coffee dominant business. (Need to diversify)  Certain rigid standards and policies at outlets. (They apply the same business models and formulas, regardless of culture and values of the country they are operating in like no smoking policy, etc.)  The entry of Starbucks is aimed at the out-of-home coffee consumption market and this may affect the alliance of Tata Coffee with Barista.Opportunities  India is the second most populated country in the world. Huge Market.  English speaking populations  Growing Middle Class and increasing spending power of Indian Population. 11  Young Population (Consumers in the age group of 20–45 years were emerging as the fastest growing consumer group and the average age of an Indian in 2020 would be 29 years, compared to 37 years in China and the United States, 45 years in Western Europe, and 48 years in Japan. Younger generation is more prone to visit cafes as per a research)
  12. 12.  Rating for coffee outside home is better than tea outside home, specifically in the North and the East. (The people in southern states of India largely consume coffee. The people in the northern states are generally not coffee drinkers, but drink coffee and experiment with various flavors as a fashion statement.)  Favorable Cost of Labor  Favorable cost and quality of telecom infrastructure  Fair availability of workforce (Quantity as well as skilled)  Tea-based culture of India could be used as opportunities by offering more tea-based drinks.Threats  India is a tea-based culture. (The Indian hot-beverage market is dominated by tea. India was the largest producer and consumer of tea in the world and accounted for 29% of the total production and over 20% of the total consumption globally.60 Most of the Indians consumed tea at least twice a day, in the morning and in the afternoon.)  Homegrown brands dominate the retail coffee market. Coffee Café Day (CCD) pioneered the concept of specialty coffee in India followed by Qwiky’s and Barista Coffee.  Lower per capita income in India. High price of coffee is felt as a barrier in the South and the North. (Starbucks products were priced at a premium and the per capita income in India is lower compared to other markets where it is already present, there is immense need to offer products at locally competitive price.)  Increasing Health Consciousness among consumers. (The increasing rate of obesity and obesity related diseases such as diabetes, high blood pressure, and heart diseases in India. Starbucks was said to have been on the target of many consumer health groups worldwide who planned to campaign against the high-calorie and high fat products that Starbucks sold and which could lead to increased obesity risk, heart diseases, and cancer.)  Visiting cafes is not a frequent habit among most of the Indians.  Other fast food chains like that of McDonalds, Dunkin Donuts, Burger King, etc., already 12 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.
  13. 13. SCANNING THE ENVIRONMENT - PESTEL ANALYSISPolitical Factors “India’s young are becoming world-class consumers, and multinationals are taking note,”reads the sub header for an article titled “Hey, Big Spenders!” in the August 2003 issue of TIMEMagazine. This change can be attributed to many factors. For one, the Indian economy wentthrough a massive liberalization under the new minority government of P.V. Narasimha Rao in1991. Further, the current government’s reform measures like approval to FDI in multi brandretail for up to 51% will surely add up to these factors.Economic Factors The factors like inadequate infrastructure, bureaucracy, regulatory and foreign investmentcontrols, the reservation of key products for small-scale industries, and high fiscal deficits areconstraining economic growth of India. However, the liberalization measures taken in 1991opened the economy to foreign investment and trade: it dismantled important controls, loweredcustoms duties, and devalued the currency: it virtually abolished licensing controls on privateinvestment, dropped tax rates, and broke public sector monopolies. Further, reforms have beenseen in retail industry with Indian governments approval on FDI up to 51% on multi brand retail.The country has recently become is a major exporter of software services and software workers,and the information technology sector leads the strong growth pattern. With a world changingfrom an industrial to an informational economy, India is bound to play a monumental role in thefuture of the global industry.Socio-Cultural Factors As job opportunities increase in India, money stays in the palms of the Indian consumersenabling them to reinvest in the Indian economy. Attitudes towards money are also changing.The mantra for the average Indian family, as in most of Asia, has always been saving, but youngIndians today, inspired by job opportunities, have switched to spending extravagantly. The 13attitude of the young generation is to enjoy life and spend money. However, India is a tea-based culture. Most of the Indians consumed tea at least twice aday, in the morning and in the afternoon. According to market research studies, coffee was
  14. 14. mainly consumed in the urban areas (71%) and to a much lesser extent in the rural areas (29%).The people in southern states of India largely consumed coffee. The people in the northern stateswere generally not coffee drinkers, but drank coffee and experimented with various flavors as afashion statement. The consumption of instant coffee and filter coffee was almost equal on thenational level. But region-wise, filter coffee was more popular in the south and the proportion ofinstant coffee was very high in the non-south regions.Technological Factors The coffee beans and tea need be bought from local Indian farmers in order to support thelocal agricultural economy, save money in transportation and tariffs, and gain tax benefits.Indians tend to take more cream in their coffee. The association with the Tata Coffee Ltd forsourcing its Arabica Coffee would surely help in the long run. Further, the skim milk option neednot be offered in India because dieting is not a commonly accepted practice in the country.Indians will feel that they are being cheated out of their money if skim milk is put in theirbeverages. Indians also like spices in their tea and coffee, especially ginger and black clove. Oneof India’s favorite fruit flavors in mango, and in fact the mango is India’s national fruit. The foodsegment needs to take care of vegetarians segment as they form the good proportion of the targetmarket. However, Indians specially the affluent and young class will be delighted to have fastand efficient Wi-Fi services at the cafe plus; people here love to be associated with theirtraditional and rich heritage as well as its blending with modernity and this may be reflected inthe stores ambience. The awareness about how varieties of coffee are sourced, roasted, brewed,etc needed to make people more loyal to coffee specially the Starbucks. The inventory policy requires keeping the stores stocked but not overstocked to ensurefreshness of products. Better gauges of the numerical figures in the inventory policies can bemade after observing consumer trends. To begin with policies can be formulated assuming anaverage of five hundred consumers per day. 14Environmental Factors Starbucks believe in the importance of caring for our planet and working with andencouraging others to do the same. As a company that relies on an agricultural product, it makesgood business sense. It engages itself in recycling, energy management, water conservation,
  15. 15. green building, and in reducing carbon footprints wherever possible. With these integratedenvironmental responsibilities, the company will obviously build its image in the eyes of IndianConsumers as well. The ecological concerns regarding the farming of Arabica coffee must alsobe addressed in order to ensure consistency in productivity.Legal Factors Companies may be public or private but the common public is not allowed to buy sharesof the company and there can only be up to fifty shareholders. Import duties are applied toalmost all goods entering India. The tariff system is based on the Harmonized System (HS) andtariffs are in the 40 to 60 percent range for basic raw materials, 60 to 100 percent for semi-processed goods, and 100 percent and above on finished and consumer goods. Shipments toIndia require a commercial invoice, a packing list and bill of lading. A certificate of origin is notrequired on imports originating in the United States. FDI approval though has come torelaxation. 15
  16. 16. INDUSTRY ANALYSIS – PORTER’S FIVE FORCES FRAMEWORK One of the widely held assessment tools of an industry’s competitive forces is the fiveforces model of competition created by Michael Porter. These five forces are: the competitiveforce of rivalry among sellers, the competitive force of potential new entrants, the competitiveforce of substitute product, the competitive force of supplier bargaining power, and thecompetitive force of buyer bargaining power (Porter, 1980). Threat of Substitutes Bargaining Industrial Bargaining Power of Rivalry Power of Buyers Suppliers Threat of New Entrants 16
  17. 17. Industry Rivalry Major competition for Starbucks in India comes from that of Café coffee day. Theabbreviation CCD is known to most of the people in urban parts of India. Their positioning issame as what Starbucks have in US. The other competitors include Barista Lavazza, Quickys,Barista and Costa Coffee, which are also the multinational brands, and widely recognized. Apartfrom them, secondary competitors include the Georgia Coffee, served in fast food joints like thatof Mc Donald’s and KFC, etc.Potential for New Entrants The entry barriers in the coffee retail industry are relatively low in India, particularly forthe foreign players. This is possible owing to the fact that 51 % FDI is allowed in India in retailsector. Any large or well-funded company having the thorough understanding of the market canenter into retail sector in India. Given the fact that Starbucks is a global, it is having its ownadvantages when it comes to achieving the economies of scale. Starbucks being the global coffeeretail chain, they are not going to have any particular capital related problems. Also, they arehaving MoU being signed with TATA‘s for opening their outlets in their TAJ group of hotelsand resorts. India, being the sixth largest producer of coffee in the world is having the largesthome grown supply of coffee beans and thus, sourcing coffee in this industry is not going to bemuch of the problem. Customer or Supplier Loyalty - Indian market is already being captured by the longestablished brands like Café coffee day, Barista, Barista Lavazza and Costa Coffee. Thus, it isgoing to be pretty much difficult for any of the new entrant to establish its brand name in theIndian market. However, Starbucks being the international brand will definitely help in attractingthe educated Indian crowd. Market Experience - The existing players in the Indian coffee retail industry have beenhere in the market from last 10 years. Thus, their management must be having greaterunderstanding of the Indian markets and Pallets. Therefore, for Starbucks, it is going to be 17important to first understand the Indian preferences, before making any major move.
  18. 18. Differentiation - Coffee is not the product where there is a great scope for productdifferentiation. However, it depends on most of the cases on the store ambience, which can act asthe point of differentiation.Threat of Substitute Products India has predominantly tea-based culture thus; awareness about coffee need to becreated more and more tea-based drinks in association of TATA coffee needs to be included inits offerings. Besides tea, other product substitutes, here, will include other beverages, forexample, soda, fruit juices, water, beer or other liquid and/or carbonated beverages. SinceStarbucks also sells fast foods, other fast food beverages like burgers, etc. The lower end localcoffee houses or other snack shops which are less luxurious will also act as substitutes toStarbucks. These are places which provide people with the place to sit, chat and relax at moreaffordable rates.Bargaining Power of SuppliersIn the case of coffee retail, the suppliers, supplying the retailer with the coffee beans are nothaving much of the bargaining power. This is particularly because of the fact that coffee retailerslike that of Starbucks tend to be very big buyers for any of the supplier to lose as a whole. Thisalso gives the Starbucks to dictate terms to the supplier. However, this sourcing would be doneon ethical norms of Starbucks and TATA Coffee. Similarly, suppliers of other resources like thatof paper products etc., will not be having much of the bargaining power as there are manysources from which the company can source them. However, this is not valid in the case of thesuppliers supplying the technological machinery and equipments as there are not many suppliershere.Bargaining Power of Buyers In the past, buyers in India were not having much of the bargaining power as there werenot many food retail giants which were present in the country. However, with the advent of 18multinational food retail giants in India, like that of Mc Donalds, Barista Lavazza, Café CoffeeDay and Costa Coffee, consumer is faced with lots of choices. Thus, it will be difficult forStarbucks to influence the Indian buyers to pay premium for their products. As also the percapita income of Indian Customers is low and their mindset is not so affirmative with coffee
  19. 19. culture, however it is catching up among youths, the pricing need to be highly competitive andon zonal basis.MARKET ANALYSIS - DAVID AAKERS 7 DIMENSIONS OF MARKET FORCESMarket Size The recent past has witnessed an upward shift in the per capita consumption of coffee inIndia, with growing preference amongst the young population. With a young population of about35% below the age group of 40 spending most of their time at work or outside home, the out ofhome consumption of coffee is spreading rapidly. Moreover, the increasing spending propensityof the young Indians and their changing lifestyle has increased the demand for coffee in India.As compared to FY’2005 a clear growth can be witnessed in FY’2010 in per capita consumption.The per capita consumption in FY’2010 increased to 89.3 grams as compared to 70.9 grams inFY’2005 due to presence of a strong preference towards instant coffee.Market Growth Rate The consumption of coffee in India has grown steadily at a historical CAGR of 6.3%during FY’2005-FY’2010 and is expected to pace at a CAGR of 4.9% in the near future. InFY’2010, the per capita consumption has increased to 89 grams from 85 grams in 2005 at agrowth rate of 5%. The Indian coffee market has witnessed a steady growth in the past 5 yearsdue to the growing preference for instant and organic coffee amongst the coffee drinkers.Moreover, rising consumer expenditure and export promotion schemes implemented bygovernment has influenced the growth of the market in India. The coffee market in India has alsowitnessed a growth in the demand for out-of-home consumption of coffee because to themajority of time spent by the young adults at work or out-of-home. This potential of the marketand the preference of the young population have led many global players to foray into thedomestic market. 19Market Profitability The revolution in the Indian coffee market has changed the tastes of the consumers andoverwhelmed them with variety of new options. Thus, a change is witnessed in the coffeedrinking habits amongst Indians. Today people prefer instant coffee over the traditional coffee,
  20. 20. because of the busy lifestyle and changes in their tastes and preference towards instant coffee.The Indian coffee market is dominated by big players such as Nescafe who has a share of 68.8%followed by BRU and Tata Coffee with 13.5% and 3.2% respectively. Marketers today see a lotof potential in the instant coffee segment, which is one of the reason many big companies areadopting various strategies to capture it. The out-of-home coffee drinking culture is also gainingpace. Keeping all these in mind that the costs for the coming operating years will reduce andrevenues will increase, profit is expected to escalate. After the end of the first fiscal year, thecompany may determine whether or not it should expand in the country of India. If the first yearproves to be a success, Starbucks Coffee can open over 200 location in the subcontinent of India,taking advantage of their international partnerships with Sheraton (Starwood) Inn, and Hyatt Inn.Starbucks will also try to win accounts with local airlines companies, so that they may serveStarbucks drink on flight. In three years profits are expected to exceed one million dollars perannum as per the research conducted.Industry Cost Structure Competitive pricing is necessary for the success of the venture; hence Starbucks musttake various costs into consideration. Because of the costs involved in startup, transportation andimported goods, the price need to be set at about USD 1 per drink using the concept of zonepricing to make the coffee affordable to the target audience. Exchanges need to be done in rupeesso that would be about 55 rupees. The prices for all goods need to be relative to the others. Withthe use of this pricing policy, Starbucks prices would be 20% lower than those of the BaristaCompany. This use of penetration pricing will ease the company’s slide into the market place.Though, it is possible to get a cup of coffee for merely 5 rupees in small stalls on the street, thesuccess of the Barista Coffee Company show that the customers are willing to pay for betterquality, service, and environment. 20Distribution Channel As its distribution strategy, the Starbucks has already started its first store at Mumbai.This flagship store is located at the historic Elphinstone Building, Horniman Circle, Mumbai andmarks the beginning of the iconic brand’s India journey. In addition to the flagship store at
  21. 21. Horniman Circle, Tata Starbucks Limited will launch two more stores in near future at OberoiMall and the Taj Mahal Palace Annexe in Mumbai. Subsequently, the other stores will be openedat other metropolitan areas. The urban areas are thus the first choice of Starbucks as its bothprimary market of youths and secondary market of tourists from other countries are catered here.Market Trends A major part of the country’s foreign exchange earnings come from the Coffee industry.Since the inception of coffee in India, the production has been rising along with changesexperienced in the consumption pattern over the years. Increasing Per Capita Consumption - Due to the constant increase in population over theperiod, the per capita consumption has also increased from 85 grams in 2009 to 89 grams in2010.This increase in the per capita consumption has influenced the overall growth of the Indiancoffee market. Evolving Coffee Retail Chain Concept - The Indian coffee market has been experiencingactivities in form of increasing coffee retail shops. This has been the result of the growing trendof out-of-home consumption and increasing propensity of young population to spend. Manycoffee parlors or cafes such as Cafe Coffee Day (CCD), Barista and Costa Coffee are spreadingtheir distribution network to cater to coffee drinkers across India. There are 1,503 coffee retailoutlets across India to serve the out-of-home coffee drinkers across India. Global players foraying into the Indian market - The increasing disposable income ofyoung Indians and their changing preference towards coffee consumption have led many globalplayers to foray into the domestic market. For example, Britain’s Costa Coffee entered the Indiancoffee market in 2005. Moreover, Starbucks, one of the leading global players is planning toenter Indian market in the near future. Increasing preference towards Instant Coffee - After Nestle and HUL launched theirproduct in the Indian coffee market, the popularity of instant coffee has increased gradually. 21Today, people prefer instant coffee over the traditional coffee because of their changing life styleand variety of options available in the instant coffee market. About 23.1% of the market is
  22. 22. captured by instant coffee and is expected to increase further in the near future with a strongpreference among the age group of 20-45years. Growing preference towards organic coffee - Organic Coffee is usually considered to benormal coffee beans that are produced without the use of pesticides or herbicides. The growinghealth concerns and the preference of consumers to consume healthy beverage have led themarketers and producers adapt to organically grown coffee.Key Success Factors The Primary target market for Starbucks Coffee Co. in India is the young both male andfemale from the ages of 16-38. This market is well educated and comes from middle class toupper middle class population and out-of-home coffee drinking culture is catching up. Theinternational appeal of Starbucks will add up to the promotion of this culture. The highly trainedbaristas of Starbucks, its technologies and processes by which it sources high quality coffee,roasts, brews and serves to its customers will surely act as Key Success Factors of the Company.Besides its alliance with Tata Coffee to source high quality Arabica Coffee will also help. 22
  23. 23. COMPETITOR ANALYSIS - PORTERS 4-CORNER ANALYSIS Drivers Current Strategy  Financial Goals  How the business creates  Corporate Culture value?  Organizational Structure  Where the business is  Leadership team background choosing to invest?  External Constraints  Relationships and networks  Business Philosophy the business has developed COMPETITORS FUTURE STRATEGY Management Assumptions Capabilities  Companys perception of its  Marketing skills strengths and weaknesses  Ability to service channels  Cultural traits  Skills and training to  Organizational value workforce  Perceived industry forces  Patents and copyrights  Belief about competitors’  Financial strength goals  Leadership qualities of CEOMarket Share of Major Coffee Retail Chains in India, FY’2010 The Indian coffee market is passing through an evolutionary phase where consumers‘preference towards out-of home consumption is developing. The exceptional growth of out-of -home consumption of coffee in the coffee chains has been triggered by the young adults. The 23young adults segment of the population spends major time outside home or at work, which hasinfluenced the growth of the coffee chains in India. The retail coffee market in India is majorlydominated by Cafe Coffee Day with 1,134 chains across India followed by Barista with 230
  24. 24. coffee serving chains and Cost Coffee with 74 chains. It is being observed that almost 96% of thecoffee retail market has been held by these three players and the rest 4% being held by othersmall and new players. Overwhelmed by the response in India, coffee retail giants are expectedto expand their network in India in the near future.Café Coffee Day CCD Mission statement - "To be the best café chain in the country by offering a worldclass coffee experience at affordable prices." Business Overview - CCD, India’s first coffee bar was established in 1996 in Bangaloreby the largest exporter of coffee in India, the Amalgamated Bean Coffee Trading Company(ABCTCL).Dominates the market with a share of 75.5% in 2010 with total retail outlets of 1,034in over 100 cities. Products and Offerings - The company offers numerous options in the product offeringssuch as cappuccino, Espresso, Café Latte, Cafe Mocha, Irish coffee and Ice tea along with widevariety of eatables such as sandwich, cakes, burger and others. The products are offered to beconsumed in the cafe as well as in take away format. The company also offers variousmerchandise products such as coffee mugs, gift vouchers and others. Geographical Reach - The Company has major presence in Delhi with 121 retail outlets,Bangalore with 172 stores, Maharashtra with 225 stores and AP with 84 stores. Customer Profile at CCD - Other brands are also promoted in a CCD outlet throughinnovative and interactive use of posters, cards, danglers, leaflets, contest forms, etc. CCD hastied up with popular television serials and also ran promotion contests for many brands. It hadalso tied up with some popular Indian movies where CCD was featured in some of the scenes.CCD has six café formats; Music Cafés, Book Cafés, Highway Cafés, Lounge Cafés, GardenCafés & Cyber Cafés. Music Cafés provided customers with the choice of playing their favoritemusic tracks on the digital audio jukeboxes installed in the café. CCD has been also coming out 24with more formats like sports Café, singles café, and fashion café. Speaking on competition with other players, Sudipta Sen Gupta, Marketing Head, CCDsaid: “We don’t have any competition because we are not competing with the others. In fact we
  25. 25. are aiding each other in creating and growing the coffee culture. All of us have a distinctidentity. We sure do!”Barista Business Overview - Founded in 2000, the company is a pioneer of Indian Cafe culture.The company has positioned the brand as a joint where people can indulge in conversations witha cup of coffee. The target segments for the company are the youth and young adults, who areaware about the global lifestyles and enjoy new flavors and taste of coffee. Barista is planning toexpand its latest chain of cafes “Barista Creme Lavazza” to more parts of the country. Presentlythe company owns app. 15 such stores. Products and Offerings - Along with offering coffee, the company also offers freshsalads, sandwiches, pizzas, pastas and desserts. The company offers in -stores promotions fromtime to time along with other promotions in commercials and films. Geographical Reach - Barista has a pan India presence with more than 230 retail outlets.45 of the top outlets offer Wi-Fi availability along with 75 outlets offering Blu-Fi for mobilesavvy generation. Coffee and other products at Barista were priced high and its target audiences were youthfrom the upper-middle-class segment. The coffee at Barista was made with high-quality Arabicacoffee beans and baristas (brew masters) were invited from Italy to make new blends. BrotinBanerjee, Vice President of Marketing, Barista, said, “Our inspiration was the traditional ItalianEspresso bars where the idea is to create a ‘home away from home." In 2001, Barista enteredinto a strategic alliance with Tata Coffee Ltd. (Tata), the largest coffee producer in India. Tatalater acquired a 35% stake in Barista. The alliance allowed Barista to enlarge its distributionnetwork and set up outlets in the Taj Group of hotels owned by Tata and its other alliedbusinesses. In 2004, Amit Judge, its promoter, sold 65.4% stake of the company to an NRI 25businessman, Sivasankaran (Siva), who later in 2004 bought the remaining stakes from Tata aswell. After the acquisition, Siva revamped the chain, opened more Barista outlets in Southerncities, and began franchising its outlets. It started opening up a new outlet every 10 days. A new
  26. 26. look was given to its outlets by making changes in its seating arrangements, in-storemerchandise, and providing a better youthful ambience of the store. The brew mastersmaintained friendly relations with the customers and called them by their first names. Barista joined with specialty retailers such as the music retailer Planet M, the bookretailer Crossword, and the Taj Group of hotels for setting up espresso corners in their premises.It also launched a concept called BanCafe, a coffee shop within the bank premises and joinedwith the bank ABN AMRO.Costa Coffee Business Overview - Costa Coffee was incorporated in India in 2005 with a tie up withDevyani International Limited, head quartered in New Delhi, the Company serves the coffeelovers across India. Company inaugurated its launch with 4 cafes in Bangalore. The companycommands a share of 4.9% in the Indian coffee market in 2010. Products and Offerings - The Company offers different variety of coffee such asEspresso, cappuccino, cafe latte and others. Some of the premium offerings which the companyoffers are muffins, cakes, desserts, sandwiches, wraps and pastas. The company operates withnearly 74 stores across India. Geographic Reach - The Company is planning to focus on the prominent cities such asPune, Delhi, Mumbai and Bangalore. The company is planning to predominantly expand in themetros.Quikys Two software engineers, Shashi Chimala and Shyam, opened the first Qwiky’s outlet inChennai in 1999. They were inspired by the specialty coffee bars in the United States. The menuat Qwiky’s included varieties in hot Italian coffee, Indian coffee, specialty hot coffee, coldcoffee, frappes, milk shakes, tea, other beverages, desserts, and snacks. It targeted youths in theage group of 18 to 30 years. By 2002, the annual revenues of Qwiky’s were 43 million INR. 26 Qwiky’s had three types of formats; Qwiky’s Coffee Pubs were stand-alone coffee bars,Qwiky’s Coffee Islands were outlets within big stores, multiplexes, and movie theatres, andQwiky’s Coffee Xpress were coffee kiosks. By 2006 it had over 20 outlets in nine cities in India
  27. 27. and one franchise in Sri Lanka. Qwiky’s had plans to open more outlets in metropolitan andlarge cities in India and abroad through franchising its business. It had joined with retailers suchas Lifestyle, Music World, and Ebony to open store-in-store outlets.EXECUTIVE SUMMARY Starbucks is another industry stalwart to enter the Indian markets due to vast potentialand the huge untapped market. Indian market is always influenced by the traditions followed inthe Western counterparts hence the success of Mc Donald’s, KFC, etc to name a few. Withaccess to Hollywood movies where these brands are flashed quite often, the aura surroundingbrands such as Starbucks scale new heights. 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 likean archaic notion, only restricted to the elderly people. In fact the coffee shops have itselfundergone 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 andCosta coffee almost losing their sheen, Starbucks comes in like a breath of fresh air. The futureoutlook 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 productiontaking place in its Southern states. India is most noted for its Monsooned Malabar variety. It isbelieved that coffee has been cultivated in India longer than anywhere outside of the ArabianPeninsula. Tata Starbucks Limited, the 50/50 joint venture between Starbucks Coffee Company(Nasdaq: SBUX) and Tata Global Beverages Limited is bringing an unparalleled experience toIndian customers. Both companies have a history of delivering product innovation and the 27highest quality experience to customers around the globe. They are delighted to come togethertoday and transform the coffee experience for consumers across India, while providing a
  28. 28. community gathering place to connect with family and friends. Thus, Coffee culture is poised tobe deeply in-grained into Indian culture in the near future, if this strategic alliance succeeds.REFERENCESVrushali Paunikar, 2011, "International Business Plan Starbucks India", A proposalRuchi Mankad and Joel Sarosh Thadamalla, 2011, "Case: Starbucks Coffee Company, The IndianDilemma", Strategic Management and Business Policy, 13th Edition, Thomas L. Wheelen, J. DavidHungerHerve R., Dec 21, 2004, "The Starbucks Corporation: Past, Present and Future", Auch-Roy-Pen: 1207HAHarold Brown, 2011, "External Environmental Analysis of Starbucks and the Coffee Industry"Flight, Georgia. “Grinding Out Success Next to Starbucks” Business 2.0, Oct. 2006. Vol. 7, Issue-9Ryan C. Larson, 2008, "Starbucks a Strategic Analysis - Past Decisions and Future Options", BrownUniversity Economics Departmenthttp://news.starbucks.com/article_display.cfm?article_id=707 accessed on Oct 15, 2012http://news.starbucks.com/article_display.cfm?article_id=703 accessed on Oct 15, 2012http://www.starbucks.in/about-us/company-information/mission-statement accessed on Oct 15, 2012http://www.starbucks.in/responsibility accessed on Oct 15, 2012http://www.tatacoffee.com/corporate/company_profile.htm accessed on Oct 15, 2012http://www.indiacoffee.org/indiacoffee.php?page=CoffeeData accessed on Oct 17, 2012http://www.indiacoffee.org/userfiles/RFP-FINAL-SEP12.pdf Oct 17, 2012http://www.cafecoffeeday.com/company-mission.php?mnid=3&lmids=3 accessed on Oct 17, 2012http://www.cafecoffeeday.com/our-business.php?mnid=3&lmids=1 accessed on Oct 17, 2012 28

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