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Case Study Analysis

Growth prospects of Starbucks in Indian market







Submitted to
Learning and Development Cell,
IIM Udaipur

By
Anandkumar Desai
PGP 2014-16

On
02/07/14














Indian Institute of Management, Udaipur
2014-16 Anandkumar Desai Starbucks Case Analysis
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Table of Contents

Page

Executive Summary 1
History 2
Learning from Starbucks Global Expansion Strategy 3
Question to Ponder Upon by Starbucks 3
Indian Coffee Market (Ready-to-drink) Analysis 4
Indian Consumer Insights 5
SWOT Analysis 6
Brand Positioning 6
Important Take away in context of Indian market 7
Appendix 1 Assumptions 9

















2014-16 Anandkumar Desai Starbucks Case Analysis
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Executive Summary

The case discuss about Starbucks and how it had expanded his presence worldwide in
a very short span of time. It also shows how it had made inroads into regions which
are not traditionally coffee drinking nations. Experience and ambience was central to
Starbucks strategy.

While expanding globally, Starbucks has looked for growth and propensity of some
national populations to consume their coffee outside the home. It had always believed
that the first mover advantage was a critical ingredient in its success.

With initial success, Starbucks also faced multiple challenges in those countries like
falling revenue and profitability in Japan. Company sees lot of potential in China,
Mexico and India.

The case raises multiple questions about the future of Starbucks: whether it should
continue expanding at the same break neck speed as it was doing, whether it should
make amends in its expansion strategy, and whether it should ponder upon his
uniform pricing policy to gain market share in emerging markets where cost is the
most important deciding factor in consumer behaviour. These questions are also
having relevance in the context of Starbucks India strategy and how it can use it past
learning and tweak it to use in India.












2014-16 Anandkumar Desai Starbucks Case Analysis
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History

A very first cafe coffee experience that Howard Schultz, Strabucks CEO, had in
Milan lead to creation of global coffee giant. Experience and ambience were central to
the Starbucks strategy. From first espresso bar in 1984 to today, Starbucks has come a
long way. It was Howard Schultz, its founder, whose dream was to take the concept of
the Milan espresso bar to every corner of every city block in the world.

Starting with Japan in 1995, the company had blazed through several key markets in
Asia and Europe. Now, it has shifted its focus from developed countries to developing
regions. Starbucks expansion drive also showed that differences in consumer
preferences across countries were dramatic.

Learning from Starbucks Global Expansion Strategy

- Starbucks business model illustrated us the critical features of a successful global
expansion strategy in commodity related product markets. Here in this case coffee
which is second most widely traded community.

- It also highlighted the best practices to be followed in market selection, choice of
partners, mode of operation with joint ventures, managing partnerships and in
globalization of services.

- Starbucks showed a successful strategy about how to tackle challenges faced
while entering developing markets and how to resolve them using differentiation
strategies.

Question to Ponder Upon by Starbucks

- Whether Starbucks should continue expanding at the same break neck speed as it
was doing,

- Whether Starbucks should make amends in its expansion strategy

2014-16 Anandkumar Desai Starbucks Case Analysis
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- Whether Starbucks should ponder upon his uniform pricing policy to gain market
share in emerging markets where cost is the most important deciding factor in
consumer behaviour.

Indian Coffee Market (Ready-to-drink) Analysis

Ready-to-drink (RTD) tea and coffee market in India has picked up a great business in
the last 5 years in India. According to market analysis report, the market in India is
expected to grow to a whopping Rs 2,250 Crore by 2017- thanks to the cafe culture
among urban youth.
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Domestic market is dominated by outlets like Cafe Coffee Day, Baristas, Costa
Coffee, Coffee World, Lavasa, Coffee Bean & Tea Leaf.

By cloaking average annual growth of around 40 %, six organized cafe chains had
added more than 1,200 cafes across India. It made the caf segment one of the fastest
growing organized retail segment.

Major Competitors:
1) Cafe Coffee Day
- Indias largest organized cafe chain
- First mover advantage
- Available at prime location with lower cost/caf
- 1319 Outlet as of Aug, 2013
- Target of 2000 outlet by 2014

2) Barista Lavazza
- Indias second largest organized caf chain
- 180 Outlets

3) Costa Coffee
- Global competitor of Starbucks
- Second largest cafe chain in the world behind Starbucks.

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4) Others
- Gloria Jeans Coffees and Coffee Bean & Tea Leaf , etc
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Indian Consumer Insights
- India has more than 50% of its population below the age of 25
- 36.3% population between age of 20-44
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- Higher Coffee Consumption than China which market Starbucks entered first
-























______
1. http://zeenews.india.com/business/slideshow/the-business-of-coffee-chains-in-india_104.html
2. http://censusindia.gov.in/Census_And_You/age_structure_and_marital_status.aspx
2014-16 Anandkumar Desai Starbucks Case Analysis

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SWOT Analysis
Strengths
- Global Market Leader
- In-Store Experiences
- Brand Identity


Weakness
- Uniform Pricing Policy
- Lack of Indian Market Experience

Opportunity
- Largest block of young popu
- Lack of Premium caf brand among existing players.
- Benefits of Demographic Divide

Threat
- Established Caf brands in India
Market in India is evolved over last decade. Relatively well-capitalized Indian
coffee chains that had already established roughly 2500 cafs in major cities
will be tough competitors.


Brand Positioning

By using their expertise of offering premium coffee and caf experience, Starbucks
should concentrate on communicating about its premium beverage offerings to the
customers and maintain its unique selling point as Premium Coffee Experience

It will be the differentiating factor in crowded ready-to-drink coffee market of India.




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Important Take away in context of Indian market

1. Just like Japan, Much of Asia had a very strong tea culture that had been nurtured
over centuries. Same also goes for India. In last some years, Indians had
developed an inclination towards coffee specially people below 45 age group. As
we can see from market analysis, in last 10 years market has evolved significantly.
Initial market entrants have helped in developing this market in terms of customer
segment development, building skilled workforce with domain expertise and
establishing policy framework.

While entering Japan Starbucks had a Joint Venture with Sazaby, which was
running a caf chain in Japan. It helped Starbucks to establish and grow rapidly in
Japanese market. It can also follow same strategy in India also. He can form a
joint venture with an existing coffee chain group in India.

Barista Lavazza could be a potential ally. As Lavazza, the parent company which
owns Indian subsidiary Barista Lavazza, is looking for Joint venture or exit route
from Indian market.
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With 180 outlets in India, it will be a perfect synergy for both.

Assumption: If Lavazza wants to exit India, he might be ready to sell out his brand
and other business infrastructure to Starbucks. Starbucks will also benefit from
this deal as it will getting prime commercial properties and other backend
infrastructure at right valuation.

2. Starbucks could also go for some Indian global conglomerate with which they can
form a new joint venture and begin from scratch. It had followed this model while
entering in Australia. Lot of Indian companies such as Reliance Industries, Aditya
Birla Group and Tata Group can satisfy Starbucks criteria of financial solvency,
knowledge of local market conditions, prior retail experience, and creative ability.
_________
5. http://economictimes.indiatimes.com/industry/services/retail/indias-oldest-coffee-chain-barista-
in-buyout-talks-with-its-first-ceo-ravi-deols-ihc/articleshow/31859367.cms
2014-16 Anandkumar Desai Starbucks Case Analysis

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3. Uniform Prize across global operation will not help in capturing more market share
in India. Starbucks should decide it on how it is positioning its brand in Indian
market.









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I Key Assumptions

As per the last mail from LNDC at 3:53 PM 02/07/2014, we have to do
assessment of scope for Starbucks in India. To asses and give relevant
suggestion, we need market data related with Ready-to-drink segment. For that
we had used various sources and due references were acknowledged.
To recommend possible Starbucks strategies used for global expansion in
Indian context, we will be using relevant business information.