Coffee Wars in India - Café Coffee Day Takes on the Global brands

Marketing Management 2 - Project Submission

Coffee Wars in India - Café Coffee Day Takes on the Global brands

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Coffee Wars in India - Café Coffee Day Takes on the Global brands

Problem Analysis

With the arrival of global coffee chain Starbucks in India, market leader Cafe Coffee Day

(CCD) stands to lose out on some of its higher end customers. This has forced the senior

management, CCD Founder and Chairman, V.G. Siddhartha and Director, Venu Madhav of

CCD to contemplate how CCD can retain its market leadership position in India and

ward off any threat to their market share by Starbucks.

CCD, the first mover in coffee retail and coffee chain brand in India, is currently leading with

60% market share. It operates Cafes (800-1000 sq ft), Lounges (1500-2000 sq ft), Squares

(2500+ sq ft) and Express outlets offering variation of coffee, snack, and meal options at a

comparatively affordable price, in Tier-1 & Tier-2 cities in India. They currently have close to

1500 stores and 1000 takeaway, and have plans to open another 400 stores in next 30 months.

Target segment for CCD is middle and upper middle class, aged 15 to 30. Indian coffee

market has huge potential of growing; owing which CCD has further expansion plans in

place. There already exists a small presence of foreign Coffee chain stores in India, such as

Costa Coffee (UK), Lavazza (Italy), Gloria Jean’s (Australia) and Coffee Bean and Tea Leaf

(Southern California, US), but these players have struggled to make significant in-roads in

the Indian market due to their small scale of economy and the disadvantage of entering India

at the peak of reality prices. Starbucks, though, is in a different league due to its

international image and joint venture with Tata Group. Starbucks has opened 11 premium

coffee stores in 6 months, split between Mumbai and Delhi and plans to have 300 stores in

next 3 year. Currently Starbucks and CCD are locking horns only for the Premium segment

but due to Tata group’s access to premium realty space and own coffee plantation, there

are strong chances of Starbucks targeting regular coffee chain segment as well.

Decision Analysis

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Coffee Wars in India - Café Coffee Day Takes on the Global brands

CCD must consider Starbucks a strong threat to their market leadership and adopt an

aggressive approach towards Global expansion and Customer Relations. It must decide on a

short term, medium term and long term strategy to tackle Starbucks and creating an

international image for itself.

CCD could also choose to go for ‘a slight course correction’ approach by concentrating solely

on improving their processes and offerings and responding to what Starbucks bring on to the

‘table’.

In order to justify the need for an ‘aggressive’ approach, it is important to look into following

parameters:

Growth Potential of Coffee chain market in India: Owing to its global brand recognition,

Starbucks has attracted enormous media coverage and long queues of customers at its launch.

It comes with an international image which is very popular in Indian youth culture (current

target segment of CCD).

Also, CCD‘s first mover advantage in terms of access to premium real estate at relatively

cheaper price and, successfully working backward integrated model could be nullified by

Starbucks’ association with Tata Group. Tata Group owns coffee plantation and premium

retail space, similar to what CCD owns.

India is a growing retail market and Indian Coffee retail & Coffee chains market is no

exception. Since both CCD and Starbucks have means, it gives them an equal opportunity to

increase their share of the bigger pie. So it comes down to the question that which, out of the

two, can capitalise more on this opportunity.

Access to premium realty space & raw material: Both CCD and Starbucks (in turn Tata

Group) own premium realty space as well as Coffee plantation and hence capable of fully

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Coffee Wars in India - Café Coffee Day Takes on the Global brands

backward integrated operations model. Again, this gives both CCD and Starbucks an equal

opportunity and a stand apart from other foreign and local coffee chain retailers.

CCD’s Global aspirations: CCD has long term ambition to be recognised as an international

plan. They aspire to be number 2 or 3 in world in next 20 years.

Starbucks success in China: Starbucks comes to India on the back of its success in

establishing itself as a big player in China. Many were sceptical when Starbucks entered

China but it partnered with local firms, as it associated with Tata Group in India, in order to

obtain local expertise about consumer tastes in various regions. It was also able to educate

Chinese consumers about Coffee and influence the culture of Chinese people working at

coffee bar. This indicates that Starbucks has the expertise and vision of replicating its

successful Chinese policy in India.

Quality and Service: CCD’s service and quality is at a decline, as Starbucks has been able to

poach 15-17% of the CCD staff (though no one from CCD management yet) for higher

salaries. On the other hand, Starbucks, even though only at 11 stores currently, has shown its

focus on service and quality already.

Action Plan

CCD should continue specializing in its particular strengths and resist temptations to mimic

Starbucks’ operations.

Specifically, in the short run (1 -2 years) CCD should:

 Make internal improvements to training centres to increase employees’ customer service

skills,
 Build loyalty and commitment among its employees by introducing some employee

benefit programs like providing health insurance to help control attrition rates,

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Coffee Wars in India - Café Coffee Day Takes on the Global brands

 Concentrate on maintaining an updated menu and store appearances with consumer

preferences, and
 Look to expand new cafes in the urban areas of metropolitan cities.

CCDs market leadership position is owed to customer loyalty so in the medium run (2-5

years) CCD must establish and retain customer loyalty by opening more lounges and squares

(increase from existing 3% to 20% of stores portfolio) to maintain customers that are aging

from teens and 20s into 30s and 40s. CCD should also consider increasing their penetration

further in Tier-2 and Tier-3 cities as they are untapped by Starbucks and other foreign brands

as yet - Open 700 more stores in next 30 months, including 300 in tier 3 cities. It should also

increase visibility of the CCD brand and hence increase advertising budget from $3m to $5m.

In the long run (5-15 years), it must expand internationally in existing and new foreign

locations, and establish itself as a Global brand. Examples of China and India, which were

predominantly tea drinking countries, turning out to be big Coffee chain market suggests that

complete Asian market is yet to be tapped. So they should first target expanding in South and

South-east Asia in next 5-8 years (300 new stores) and then expand in Europe to strengthen

their brand.

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