Starbucks Entry Strategy in India

Presented by : Team STAR

Agenda
The Starbucks Story The India Story Can Their Marriage Work? The Proposal Story

The Starbucks Story

Starbucks History
1971
Starbucks was born in Seattle civilian traditional market

1996
Entered 32 global markets, at a rate of 3-4 shops daily

1998
Entered great China market by Joint Venture

Future

40,000 outlets!!!!!!

Starbucks History

Starbucks Success
http://www.youtube.com/user/starbucks?ble nd=1&ob=4#p/u/0/KEodK38cmvE

Starbucks Success
Starbucks Culture: Product & Service 5 senses: taste-smell-visual-audition-touch Brand: position-identity-word of mouth
Management Diversified entry modes Employee training

Starbucks Success
We arent in the coffee business, serving people. We are in the people business, serving coffee --- Howard Schultz (Serwer, 2004)

You & Starbucks Its bigger than coffee !

The India Story

India - The Re-Emerging Economy

GDP $ 1.73 trillion US dollars Estimated growth of 7.5% YoY FDI $ 197,935 million US dollars, from April 2000 to April 2011 Political Situation Relatively stable congress has been in power consecutively for 2 sessions Corruption level is high, but measures are being taken to make the system as transparent as possible Employability Good command of English Flexible about working hours Good grasping power

Indian Consumer Market

The Indian Consumer

Characteristics
Indians are touch and feel consumers They get lost in super markets Highly dependent on word of mouth Love celebrity endorsement

Needs
They need assistance and importance They need to be looked after Product pricing and quality Indian consumers need freebies

Western Influence - Experience America/Europe

Urban middle and upper class Indian consumer has a positive attitude towards western trends. The Indian consumer has become much more open-minded and experimental Exponential growth of western trend reaching the Indian consumer by way of the Media and Indians working abroad

Coffee chains growing in India

Caf Market Over the Years
Total 1500 units, 1000 have opened in last 5 Years Coffee Consumption: 85gm Per Capita 3rd largest Coffee Bean Producer of the World

Markets Estimated Potential

Revenues: $800-900 USD by 2015 Caf : 5000 by 2015 Consumption: Compounded Annual Rate of 25%

Major Players
Caf Coffee Day Barista Lavazza Costa Coffee

Can Their Marriage Work?

CAGE Analysis - I
Cultural Distance English is widely spoken in both the countries. Administrative Distance India and the U.S have close political, economic and military relations.

Improving ethnic ties between India and India is the worlds largest democracy the U.S. Asian Indians constitute 1% of and has a politically stable environment. the U.S population. Similar to the U.S, India is a secular country with high religious tolerance. Different social norms in the two countries, but this divide is closing fast. India is a member of WTO and has an open policy for foreign investment in retail industry. India has a strong legal system, which makes it a safe business destination.

CAGE Analysis - II
Geographic Distance Economic Distance The two countries are about 7500 miles India is the fastest growing consumer apart and dont share a common market in the world. border. Excellent transport connectivity between India and the U.S . India has a long coastline and has good shipping connectivity. Existing internet and telecom connectivity between the two countries. Per capita income has doubled in India since last seven years because of economic growth. Average household disposable income is expected to grow by 5.3% each year. The U.S is one of Indias largest trading partner and is also the largest foreign investor in India.

The Proposal Story

Entry Strategy
Pressures for Global Integration

HIGH

Global Strategy

Transnational Strategy

LOW

Home Replication
LOW

Multidomestic Strategy
HIGH

Pressures for Local Responsiveness and Flexibility

Potential Mode of Entry

Mode of entry Licensing Franchising Joint Venture Venture Advantages Lower cost and risk Lower cost and risk Fast growth Benefit from local partner from local partner Share cost and risk and risk Political considerations Political considerations Disadvantages No tight control Risk for losing know-how Quality control Hard monitoring Loss control of technology technology No tight control of partner control of partner Conflicts and battles and battles Full cost and risk Culture problems

Wholly -owned Technology control subsidiaries Tight overall control 100% share of profits Location and experience Curve economy

Mode of Entry in Other Markets

Starbuck's previous choice for mode of entry
8% 4%

Joint Venture

License
29% 59% Wholly Owned Majority Owned

Choice of the partner

Offer - 19 Coffee Estates - 6 Tea Estates - Coffee Curing - Instant Coffee

Values - Integrity - Understanding - Excellence - Unity - Responsibility Mission - Enhance value to stakeholders - Improving the quality of life of our people.

Vision - Preferred choice in the premium markets - Customer centricity, quality, sustainability and an engaged workforce - Respected organization

Terms of the JV
Stakes
51% for Starbucks / 49% for Tata Coffee

Lock-in period
5 years

Buy-out strategy
If the 51% rule disappear, then they can reconsider the stakes proportion

Organization within Starbucks International Division Structure

Our Competitors

Caf Coffee Day

Pioneers of Caf culture in India Retail division of Indias largest coffee conglomerate Coffee is priced above 50 INR (~US$1) onwards Awarded Indias most admired F&B Retailer last year Operates 1,134 outlets across India and plans to add another 815 outlets by 2014

Barista Lavazza
Owned by Lavazza, Italys largest Coffee company Targets the top 20% of the consumers Plans to open about 300 outlets by 2012 First coffee retailer in India to start a loyalty program Adjusted as the Most Admired Retail Leisure Chain in 2011

Costa Coffee
First international coffee chain in India Owned by Costa Coffee, the second largest coffee chain in the world Adopted the master franchisee model to enter the market Targets only the metropolitan cities ruling out the option of expanding in Tier II and III cities Plans to have 300 outlets in the next four years

CSR in India

Starbucks CSR in India

India is the worlds third largest coffee exporter Raise the coffee farmers to C.A.F.E. and Fair Trade standards Increase volume of export quality coffee in India Starbucks will gain reduction in costs by securing local supply of coffee