Starbucks in India

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Project 3 The growth strategy of the company 1

Transcript of Starbucks in India

Page 1: Starbucks in India

Project 3 The growth strategy of the company

Starbucks in India

“We aren’t in the coffee business, serving people,

We are in the people business, serving coffee"

------------- Howard Schultz CEO

MC1y2, 2nd Semester AP Degree Marketing Management 2010

Counsellor: Gitte Ovesen Beierholm

Group members: Cristina Alexandra Grindei, Alisha Khatri, Yunjing Lu,

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List of Contents

1. Introduction……………………………………………………………………………………………………..…. 3

2. Problem formulation………………………………………………………………………………………..….3

3. Methodology and Limitation………………………………………………………………………………..3

4. Macro and micro Analysis………………………………………………………………………………..…..4

- 4.1 Country profile……………………………..………………………………………………………………....4

- 4.2Company profile…………………………………………………………………………………………….....5

- 4.3 Final Decision…………………………………………………………………………………………………..7

5. Recommendatio

n……………………………………………………………………………………………………….….7

- 5.1 Entry mode………………………………….…………………………………………………………..……….7

- 5.2 Segmentation and target market……………………………………………………………….……….9

- 5.3 Suggested position and location………………………………………………………………………..10

- 5.4Suggested Value chain…………………………………………………………………………………..…..11

6. Conclusion………………………………………………………………………………………………………..….12

7. Reference……………………………………………………………………………………………………….…….13

8. Appendix ………………………………………………………………………………………………….…….……14

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1. Introduction:

Starbucks Corporation has been the most successful coffee chain in the past years. The

company has focused on creating a network of stores in US while opening new locations

around the world.

Nowadays, the recession is effecting the economy of the entire world badly, no exception for

the coffee market. Starbucks, as the coffee chain giant, is seeking for a new market in order to

keep the leader position in the industry. Meanwhile, at the other side of the world, in India, a

country known for the tea consumption, coffee is becoming more and more popular.

According to Euromonitor International, in 2009, the total volume of coffee in the Indian

market was 44,209.8 tones, the fifth largest coffee consumption country in the world. So is

India a possible future market for Starbucks?

2. Problem formulation:

Starbucks is considering going to India. How can Starbucks enter the Indian market?

Is India an attractive market for Starbucks?

What could be the best entry mode for Starbucks in India?

3. Limitation and Methodology:

The limitations of the project are the page limit and the restriction in contacting the company.

Regarding the company data, the limitation is in focusing on the entire product range of

Starbucks, so as a consequence we have choose to focus only on the two main products: coffee

and tea.

We have applied secondary data sources/quantitative data sources. The research method was

the desk research. The theories used in the project are: the micro and macro analysis, the

SWOT analysis, the entry mode analysis, segmentation and positioning, target market and

value chain. We have used the theories to create an overview of the subject field and apply it

for solving the project problem formulation.3

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4. Macro and micro analysis

4.1 Country profile

Economy

In 1991, the Indian economy experienced a dramatically growth after the government

liberalized number of industries open to foreign investment, loosened approval requirements

and allowed majority foreign equity ownership1. The economy had a growth rate of 5-7% in

average since 1991 till 2007, but an industrial slowdown early in 2008, followed by the global

financial crisis, led annual GDP growth to slow to 6.1% in 2009 (Appendix 1), but it is still

second highest growth in the world among major economies.

Income

The income per capita of Indians increased by 14.2% in 2006-20072. Per capita income at current

prices was estimated at Rs29,642 in 2006-20073, compared to Rs25,9564 for the previous year. As a

result of the increase in total income, the mean annual disposable income also increased by almost

150% from 1995-2007.

Government and laws

The introduction of VAT in India has been a key development. In April 2005, it was the vat

was implemented in at a standard rate of 12.5%5. This new system Businesses will

consequently have to raise prices to compensate for higher production costs and this will

affect consumer spending.

Competitive landscape

1 Fact book CIA 2 Data monitor/ Database/ bon online3 Euromonitor/ Database/ bon online4 Euromonitor/ Datebase/ bon online5 Euromonitor/ Database / bon online

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International companies such as Nestle India and Hindustan Unilever are the leaders in the coffee industry in India. Domestic players such as Tata Coffee or Barista Caffee are active in fresh ground coffee. No other domestic player was able to become established as an <Indian brand with their presence restricted to the southern states in India.

Geographics and Demographics

India is the second most populated country in the world with a population of about 1.03

billion people.

The age structure of India looks like this:

0-14 years: 30.5% (male 187,197,389/female 165,285,592)

15-64 years: 64.3% (male 384,131,994/female 359,795,835)

65 years and over: 5.2% (male 28,816,115/female 31,670,841) (2009 est.)

“Geographically speaking, India is located in South Asia in the Eastern Hemisphere. There are

25 states and New Delhi is the capital. The national language is Hindi and about 83% of the

population speaks it. Other than that, India has 18 official languages primarily associated with

the different states”6.

4.2 Company profile

Starbucks was established in 1971, Inspired by coffee bars in Milan, Italy, Howard Schultz7

wanted to introduce the coffee bar culture to America. Starbucks mission statement is to

“establish Starbucks as the premier purveyor of the finest coffee in the world while

maintaining our uncompromising principles while we grow”.

Expansion

Starbucks has grown at incredible rate since the opening of its first coffee bar. Now Starbucks

has more than 16,000 retail outlets in more than 50 countries. Starbucks owns more than

8,500 of its outlets, while licensees and franchisees operate more than 6,500 units worldwide,

primarily in shopping centers and airports. Starbucks specializes in quality coffee and other

related beverages. “They sell quality coffee, Italian-style espresso beverages, cold blended

6 Wikipedia 7 The CEO of Starbucks

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beverages and complementary food items, a selection of premium teas and coffee related

accessories and equipment”8

Swot analysis

The Starbucks brand gives the company a distinct competitive advantage over lesser known

coffee brands. However, Starbucks’s business is highly sensitive to changes in customer

traffic, and the current economic downturn would put downward pressure on the company’s

margins. Therefore we need to analyze the company’s performance, both internal and

external. An excellent tool for that is SWOT. (Appendix 2)

Current financial situation

The general financial performance for Starbucks in 2008 was declining from previous years.

The company recorded revenues of $10,383 million.

Although the sale was increased in the last 4 years, the net profit income has decreased with 53.1 percent over 20079.

Year 2008 2007 2006 2005Sales 10,383,000 9,411,497 7,786,942 6,369,300Net Income 315,500 672,638 564,259 494,467

Starbucks operates in three segments: the US, international and global consumer products

group. However, the company reported its revenues by product type in 2008. The Four

Categories are:

During the year 2008, the beverage division recorded revenues of $6,663.3 million, an

increase of 10.5% over 2007. The food division recorded revenues of $1,511.7 million in

8 Business description of Starbucks: Datamonitor9 Starbucks annual report/ starbucks.com

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Beverage Food Coffee-making

equipment and

other

Whole bean coffees

64.2 % 14.5% 11.8% 9.5

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2008, an increase of 13.4% over 2007. The coffee-making equipment and other division

recorded revenues of $1,220.2 million in 2008 an increase of 7.4% over 200710. The whole

bean coffees division recorded revenues of $987.8 million in 2008, an increase of 8.2% over

2007.

Global Responsibility

Starbucks is committed to being a deeply responsible company in the communities where it

does business around the world. The Company’s focus is on ethically sourcing high-quality

coffee, reducing its environmental impacts and contributing positively to communities.

Starbucks Global Responsibility strategy and commitments are integral to the Company’s

overall business strategy. As a result, Starbucks believes it delivers benefits to the Company

and its stakeholders, including employees, business partners, customers, suppliers,

shareholders, community members and others.

4.3 Final Decision

Considering India a very attractive and growing market and the analysis of the country and

company profile, we have decided that Starbucks should enter the Indian market. We will

analyze furthermore the strategies Starbucks should apply in order to enter the Indian

market.

5. Recommendation

5.1 Entry mode

Starbucks’ international strategy adapts to different markets to satisfy needs and

requirements from every market, respecting its cultures and traditions. In order to enter

Indian market, we are going to use the Root entry mode (Appendix 4). The model is divided in

four groups: Internal, external factors, desired mode characteristics and transaction- specific

behavior. Under the four groups there are 16 factors. We have decided to only look at most 10 Data montior/ database

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relevant factors for Starbucks, which are international experience, product differentiation

advantage, intensity of competition and Market potential.

Market potential:

India has become one of the most exciting economies in the world with a huge increase in

foreign investment and consumers who are willing to spend and spend. Due to massive

outsourcing on the part of foreign companies especially from the United States, educated

Indians are now presented with exciting career opportunities, excellent pay, and the

confidence to spend more money. Time magazine reports that these new consumers

command $10.5 billion in cash to burn. There could not be a more suitable time for the

Starbucks to enter the Indian market.

International experience:

Starbucks is operating in more than 16000 locations in over 50 countries. Starbucks

uses three entry modes that are joint venture, licensing and wholly owned

subsidiaries.

Product differentiation advantage:

Starbuck should keep focusing on high-quality, because for our target group, price is not the

most important thing which they might concern, a cup of fantastic coffee and a relaxing

environment will impress them much more than a low-price. Starbucks also invests in

extensive research and development efforts to develop new flavors, blends or even roast

fusions.

Intensity of competition:

India coffee market is a growing market with large potentials, and because of that, it attracts

lot of companies to enter, so the competition in the market is quite intense. The major

competition for Starbucks in India at the moment is the Barista Coffee Co., which is an existing

coffee shop branch in India, but Starbucks is expected to gain its market share for several

reasons. The international popularity of the Starbucks brand will help the company step into

the country.

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Suggestion:

Based on the analysis we made, we suggest Starbucks should apply joint venture. There are

three main reasons. First, Starbucks lacked knowledge of the Indian market, so the company

needs a partner who provides it country specific knowledge. Besides, Starbucks should have a

fast expansion in India after the first test coffee house’s success ,so they need an international

strategy that enabled its internationalization in a short period of time, the wholly-owned

subsidiary strategy was unsuitable. Lastly, the Indian market is growing fast with several

significant competitors ,Starbucks needs an entry mode that allowed higher control in order

to face the competitive situation. Therefore, Starbucks should chose joint venture as entry

mode.

5.2 Segmentation and target group

Profile:

Age: under 16, 16-25, 25-35, 35-45,over 50

Social class: upper, middle, skilled worker, unwaged

Behavioral

Benefits sought: low-cost, low-calories, health-oriented, taste-oriented, environment –

oriented

Purchase frequency: occasionally, loyal, during tour

Psychographic:

Geograohic: urban, country

Target group:

Since Starbucks has a wide product range, which includes hot drinks like coffee, tea, cold

drinks like Frappuccino, coffee beans, hot and cold sandwiches, pastry and snacks, and the

target group varies between different products, for instance, tea is mainly consumed by the

health-focused people while Frappuccino is trying to catch the young people who value the

taste most. However, because of the words limits, we will just focus on Starbucks main

product—coffee.

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The target group in India market is the young both male and female from the ages of 16-35

which come from middle class to upper middle class population. This market is well educated

and gourmet. The geographical position of the target market is the consumers who live or

work in the vicinity of the proposed locations for the Starbucks Coffee shops.

The secondary target markets are the tourists in the areas. Tourists will recognize Starbucks,

as it is a multinational company, as most tourists in India come from the countries of U.S.,

England, Germany, and Japan. This market will also fall in the middle to upper middle class

population and will find the Starbucks India prices relatively cheap.

5.3 Suggested Position and location

Starbucks coffee shops should be located in centre urban, near to center locations, technology

companies, major tourist hot spots, colleges and universities, and shopping centers, where are

near the population centre, so the target group can get Starbucks easily.

Suggest location: New Delhi as the capital city and the centre of economy, culture and polity of

India, would be the first choice for Starbucks to launch. The Starbucks in New Delhi should be

located in Connaught Place, a large commercial shopping area in New Delhi. Most of the call

centers and big companies are also in the Connaught Circle. New Delhi is the nearest big city

to the world famous Taj Mahal, therefore also being the popular place for tourists from all

over the world.

5.4 Suggested value chain

Inbound Logistic: The coffee beans and tea will be bought from local Indian farmers in order

to support the local agricultural economy, save money in transportation and avoid tariffs. But

high-quality should be ensured to maintain Starbucks brand name. These goods will then be

transported to the Starbucks roasting plant located near the New Deli via India vast and

efficient railway system.(see appendix 3) Equipment and other necessary supplies will be

shipped from the United State.

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Operation: Starbucks can use a local partner to help it recruit talented employees, set up supplier

relationships, locate suitable store sites. Starbucks should also hire regional marketing specialist

who will handle the laws and customs for Starbucks.

Outbound logistic: There are 3 ways the Starbucks products can be reached by the customer:

1. The customer can get the fresh and high quality coffee at their retails stores.

2. Starbucks can sells their product in major restaurants, United Airlines and other specialty

accounts that do not fall under the retail business customer.

3. Customers can order from the internet or the mails.

Marketing and sales: Types of available media for marketing purposes are in India are very

similar to those of the United States, which include everything from newspaper advertising to

television ads. The promotion for the store has to be very focused on our target markets.

Billboard advertising on the roads leading to the store locations is a good way to increase

awareness of the locations. Direct mail advertising with promotional coupons will be used to

reach the homes of the target market. Sales brochures offering delivery services will be sent

to the local call centers and big companies.

Service: Starbucks must customize their menu to fit the tastes of the Indians. A new menu will be

formulated after several months of research and development. There are some common tastes

preferences of the Indians known already.

For example, Indians tend to take more cream in their coffee. Also, the skim milk option

will not 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 their beverages. Indians also like spices in their tea and coffee, especially ginger

and black clove. One of India’s favorite fruit flavors in mango, and in fact the mango is

India’s national fruit.

Administration: Starbucks India will be a privately incorporated business with horizontal

organization. Each store may have a manager and three to five employees that will rotate

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shifts depending on the rush during the day. Starbucks believes in an open and friendly work

environment and all employees of Starbucks refer to each other as partners.

6. Conclusion

The main purpose of our project is to find out if Indian market is attractive for starbucks and

how could Starbucks enter it. From the country profile and company profile we made, it

shows that India is a very attractive, potential market for Starbucks, because of the raising

coffee consumption and the growing market. On the other side, Starbucks has plenty

international experience and their current capability is perfectly suitable to expend business

to India....based on relevant theories and analysis tools, we made a marking plan for Starbucks

which includes a target group (age between 16-35) in Indian market, an efficient value chain,

a suitable entry mode (joint venture) and a suggested location (New Delhi) for the first test

coffee house.

7. Reference

http://www.portal.euromonitor.com/Portal/Magazines/Topic.aspx

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www.starbucks.com

www.mdh.diva-portal.org/smash/get/diva2:121498/FULLTEXT01

https://www.cia.gov/library/publications/the-world-factbook/geos/in.html

Global marketing 4th edition by Svend Hollensen

Principle and Practice of Marketing by David Jobber

Logistics & Supply Chain Management: creating value-adding networks by Martin Christopher

8. Appendix

Appendix 1:

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Year 2009 2008 2007

GDP real growth

rate in %

6.5 7.4 9

Year 2009 2008 2007

GDP- per capita

(ppp) in dollars

3.100 2.900 2.800

Source: CIA world fact book

Appendix 2:

SWOT analysis

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Supplier(Indian famer)

Roasting plant(near New Deli)

CostumersStarbuck coffee house in New Deli

Strength:

they have sole ownership of the Narino Supremo beans, which is considered to be one of the highest coffee beans in the world

good reputation of quality(company name..) Largest and best known of coffee house chains Product diversification Established logo, developed brand, copy right, trademarks Company operated retail store, no franchise, quality guaranteed High visibility locations to attract customers Valued and motivated employee, good work environment Good relationships with suppliers Industry market leader Strong financial foundation Big market(Germany is the second largest coffee consumption country, and coffee is the

most popular drink in Germany )

Weakness:

High product price No commercial advertising promotion Lack of internal focus(too much focus on expansion) Self cannibalization Cross functional management

Opportunities:

Expansion into retail operations Develop more healthy product Become more of a socially responsible brand Also sell music CD’s and linked with clubs (e.g. book clubs) etc in German market

Threats:

Intense competition Market saturation Costumer trends toward more healthy ways and away from caffeine Raw material cost rising Recession or downturn in the economy affects consumer spending

Appendix 3:

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Appendix 4:

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