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Transcript of 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
2
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
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
4
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
6
Beverage Food Coffee-making
equipment and
other
Whole bean coffees
64.2 % 14.5% 11.8% 9.5
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
11
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:
13
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:
15
Appendix 4:
16