This case study analyzes the growth prospects of Starbucks in the Indian market. It provides background on Starbucks' global expansion strategy, focusing on experience and ambiance. It also discusses the Indian coffee market, major competitors in India, Indian consumer insights, and a SWOT analysis for Starbucks in India. Key takeaways include that India has a strong tea culture but coffee consumption is growing. Starbucks' premium brand positioning could work well. A joint venture with an existing Indian chain like Barista Lavazza may help Starbucks establish itself quickly in India. Uniform pricing may not capture more market share given Indian consumer cost sensitivity.
This case study analyzes the growth prospects of Starbucks in the Indian market. It provides background on Starbucks' global expansion strategy, focusing on experience and ambiance. It also discusses the Indian coffee market, major competitors in India, Indian consumer insights, and a SWOT analysis for Starbucks in India. Key takeaways include that India has a strong tea culture but coffee consumption is growing. Starbucks' premium brand positioning could work well. A joint venture with an existing Indian chain like Barista Lavazza may help Starbucks establish itself quickly in India. Uniform pricing may not capture more market share given Indian consumer cost sensitivity.
This case study analyzes the growth prospects of Starbucks in the Indian market. It provides background on Starbucks' global expansion strategy, focusing on experience and ambiance. It also discusses the Indian coffee market, major competitors in India, Indian consumer insights, and a SWOT analysis for Starbucks in India. Key takeaways include that India has a strong tea culture but coffee consumption is growing. Starbucks' premium brand positioning could work well. A joint venture with an existing Indian chain like Barista Lavazza may help Starbucks establish itself quickly in India. Uniform pricing may not capture more market share given Indian consumer cost sensitivity.
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 1
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 2
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.
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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
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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. 1
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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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. 5
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.