Business Plan

Starbucks Coffee House

Launch of Starbucks Coffee House in India

Ashish Datta - 08
3/8/2010
 Index

Topic Page Nos

Executive Summary 2
Product Mix 4
Marketing Strategy 6
Sales Strategy 9
Start up Summary 10
SWOT Analysis 14

2
 Executive Summary

Within the past 10 years the coffeehouse has become a familiar feature of
modern life. Every day, a number of Indians stop for an espresso-based
coffee drink. People who would not have dreamed of spending more than 10
Rs for a cup of coffee a few years ago now gladly pay anywhere between 50
Rs to 100 Rs for their cappuccino, mocha latte or vanilla ice blended drink.

The specialty-coffee business is growing at a healthy pace. India has always

been predominantly a tea drinking nation. Coffee had been only moderately
popular in some southern states. However, there has been a sudden change
in this trend with coffee becoming more and more popular in recent times
especially among the youth.

Cafes are increasingly becoming more than places to sip coffee. A lot many
things in life and work happen over a cup these days. India has now become
one of the fastest growing coffee markets in the world. It is taking great
strides on both counts; making its presence in the world market as well as in
the domestic retail arena as more and more Indians prefer the drink.

With India's middle class aspiring to be in sync with global culture, we at ‘

Starbucks Coffee House’ are looking at becoming the number one
destination for coffee by offering a "total experience" which would include
right coffee, food, Wi Fi-enabled environment, jukeboxes and live music.

Mission

Our goal is to be the coffeehouse of choice for the local community, business
workers, tourists who visit the city, and students, by providing a higher
quality experience than any competitor. As a result, we intend to create
coffeehouses that quickly achieve profitability and sustain an attractive rate
of return for our investors.

We also want to make our contribution to the welfare of the local community
by supporting charitable and civic activities. We will support the farmers who
grow our coffee by using Fair Trade, Sustainable Production and
Organic products whenever possible.

Objectives

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 • Make Starbucks the number one destination for coffee in Mumbai.
• Coffee House the number one destination for coffee in India.
• Provide customers the finest quality beverage in the most efficient
time.
• Achieve a 20-30% net profit margin by FY3.
• Be an active and vocal member of the community, and provide
continual re-investment through participation in community activities.
• Create a solid concept in the industry and track performance in order
to begin expanding to other markets within six months.

Keys to Success

• A superior-tasting product backed by a unique quality store.

• A global coffee brand built upon a reputation for fine products and
services.
• A relaxing, upscale interior design.
• Prime site selection with an upscale affluent population, year-round
tourist activity, heavy pedestrian traffic by the site, a dynamic student
population and a concentration of local businesses.
• Ongoing, aggressive marketing.
• Highly trained and friendly staff.
• Multiple revenue streams including gift items, gift baskets and coffee
gift/frequency cards in addition to coffee, pastry, chocolates, tea, juice,
water and soft drinks.
• A dynamic website with online sales capabilities.

Company Ownership and Profile: Starbucks Coffee House is jointly

owned by Starbucks Cooperation and Noida based Jubilant Group.

Starbucks Corporation is an international coffee and coffeehouse chain

based in Seattle, Washington, United States. Starbucks is the largest
coffeehouse company in the world, with 16,635 stores in 49 countries,
including 11,068 in the United States, nearly 1,000 in Canada and more than
800 in Japan. Starbucks sells drip brewed coffee, espresso-based hot drinks,
other hot and cold drinks, coffee beans, salads, hot and cold sandwiches and
paninis, pastry, snacks, and items such as mugs and tumblers. Through the
Starbucks Entertainment division and Hear Music brand, the company also
markets books, music, and film. Many of the company's products are
seasonal or specific to the locality of the store.

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Jubuilant Group has created a strong presence as an integrated
pharmaceuticals industry player and a leading Indian Private Sector player in
Oil & Gas, exploration and production business. Jubilant identified the
increased globalization of Indian economy and its first alignment with
international economic trends, adapted these changes and spread its wings
to the outer world and moved away from being industry oriented to sharing
knowledge. Jubilant Foodworks is the India franchisee for Domino’s, the pizza
chain.

Product Mix

COFFEE & TEAS REFRESHING OTHER EATABLES

ALTERNATIVES
HOT COFFEE SMOOTHIES SANDWICH
Cappucino Guava Cheese
Caffe Mocha Mango Cheese & Chicken
Caffe Latte Grapes Cheese & Paneer
Hot Chocolate MILK BASED Masala
DESERT COFFEE Strawberry ROLLS
Esperano Chickoo Veg Roll
Americano ICED TEA Paneer
Caramel Macchiato Lemon Chicken Masala
Liate Biango Peach PASTAS
COLD COFFEE OTHER DRINKS Tangy Pasta
Coffee Special Kinley Soda Chicken Pasta
Cold Sparkle Kinley Water Deserts
Iceland ICE-CREAM Dark Temptation
House Blend Vanilla Splash Chocolate Mousse
Chocolate Splash Apple Cake
Chocolate Chip Cake

Serving Size = 240ml / 300ml / 340 ml

Merchandise

In addition to its core business Starbucks Coffee House will also sell various
kinds of merchandise through its stores.

• Coffee Mugs
• Coffee Beans
• Coffee Powder

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 • T-shirts
• Music Albums
• Coffee House Vouchers
• Other Accessories like key chains, bracelets etc

Product Sources: Different people have different tastes and Coffee House
acknowledges this fact. To cater to a variety of customer needs Coffee House
sources its coffee beans from around the world, but a major supplier will be
Brazil. Brazil is the world's largest coffee bean producer. Apart from this
Coffee House will also grow the coffee it serves in its cafes. Starbucks will
setup a well-equipped roasting unit catering to the specific requirement of
the consumers. The process will be carried out under the control of
experienced personnel to meet highest quality standards. The most modern
technology available will be used to maintain consistency and roast the
coffee beans to the demanding specifications of the discerning coffee
consumers. The coffee beans will be supplied to all the cafe outlets. The
eatables at Coffee House will be catered by different vendors: example: ice
creams will be catered by Kwality, Milk by Amul and Water by Kinley. The
merchandise will come in via international and local sources.

Process: The order process at Starbucks Coffee House is a flexible delivery

process, where they wait for some time for the customer to pick up the order
but if the customer takes too
long then the order is delivered on his table.

Pricing Strategy: Reports indicate that customers at existing retail coffee shops
are students and professionals between 18 and 35 years old. With the liberalization
of the economy, there are a large number of young Indians with good jobs and
attractive incomes. The average cost of coffee at Barista is nearly 10 times that of a
local restaurant's. The price for a cup of coffee at Café Coffee Day ranges from
Rs.35 to Rs.75. Starbucks has a strong brand image and enjoys economies of
scale which will work to its advantage. The pricing strategy to be adopted
will be that of skimming. The high price tends to attract new competitors into the
market, and the price inevitably falls due to increased supply and intense
competition.

Selection of Location: The management at Starbucks Coffee House has

devoted substantial management time and effort in zeroing in on the cities
where they are now situated. The selection of the cities was based on the
following criteria.

• Sizeable population of executives, students and families in SEC A

category.

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 • High disposable income with people looking for new vistas in leisure
and lifestyle
• oriented concepts;
• High level or organized retail activity;
• Rapid socio- economic development;
• Level of commercial importance (Industrial cities, state capitals etc.)
• Number of educational establishments and opportunities available for
employment.

On the basis of the above criteria, the shortlisted cities were Delhi, Mumbai,
Bangalore, Chennai and Hyderabad. Finally the location selected for its
operations was Mumbai since it is the commercial and entertainment centre of
India. Also a number of foreign delegates frequently visit Mumbai. Starbucks Coffee
House will gradually expand to the other cities.

Competitive Edge: Our competitive edge, compared to the other coffeehouses

in the area includes the following:

• A significantly higher quality, better tasting coffee product.

• A brand known globally for its superior product and customer service.

• An ambiance superior to all other coffeehouses in the area with upscale "Cote
d'Azur" look. It features stained glass decorations, art glasswork,
Mediterranean Riviera style furnishings and outdoor dining.

• The only coffeehouse downtown to provide regular weekend evening

entertainment.

• WI-FI enabled.
• Our Internet website will include sales of whole coffee beans, tea,
chocolates, gift items and gift baskets.

Marketing Strategy

Launch Marketing

The retail coffee industry is a sales-oriented business with historically very

little experience in marketing and advertising. This is likely why little is done.
As yet, the major players have not been taken over by sophisticated
companies like Pepsico, where marketing is viewed as essential to gaining
market share.

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An element of our differentiation from other coffeehouse chains will be our
use of advertising and marketing to gain awareness, build customer traffic
and establish a strong brand image in India as in other countries.

Launch marketing will promote awareness, build immediate traffic and

establish our brand image via several methods:

• Launch Event
• Public relations/publicity
• Direct mail
• Local print and broadcast media
• Design and packaging
• Community involvement
• Sampling
• Superior location
• Desirable store ambiance

Launch Event - An event will be held for the launch of the product. This
event will be attended by celebrities, business persons, sports person,
politicians etc. The purpose of this event is to gain media coverage and
announce the entry of Starbucks, the world’s best selling coffee, in India.
This event will help the company to get wide spread awareness in the
country.

Public Relations

The goal of the PR/publicity is to achieve local market awareness and

establish the brand on a wider scale to set the stage for future expansion.
Local market awareness is vital because more than 50% of sales will come
from people living within a 5-mile radius of the store.

National awareness will help drive the expansion by generating opportunities

created by the media buzz and familiarizing people with our brand name. It
will help set the stage for future brand identification.

Local/Regional/National Print Media

• BusinessWeek
• The Financial Express
• Times of India
• Hindustan Times
• Daily News and Analysis
• Femina
• Men’s Health Magazine
• Forbes

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Direct Mail

• Ongoing direct mail generated from our website data

• Visa or MasterCard local direct mail program

Website

Our website will be fully e-commerce functional and could easily become a
significant revenue source.

We will eventually sell the following items online:

• Whole coffee beans, tea

• Gift baskets
• Gift items
• Furnishings

Market Segmentation

Starbuck Coffee Houses’ customer base is comprised of five target groups.

1. Affluent local residents

2. Tourists
3. Local business people
4. Students

These groups are all potentially strong customer segments. The benefit
of this mix of customers is that it helps maintain consistent business
throughout the year. Also, by appealing to several market segments,
Starbucks Coffee House does not become overly dependent on any single
consumer group. For example, several local coffeehouses with primarily
student customers do poorly during the non-school months. Starbucks Coffee
House will avoid these peaks and valleys in business with a mix of
customers.

• Affluent locals- Within five miles of Starbucks Coffee House are

200,000 of the most affluent people in Mumbai. Homes in
adjacent areas sell for around 3-5 cr INR. Key influencers, trendsetters,
artists, writers and celebrities have homes in Bandra.
• Tourists- More than 5,000,000 tourists visit Mumbai every year. Most
tourists will stop by at the Starbucks Coffee House location as it is
familiar to them.
• Local business people – Many business people live in and around
Bandra.

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 • Students- Bandra is home to a number of colleges namely National
College, MET, Rizvi etc including many prestigious private schools and
academies.

Portable Kiosk

Within 6 to 8 months we will create a portable kiosk to sell and market our
products at special events and community activities. Mumbai has many
events every year. It will be an excellent way to publicize Starbucks coffee.

The kiosk will be highly visible and fun. It will also potentially be very
profitable, although it's hard to determine how profitable with any accuracy
until the local response is measured.

Starbucks cards

With a Starbucks card you can have coffee at any of the Starbucks
location in the world!

We will promote our program of gift cards and customer frequency cards to
drive business and stimulate cash flow. Industry records indicate that 25% -
40% of all gift card amounts go unused. Also, gift cards have proven to be a
popular holiday item accounting for more than 5% of total sales during
December.

Pre-paid and re-loadable cards have also proven to be very popular with the
major chain coffeehouses, again accounting for a significant percentage of
sales. These cards promote customer loyalty as well.

Frequency cards rewarding the repeat customer with a free drink after a
specified number of visits are popular and proven methods to forge customer
loyalty.

Discount cards are used to build goodwill among specific groups such as the
Chamber of Commerce members and college students.

By tying in with our computerized sales and inventory system we will be able
to track usage and allocate the expense to marketing.

Sales Strategy

Our sales strategy includes:

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 • Staff salaries that are 10% above the industry average in order to
attract the best people
• Hiring for attitude so that we always have a friendly, enthusiastic staff
to make customers feel welcome and appreciated; constant staff
training to assure the best quality possible
• State-of-the-art sales/inventory system to (A) reduce customer waiting
time, and (B) create efficient product ordering
• Create a mobile kiosk to take Starbucks coffee into the community at
special events, farmer's markets, art shows, etc.
• Sell coffee, gift baskets and glass artwork on our website
• Establish coffee service at local businesses
• Sell gift cards, frequency cards, pre-paid cards, and offer discounts to
key groups
• Create an ongoing sampling program
• Conduct a consistent, aggressive marketing program
• Be an active member of the community; be visible at charitable
functions
• Solicit customer feedback to constantly improve and streamline our
operation

Start up Summary

The Start-up requirements, below, include of short and long-term assets.

Long term assets: 26703500 INR

Undercounter Refrigerators 1,25,000

Service/Prep Counter 50,000
Ice Machine 13,500
Large Refrigerator 30,000
Milk Coolers (3) 30,000
Cash register (2) 6,00,000

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Espresso Machine 4,55,000
Fetco Coffee Brewer 1,00,000
Counters/Condiment bar/shelving 3,00,000
Land 25000000

Short-term assets: 750000 INR

Tables, Chairs, Furnishings 6,00,000

Persian Carpet 50,000
Lighting Fixtures 1,00,000

Other Start up Expenses: 8235000 INR

CONSTRUCTION
Site Design/Architectural plan 10,00,000
Labor 7,00,000
Electrical Lighting/Others 5,00,000
Flooring 2,00,000
Plumbing 4,50,000
Painting 11,25,000
City Licenses 3,00,000
LEGAL
Accounting 1,00,000
Legal 1,50,000
Insurance 12,00,000
MARKETING
Advertising 10,00,000
Brochures 20,000
Menu boards 20,000
OFFICE
Equipment 20,000
Computer, Scanner, Printer 1,00,000
Telephones, Fax 15,000
Stationery 15,000
Display items 10,000
APPLIANCES
Preparation equipment 50,000
Dishwashers 10,00,000
Microwave 20,000
Storage racks 30,000

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Music system 20,000
Food display case 1,00,000
Sinks 40,000
crockery 20,000
Menu board 30,000

Apart from these expenses there will be other expenses also but they can be
adjusted as the cost of each item above has been taken above the prevailing
market rate. The total investment comes to approximately 3.6 cr INR largely
because of the exorbitant cost of land. However this location is highly
profitable and hence the company has decided to go ahead with the plan.

Sales Forecast

Conservatively, we are forecasting an average of 300 customers per day

during the first year with an average guest check expenditure for all items of
180 INR. This figure was arrived at by surveying the customer traffic at the
nearest competing coffeehouses ( Café Coffee Day which has footfalls
of 600+ customers per day and an average customer expenditure of 150
INR). We have estimated our customer expenditure to be slightly higher due
to the premium price we will charge for some of our items.

We expect growth to occur across all categories at about 10% annually as

the business becomes more established and well-known, reaching 400+
customers per day within a year and more than 500+ within three years.
These estimates are likely conservative. In addition to footfalls there are also
online sales which will add to the average expenditure.

1st Year

Average Footfalls = 300/ day

Total Revenue = Average Footfalls * Number of Days * Average Expenditure

=300 * 365 * 180

= 19710000 INR ( approx 2 cr)

2nd Year

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Average Footfalls = 400/day

Average Expenditure = 165

Total Revenue = 400 * 365 * 180

= 26280000 INR (approx 2.7 cr)

3rd Year

Average Footfalls = 500/day

Average Expenditure = 160

Total Revenue = 500*365*180

= 32850000 INR (approx 3.3 cr)

As you can see from the above calculations the approach used is very
conservative. Actual sales can vary greatly.

The break even will be achieved in the second year itself.

Web Plan Summary

We plan to expand the functionality of our website so that it becomes a

substantial revenue stream for Starbucks Coffee House.

Although we've projected modest sales because of the difficulty in predicting

online sales activity, we believe the potential exists for Internet sales to
become a substantial percentage of our revenue.

We will sell a number of items at our website, including:

• Whole beans
• Tea
• Cocoa mixes
• Chocolates

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 • Gift baskets
• Gift items

Special downloadable offers good at the retail stores will be posted from time
to time on the website.

Customers will be able to reload their Starbucks Card online so they can use
it in lieu of cash or credit when they make purchases.

The website will also function as an online "brochure" as well as enable

visitors to "see" our retail store, get directions and maps, see our menu and
find out about special events.

Website Marketing Strategy

All communications materials will include the Starbucks Coffee House’s

website address. For the media, an online press kit will be available which
will include downloadable photos, PR releases, stories of interest,
testimonials, bios of key management and reproduceable logos.

Special PR will promote our gift basket business and the sale of our upscale
design glass artworks.

Eventually, when more stores are opened, the website will function as a
means of internal communication through a password-protected area. Here,
company rules, health department regulations, news, chat, "live" internal
announcements and virtual meetings will take place.

The maintenance of the site will be done by contracted outside consultants.

As the website is expanded and improved, future development may include
items such as tracking, newsletters, down-loadable menus, a coffee "chat"
room and user Web pages. A technical resource may need to be contracted
to build the trackable download and the newsletter capabilities.

The Future

The number of locations could easily reach 20 - 25 within five years. While
the financials in this Business Plan only address the Bandra location, we can
extrapolate from the store's performance to get a general idea of the chain's
projected profitability.

Starbucks Coffee House's start-up, implementation and operation in Bandra

will be the "blueprint" for future efficient expansion. The remaining locations
will incorporate the knowledge we gain with our first store.

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SWOT Analysis

1. Strengths

a. Established brand/logo.

b. Largest coffee house company in the world.

c. Economies of scale.

d. High visibility locations to attract customers.

e. Good relationships with suppliers.

f. Strong financial condition.

g. Globalized.

h. Industry market leader.

2. Weaknesses

a. Presence of Barista and Café Coffee Day.

b. Product Pricing expensive.

c. Majority customers in age group of 18-35.

d. Too much focus on expansion.

3. Opportunities

a. Technological Advances.

b. New Products.

c. Distribution agreements.

d. Brand extension.

e. Continued domestic expansion.

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4. Threats

a. Competition.

b. Coffee price volatility in developing countries.

c. 49 per cent cap on foreign direct investment (FDI) in single-brand

retail.

d. Negative publicity from poorly treated farmers in supplying countries.

e. Cultural and Political Issues.

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