TATA STARBUCKS LIMITED

(STARBUCKS "A TATA ALLIANCE)

C A S E A N A LY S I S
Presented by: Group 3
Khagesh Vasishtha (29NMP37)
Kriti Gaurav (29NMP39)
Nishu Jain (29NMP41)
Pritam Kumari (29NMP42)

Monu Kumar Sangwan (29NMP44)

Mohnish Manchanda (29NMP45)

Flow of Presentation
A. Economic setting of the industry of the firms involved in alliance

B. Business Case for the Alliance

C. Partner Selection
D. Terms of the Transaction
E. Management of the Alliance
F.

Initial Reaction to the Deal

G. Assessment
H. Way Forward

Flow of Presentation
A. Economic setting of the industry of the firms involved in alliance

B. Business Case for the Alliance

C. Partner Selection
D. Terms of the Transaction
E. Management of the Alliance
F.

Initial Reaction to the Deal

G. Assessment
H. Way Forward

Caf Industry Across Globe

The caf industry in the U.S. includes 20,000 stores with combined annual
revenue of about $11 billion.
Major companies includes Starbucks, Dunkin Donuts, Caribou, Coffee Bean and
Tea Leaf, and Diedrich (Gloria Jeans).
The industry is highly concentrated at the top and fragmented at the bottom:
the top 50 companies have over 70% of industry sales.
Coffee is one of the worlds largest commodities. The top green coffee
producing countries are Brazil, Colombia, and Vietnam.
Major products sold by coffee shops include beverages as well as complimentary
food items.
The typical and most committed coffee drinkers are 25 to 45 year old, affluent,
educated adults.
Larger companies also sell coffee beans wholesale to commercial customers,
such as grocery stores and restaurants.

Contd.

6
Kg
85 gm

Economic importance of coffee shop Industry

Coffee/ Tea Beverages Industry It employs several people and generates billions of
dollar in revenue.
Although many of these beverages, including beer, wine, Coffee and tea, have been
around for thousands of years, the industry has developed only over the past few
centuries.

Challenges faced by Industry prior to this JV

Financial crisis in the world economy forcing them to call closures of many stores
around the world.
Dealing with huge base of competitors. Challenge of being able to stand out to
generate customers. Main chains of coffee shop industry such as Barista, CCD,
Brewberrys Caf, Cafe Mocha, The Coffee Bean & Tea Leaf Restaurant and Cafe (CBTL),
Georgia Coffee, Dunkin Donuts, McDonald's, and Costa Coffee.
Coffee shop industry charges high prices.
Major players do not emphasize on distributing their products to supermarket.

Coffee Culture in India prior to this JV

India is warming to coffee house culture, Coffee house have started emerging in the
country
Market grew by 200 stores a year for the past five years, and was worth $190 million by
2010/11.
India had over 1,400 cafes by 2011, and the country has space for up to 2,700 by 2016.

Coffee Market trends in India

India is the 6th largest producer of coffee in the
world.
Coffee production in India: Karnataka, Kerala
and Tamil Nadu contributes to 99% total
coffee production .
Arabica coffee from India is well received in
international market. India is a prominently a
tea drinking nation. Expected growth in Coffee
Consumption is Predominantly in the instant
coffee segment
Majority of sales (80%) coming from take away
due to limited seating option and location. Top
coffee brands in India Nescafe, Tata Coffee,
Bru
Coffee is a staple only in the southern part of
the country Coffee bars have flocked like CCD,
BARISTA etc. Coffee houses started emerging in
various places in the country

The Tata Starbucks Alliance

Tata Starbucks is a 50-50 joint venture. Group may target together 3000 chains in few
years.
The joint venture under the name of TATA Starbucks Limited will now operate in
India under the brand name of Starbucks Coffee A Tata Alliance.
Starbucks will setup shops in Tata group retail outlets and hotels besides sourcing
and roasting coffee beans.
Target market is 16-40, Young people , growing middle class,
TGBL owns one of the largest coffee and tea companies in the world and has the
potential to take Starbucks to new heights!
To tap huge market Starbucks wants to deliver the finest coffee products, offers
handcrafted beverages and a unique experience. The company follows an international
expansion strategy through strategic alliances and increase its profitability due to
declining market and overdependence on US market.
Tatas dependency on commodities lowers and can now diversify into retail.
Easy to open up Starbucks outlets in Numerous Taj hotels all over India.
New line of products that can be outsourced from TGBL.

Future Outlook for Caf Industry in India

India is 2nd fastest in economic growth, increased spending in lifestyle

Caf industry in India is youth dependent. Need to keep pricing low.
low cost operations in India , Exploitation of low labor cost
Need to adapt unconventional strategies to tap the market and present themselves as
value for money brand.
Good brand image and reputation helps easy to penetrate
Coffee shop industry- Years to reach maturity and saturation in India and decades to
decline. 100% FDI is currently allowed in Indias coffee industry through the automatic
route.
Combined with Indias low-labor costs, the constant expansion of the industrys
production base, and the rising market value of what it produces, the countrys export
sector is undoubtedly an attractive one for foreign investment
Huge market growth potential, profits will be limited and retailers are still likely to initially
run at a loss. The retail industry is therefore better suited for firms that are able to enter
the market with a long-term business strategy in mind, at least for the time being.

Flow of Presentation
A. Economic setting of the industry of the firms involved in alliance

B. Business Case for the Alliance

C. Partner Selection
D. Terms of the Transaction
E. Management of the Alliance
F.

Initial Reaction to the Deal

G. Assessment
H. Way Forward

Business Case of the Alliance

Starbucks venture in China turned out to be more successful than its US business.
Plan was to replicate this success in India.
India has a lot of youth population driven by western trends
Success of CCD and Barista was a testament of increasing popularity of coffee in
India
Starbucks found a Cultural and Structural fit with Tata Coffee, Asia's largest
publicly traded coffee grower.
Combining the trust and legacy of Tata Coffee with the iconic brand image of
Starbucks was the plan.
In addition to sourcing coffee beans from Tatas Indian facilities, the companies
will also work towards developing Starbucks stores in retail outlets and hotels.
Tata has made the cultural fit for Starbucks which will help in building core
competencies of each other.

Objective of Tata Coffee behind the Alliance

The agreement will allow Tata Coffee to provide roast coffee bean to
Starbucks in India.
Get opportunity to jointly invest in additional facility for export to other
markets.
Starbucks will help by providing new technologies for the promotion of
responsible agronomy practices.
A long term relationship will
Understanding with Starbucks.

be

formed

with

this

Memorandum

of

Objective of Starbucks Corporation

Help increase its profitability due to its declining market and over dependence
on US market
To have access to the high quality Arabica coffee
In accordance with the MoU, the two companies will collaborate on the
promotion of responsible agronomy practices, including training for local
farmers, technicians and agronomists to improve their coffee-growing and
milling skills.

Flow of Presentation
A. Economic setting of the industry of the firms involved in alliance

B. Business Case for the Alliance

C. Partner Selection
D. Terms of the Transaction
E. Management of the Alliance
F.

Initial Reaction to the Deal

G. Assessment
H. Way Forward

Partner Selection Criteria

For Starbucks selecting Tata
Aiming to expand in huge emerging Indian market.
The knowledge and understanding of the Indian market can be brought by Tata
Global Beverages.
Tatas also had an arm in retail so there was a synergy as well.

For Tata selecting Starbucks

Starbucks to provide new technology for promotion of responsible agronomy
practices.
The agreement allowed Tata Coffee to provide roast coffee beans to Starbucks in
India.
Got an opportunity to jointly invest in additional facility for export to other
market.
After this deal, Tata Coffee became Asias biggest publically traded coffee grower.

Other Probable Partners

Future Group
Starbucks proposal was rejected by FIPB due to lack of clarity on the foreign
shareholding structure of the proposed Indian venture

Jubilant Group
RelianceIndustries
Bharti Group
DLF Retail
DB Realty

How the assessment was done?

Tata and Starbucks share common values of responsible business ethics and a
commitment to community.
Howard Schultz (Chairman and CEO Starbucks) once his interview had
said that Business Partnership is not selected on the basis of
business acumen alone, its primarily selected on trying to find
people with like-minded values.
Both the companies shared the same approach to business in terms of
maintaining a balance between profitability and the social cause
for humanity.

Flow of Presentation
A. Economic setting of the industry of the firms involved in alliance

B. Business Case for the Alliance

C. Partner Selection
D. Terms of the Transaction
E. Management of the Alliance
F.

Initial Reaction to the Deal

G. Assessment
H. Way Forward

Equity and Restrictions/Exclusivity

50:50 JV between TGBL and Starbucks.
Set up a plant for coffee roasting in Coorg (exclusively for Indian
operations and future operations in South East Asia).
Tata exclusive supplier for Arabica & Robusta variety of coffee
beans used by JV.
Tata is already a supplier of Arabica beans to Starbucks since
2004.

Scope
TGBL-Starbucks jointly developed Indian Espresso Roast for Indian Market &
likely to be launched in other countries too.
The agreements has been signed, Starbucks sourcing single-origin coffee for
Tata Coffees Nullore Estate and serve it to customers in the US. This is the
first time the company will export a single-origin coffee from India to the US.
It will also sell them across select stores in the US.
Bringing the Starbucks brand to Vistara airlines (third only airline to serve
Starbucks worldwide) and taking Himalayan mineral water to Asia Pacific
markets.
Starbucks will extend its Teavana specialty tea brand to India.
The joint venture is also collaborating on the development of a signature
Indian tea blend that will be available across all Starbucks stores in India.

Performance
Clause
Observations/Suggestions

JV was in loss of INR 40 Crore in FY 2015-16 .

JV is more a strategic move more then a business move.
Tata and Starbucks both can take advantages of each other expertise. Tata
can develop a coffee brand and Starbucks can use Tatas premium
properties.

Board of Directors
John Winchester
Culver

05142778

Director

26 March 2012

Harish Ramananda
Bhat

00478198

Director

20 May 2013

Ajoy Kumar Misra

00050557

Director

21 October
2013

Venkataramanan
Krishnamoorthy

01728072

Director

15 February
2014

Payal Rajendra
Agarwal

AGYPA7582K

Company
Secretary

21 July 2014

Sumit Pushkar Zaveri

ARUPS8788
G

CFO(KMP)

24 October
2014

07132926

Director

17 April 2015

Mark Ring Winslow

Suggestions
Terms & Conditions for disposal.
Dispute Resolution Mechanism.

Flow of Presentation
A. Economic setting of the industry of the firms involved in alliance

B. Business Case for the Alliance

C. Partner Selection
D. Terms of the Transaction
E. Management of the Alliance
F.

Initial Reaction to the Deal

G. Assessment
H. Way Forward

Management of Alliance
Management aspects with respect to leadership and Top organization structure:
Starbucks has appointed Sumi Ghosh as its new Chief Executive.
Manmeet Vohra has been appointed as its new Director Marketing & Category and
would report to CEO. In her new role, Manmeet will lead all marketing and category
aspects for the company in India. Prior to this, she was the Marketing Director.
Sushant Dash, who has been associated with the Tata Group for close to twelve
years and joined Tata Starbucks Limited in August 2012 as Brand director.
Business is overseen by an executive team which operates under the overall
supervision and direction of CEO.
The executive team has been formed with a view to streamline the global
operations of the business, considering, in particular, wide spread presence of the
entities carrying on this business across various countries.
It operates under the schedule of authority approved by the relevant entities.

Efforts to Reduce Cultural/ Language Barrier

High Investment: Investing for the long-term and see great potential for
accelerated growth in India. Both companies have a history of delivering
product innovation and the highest quality experience to customers around
the globe. Companies are delighted to come together today and transform
the coffee experience for consumers across India, while providing a
community gathering place to connect with family and friends.
Commitment for community: The joint venture, through an initial financial
commitment, will work to support 'Swastha', a school for children with special
needs (in partnership with the Coorg Foundation). Additionally, Tata
Starbucks Limited will work on initiatives including the promotion of
responsible agronomy practices and training of local farmers, technicians and
agronomists to improve their coffee-growing and milling skills.

Contd.
Creating
Great environment: Working towards developing and
improving the profile of Indian-grown arabica coffees around the world by
elevating the stature of Indian coffee, as well as improving the quality of
coffee through sustainable practices and advanced agronomy solutions.
Both will invest in the communities where it does business.
Core Ideology; Taking care of its people: This is in the form of
compensation and benefits, as well as partner development through
education, training and engagement; providing partners with an
environment that supports and inspires.
Good Wages: Wage as per govt. policy with additional benefits such as
medical insurance, accident insurance, and statutory benefits o As a
result, contract employees are paid at the minimum wage stipulated by
the State govt. And sometimes 20% more.

Performance of Alliance
The Tata group and Starbucks Coffee Company Strengthen Global Partnership with
Multiple New Commitments.
Apart from the usual products offered internationally, Starbucks in India has some Indian
style product offerings such as Tandoori Paneer Roll, Elaichi Mawa Croissant and Murg
Tikka Panini to suit Indian customers.
On 15 June 2015, Tata Starbucks announced that it was suspending the use of
ingredients that had not been approved by the Food Safety & Standards Authority of
India(FSSAI). The company did not specify what the ingredients or the products they
were used in were. The company also stated that it was in the process of applying for
FSSAI approval for these ingredients.
Hence the alliance is continuously announcing about its product diversification, its
policies on safety issues, wages, about its CSR activities, Training, opening of new
stores etc. It shows reviewing meeting happens on regular basis for assessing the
performance of alliance. Specific data is not available regarding review meetings.

Flow of Presentation
A. Economic setting of the industry of the firms involved in alliance

B. Business Case for the Alliance

C. Partner Selection
D. Terms of the Transaction
E. Management of the Alliance
F.

Initial Reaction to the Deal

G. Assessment
H. Way Forward

Initial Reaction to Alliance

As per report by Business Today dated January 31, 2012; Share Prices of Tata Coffee
surged 10% with the signing of the JVA.

Share Prices of Tata Coffee increased from Rs 75 to Rs 95 on BSE.

Share Prices of Starbucks increased from $ 22.64 to $24.24 on NASDAQ.

Mr. RK Krishnakumar, Vice Chairman, Tata Global Beverages said The Joint Venture
with Starbucks is in line with Tata Global Beverages strategy of growing
through strategic alliances in addition to organic and inorganic growth.
It opens up exciting business opportunities and new formats for Tata Global Beverages.
Starbucks brings unique retail expertise as well as a shared sense of business values.
We are excited about the opportunities the alliance presents to innovate in the retail
space and bring new beverage experiences to more consumers in India, leveraging the
global in-home expertise of Tata Global Beverages and the global out-of-home expertise
of Starbucks.

Contd.
John Culver, president, Starbucks China and Asia Pacific region said Were very
pleased to have found the best partner for Starbucks in Tata a company that
shares so many of the same values for conducting business in a way that earns
the trust and respect of our customers and partners (employees).
We look forward to bringing theStarbucks Experienceto customers in India by
offering high qualityarabicacoffee, handcrafted beverages, locally relevant food,
and legendary service.
Pratichee Kapoor, associate VP and head of food services, Technopak said "The
economics of premium cafes is unique. Margins have to be relatively higher and
there are fewer options to squeeze costs. The target customer has high
expectations from the cafe environment, menu and service.
Such coffee shops must be more visible and located in high streets and premium
malls. Their rentals are exorbitant. Yet the rent to revenue ratio of a premium cafe
should ideally be around 15%.

Contd.
Forbes India in its article dated 31 Jan 2012 wrote The wait for that grande
iced skinny mocha just got shorter.
Financial express in its article dated 20 Jan 2012 wrote You may get to sip
Starbucks Coffee this year
Economic Times in its article dated 5 Feb 2012 wrote Can Starbucks master
the India blend ?.
Economic Times also wrote Most Indians don't understand skinny lattes,
with or without the wings. Nor do they care whether the beans are
blade- or burr-ground.In fact, fluffy versus creamy may be difficult
too
But in this ignorance lies potential: there is serious money to be made in
fuelling coffee addiction among Indian cafe goers. Enter the Frappuccino: fresh
out of a Starbucks blender at a high-street store.

Flow of Presentation
A. Economic setting of the industry of the firms involved in alliance

B. Business Case for the Alliance

C. Partner Selection
D. Terms of the Transaction
E. Management of the Alliance
F.

Initial Reaction to the Deal

G. Assessment
H. Way Forward

Tata Starbucks Assessment

With 83 stores across 6 cities
Increased coffee roasting capacity through Tata Coffee Limited roasting
and packaging plant in Kushalnagar in Coorg, Karnataka
To offer its coffee on Vistara, the joint venture airline of the Tatas and
Singapore Airlines
Markets mineral water Himalayan, bottled by Tata Global Beverages,
through its chains in China and the Asia-Pacific region
Starbucks to offer rare indian origin coffee from Tata Nullore Estates to its
outlets in U.S

Tata STRIVE, an initiative which empowers Indias youth with skills for
employment, entrepreneurship and community enterprise.

VRIO Analysis
Value

Rare

Costly to
Imitate

Costly to
Imitate

Prime and Strategic Locations

Yes

Yes

No

Yes

Temporary
Competitive
Advantage

Global Brand Recognition &

Equity

Yes

Yes

Yes

Yes

Competitive
Advantage

Aesthetic Appeal and Concepts

of its Stores

Yes

Yes

Yes

Yes

Competitive
Advantage

Large Size and Strong Global

Presence

Yes

Yes

Yes

Yes

Competitive
Advantage

Customer Loyalty

Yes

Yes

Yes

Yes

Competitive
Advantage

Yes

Temporary
Competitive
Advantage

Corporate social responsibility

Yes

Yes

No

Financial Analysis

Revenue

2015-16

2014-15

2,380,000,000*

1,712,398,141

Expenses
469,932,811

PBT
PAT

(400,000,000)*

(470,016,001)

2013-14

2012-13

2011-12

969,440,697

187,873,396

7,196,816

1,488,173,134

327,986,392

1,068,8011

518,732,437

140,112,996

3,491,135

(518,732,437)

(141,831,724)

(4,072,407)

Source: Tata Starbucks Pvt limited Balance

Sheet
* Data taken from Tofler for 2015-2016

Financial Analysis
Revenue & PAT

Revenue
100%

2,500,000,000

90%

2,380,000,000

80%

2,000,000,000

70%
1,500,000,000

1,712,398,141

60%
50%

1,000,000,000

40%
969,440,697

30%
20%

500,000,000

10%
0

187,873,396
2015-2016 2014-2015 2013-2014 2012-2013 7,196,816
2011-12

0%

2015-2016 2014-2015 2013-2014 2012-2013

Revenue

Losses have narrowed, profitability remains a challenge

PAT

2011-12

Financial
Analysis
Comparison
Tata
Starbucks

(FY2015)

CCD

Barista

Revenue

1,712,398,141

25,487,160,000

1210000

PBT

(469,932,811)

(1,407,110,000)

(3250000)

PAT

(470,016,001)

(1,557,350,000)

(3250000)

0.58

3.12

0.73

D/E Ratio

Source:
money.rediff.com

Peer

BCG Matrix
The coffee chain has
opened only 10 new
stores in the last one year,
against an average of 25
Stores/ Year.
The company is far from
being even profitable at
this point in 2014-15,
Tata Starbucks reported a
net loss of Rs.42 Crs. on
revenues of Rs.171.2 Crs.

Has the Alliance Created Joint Value

Starbucks:

Starbucks Led Franchise Business

Model
TATA:

Achieved the aim to enter highly

potential Indian Market
Leverage TATA roasting Capacity
plant @ Coorg

Tata Coffee will source Indian grown

coffee
TGBL to supply Himalayan Water
Brand

Joint Value:
Both Utilizes each others platform to go global.
Starbucks' fresh brewed coffee service will be exclusively available on all Vistara
flights
Working Together for Tata STRIVE & SWASTH, an initiative which empowers
Indias youth with skills for employment, entrepreneurship and community
enterprise
Collaborating on the development of a signature Indian tea blend that will be
available across all Starbucks stores in India.

Some Decisions that can be relooked

JVs decision to target only metro cities. Besides the top eight cities, there
are over 40 cities with a one million population that are part of the rising
middle-classconsumption
May offer different blends of Tea as well. TGB is yet to introduce in India
the innovative products like Chai Latte and the round tea bags that it is
selling in foreign lands. It also sells steamed green tea in the US and the
UK.

What if, there was not alliance

TATA should had opened its own coffee chains. With its low cost leadership in
almost all segments, where it operates, may have been successful.
Had Utilized TATA as a brand and the sentiments people have towards TATA
Brand.

Flow of Presentation
A. Economic setting of the industry of the firms involved in alliance

B. Business Case for the Alliance

C. Partner Selection
D. Terms of the Transaction
E. Management of the Alliance
F.

Initial Reaction to the Deal

G. Assessment
H. Way Forward

PoPs & PoDs of Starbucks with International Caf

Brands
High Quality
Coffee

Internatio
nal Caf
Brands

Starbucks

Customer
Needs

Brand Equity, Customer Service,

Larger Outlets, Product range &
variety

Good Taste,
Wide Variety of
Products

?????

Starbucks

Affordable
Prices,
Largest
network of
outlets,
Indian tastes

Customer
Needs

High Quality coffee, brand image &

brand equity, bigger store & better
ambiance

Brand image,
service food &
beverages

Quick
Service
Restauran
ts

Starbucks

Customer
Needs

Specialized high quality coffee,

brand image & equity, bigger
stores & better ambiance

Serve tea/
coffee,
requirements

Local
Coffee
Shops

Starbucks

Easy
accessibility,
serve
multiple daily
needs, home
delivery

Customer
Needs

High Quality Coffee, Brand image &

brand equity, bigger stores & better
ambiance

Perceptual Mapping
Premium Product Quality
Starbuck
s
Quick
Service
Restaurants

Internationa
l Caf
Brands

Low User
Status

Premium
User Status
Local Coffee
Shops

Indian Caf
Brands

Ordinary Product Quality