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,
List of Contents
1. Introduction…………………………………………………………………………………
…………………..…. 3
2. Problem
formulation……………………………………………………………………………………
…..….3
3. Methodology and
Limitation………………………………………………………………………………..3
4. Macro and micro
Analysis………………………………………………………………………………..…..4
- Country
profile……………………………..…………………………………………………………
……....4
-
profile…………………………………………………………………………………………
….....5
- Final
Decision………………………………………………………………………………………
…………..7
5. Recommendation……………………………………………………………………………
………………………….….7
- Entry
mode………………………………….………………………………………………………
…..……….7
- Segmentation and target
market……………………………………………………………….……….9
- Suggested position and
location………………………………………………………………………..10
- Value
chain…………………………………………………………………………………..…..11
6. Conclusion……………………………………………………………………………………
…………………..….12
7. Reference……………………………………………………………………………………
………………….…….13
8. Appendix ……………………………………………………………………………………
…………….…….……14
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, 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.
4. Macro and micro analysis
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
1 Fact book CIA
annual GDP growth to slow to % 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 % 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 %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
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 billion
people.
The age structure of India looks like this:
0-14 years: % (male 187,197,389/female 165,285,592)
15-64 years: % (male 384,131,994/female 359,795,835)
65 years and over: % (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
2 Data monitor/ Database/ bon online
3 Euromonitor/ Database/ bon online
4 Euromonitor/ Datebase/ bon online
5 Euromonitor/ Database / bon online
speaks it. Other than that, India has 18 official languages primarily associated with the different
states”6.
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 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.
6 Wikipedia
7 The CEO of Starbucks
8 Business description of Starbucks: Datamonitor
Although the sale was increased in the last 4 years, the net profit income has decreased with
percent over 20079.
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, million, an increase of
% over 2007. The food division recorded revenues of $1, million in 2008, an increase of
% over 2007. The coffee-making equipment and other division recorded revenues of $1,
million in 2008 an increase of % over 200710. The whole bean coffees division recorded
revenues of $ million in 2008, an increase of % 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,
9 Starbucks annual report/
10 Data montior/ database
Year 2008 2007 2006 2005
Sales 10,383,000 9,411,497 7,786,942 6,369,300
Net Income 315,500 672,638 564,259 494,467
Beverage Food Coffee-making
equipment and
other
Whole bean coffees
% % %
Starbucks believes it delivers benefits to the Company and its stakeholders, including employees,
business partners, customers, suppliers, shareholders, community members and others.
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
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 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 $ 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.
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.
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.
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 ., 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.
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.
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.
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 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
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:
Year 2009 2008 2007
GDP- per capita
(ppp) in dollars
Source: CIA world fact book
Year 2009 2008 2007
GDP real growth
rate in %
9
Appendix 2:
SWOT analysis
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 (. 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:
Appendix 4:
Supplier
(Indian famer)
Roasting plant
(near New Deli)
CostumersStarbuck coffee
house in New
Deli
