CASE ANALYSIS

Course name: Marketing Management

Coffee Wars in India: Caf Coffee

Day takes on the Global Brands

FAS Group No: E2

TERM 2 2015

Problem Statement
The primary purpose of V.G. Siddhartha in setting up Coffee Day was to bring the coffee
culture in India that was recognized as a tea nation. He belonged to that owned coffee
plantations, and hence it was easier for him to venture into the coffee market and strategize to
differentiate his business. In 1993 he established Amalgamated Bean Coffee in Chikmangalur
and became the largest exporter of coffee. Later in 1996, in an attempt to move up in the
coffee value chain, Siddhartha started their first caf outlet by the name Caf Coffee Day in
Brigade Road, Bangalore. By April 2013, CCD became Indias leading Coffee chain with a
market share of over 60%.
However in January 2012, in attempt to penetrate in the Indian Coffee Market, Starbucks
entered on 50-50 joint venture with the Tata Global Beverages as Tata Starbucks. This
venture helped Starbucks in many ways: As Tatas were well connected, it helped Starbucks
open stores quicker compared to other foreign brands; the former also provided them the
ability to come with a local coffee brand.
The strategy followed by Starbucks was similar to the one CCD had adapted. For example,
CCD got all its coffee beans from its 11,000 acre plantation and did not depend on
wholesalers. So did Starbucks, expect that instead of own plantation they purchased directly
from coffee producing countries. Similar to CCD most of Starbucks retail stores were owned
and not franchised to ensure quality delivery. Both the firms also concentrated on providing a
coffee experience through excellent customer service rather than just delivering coffee. Also,
neither of them believed in mass media advertisement, rather concentrated on promotional
and word of mouth approach.
By April 2013, Starbuck had already setup 11 functional stores and was in process of rapid
expansion. CCD at this point had to make a decision as to only a slight course correction
would be sufficient or do they take more aggressive approach to retain their position. As it
had been on 7 months after Starbucks entered India, it was too early to predict the turnout of
Coffee War. To analyze the case we need to evaluate it from the following questions point of
view:

What is the picture for Starbucks on Advantages and Challenges in India

After its first international venture in 1996, it took Starbucks 12 years to enter into the Indian
market. India which was historically a tea drinking nation, by the time Starbucks decided to
enter Indian market, it was being rapidly exposed to the coffee culture by Coffee Day who
was the market leader in this segment. This works in favour of Starbucks, as it not spend in
coffee education for its customers, like they did in China.
Moreover, a 50-50 joint venture with Tata Global Beverages worlds second largest
branded tea company, helped Starbucks expand and open stores quicker than other foreign
brands, as Tatas were well connected in the country. Tata Coffee helped Starbucks make new
blend of espresso roast for the Indian market and set up roasting plants, come up with locally
inspired dishes like chicken tandoori sandwiches and elaichi mint croissant etc. This

partnership also, helped them engage with local craftsmen to help design store furniture and
fittings to give a more indianised ambience to Starbucks stores.
Bringing its global service practice to India was another advantage to Starbucks. As they
paid twice the pay level of CCD, 15-17% of their Indian staffs were poached from CCD.
Also, with a per capita coffee consumption only at 100gm compared to 4.5Kgs in US, the
Indian Coffee Market had a promising future.
On the flip side, there are some challenges which Starbucks will face in Indian market.
The coffee retail is a segment which has also seen many players struggling and failing. With
more than 2300 stores across the country, the competition is quite intense with very less
margin for error. Costa Coffee which is world's second largest coffee retailer had been in
India for quite a few years has about only 100 stores and were still not able to find its footing
in the country. Other global players like Gloria Jean and Lavazza also were in similar
situation. Thus implying that foreign brands were finding it more difficult to penetrate in
Indian market.
Caf Coffee Day was already established in the Indian Market and were doing extremely well
in the segment. Moreover, Starbucks is 50% more expensive than CCD and hence will not be
able to attract the younger lot. The pyramidal structure of Indian Market can thus pose a
challenge.
Maintaining its customer service levels would be another issue. Providing great service in
10 stores is easy, however, maintaining the same level of service for 100-300 stores would be
a challenge in itself.
High real estate price would be another challenge that cuts into the margin of Starbucks.
CCD had entered many high-street location early and hence were able to setup stores at
relatively lower price.