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Kofi or Coffee – Starbucks Enters the Indian Market

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Contents

Executive Summary.........................................................................................................................2

Introduction......................................................................................................................................3

Tata Global Beverages.................................................................................................................3

Starbucks......................................................................................................................................3
The Starbucks Decisions to Enter into Indian Market.................................................................3
Key Issues........................................................................................................................................4

Economy of India........................................................................................................................4
Culture & Habits..........................................................................................................................4
Competition.................................................................................................................................5
Positionality and Location Strategies..........................................................................................5
Solution options...............................................................................................................................5

Rapid Expansion..........................................................................................................................5
Consumption Patterns..................................................................................................................5
Recommended Solution(s)...............................................................................................................5

Discussion........................................................................................................................................6

Conclusion.......................................................................................................................................6
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Kofi or Coffee – Starbucks Enters the Indian Market

Executive Summary
The one-page write up explaining ‘entire case in a nutshell.’
Target Audience: Who does not want to read the entire project report.
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Introduction
The entering of Starbucks into Indian market was an opportunity for the enterprise to grow
its global revenue in a competitive market. Due to strict regulations from Government of India,
the company decided to partner with Tata Global Beverages which is one of the ventures of
Indian corporate giant ‘Tata.’ TGB has its operations globally and specializes in various
products, especially tea and bottled water. The Tata-Starbucks partnership is an opportunity for
both the company to grow its revenue in the competitive environment, locally and
internationally. Avani Davda is the youngest CEO within the leadership of Tata and is facing the
challenging task of making Tata-Starbucks a success by expanding to various market within
India and increasing the revenues.

Tata Global Beverages

Total Global Beverages (TGB) Ltd. is a business venture of Tata Group and Company
within beverages products. TGB has expanded its operation in various part of the world, like Sri
Lanka, Eastern Europe, and other parts of the world. The decision to partner with Starbucks in
the venture was an opportunity for TGB to enter retail market of India and provide significance
boost to its relatively stagnated revenues. The increasing pressure from the investors and other
stakeholders of TGB to boost the performance and provide increasing percentage of revenues.
The success of the joint-venture will be helpful TGB in generating profit margins. The joint
venture with Starbucks is an opportunity for TGB to boost its sales and low margins in
wholesaling via deep experience and brand name of Starbucks.

Starbucks
The Starbucks is a multinational brand with presence in markets of 65 countries across
the globe with more than 20,000 retail stores. It started its journey in 1971 with opening a shop
in Seattle and gradually expanded to whole of the United States. The growth of Starbucks into
Global iconic brand resulted in diversification of its business model which initially was based on
stand-alone store of format within United States. Starbucks partner with leading businesses in the
different markets of the world to increase its revenues because that is an effective way to
understand the local sociocultural, and economic environment. The other form of diversification
includes distribution of products through grocery stores and supermarkets, along with placement
rest areas of Highway. The Starbucks dominates the ‘Coffee and Snack Shops’ market within
United States and Tata Global Beverages (TGB) became a potential customer for entering into
the Indian market.

The Starbucks Decisions to Enter into Indian Market

The main source of revenue for Starbucks remained U.S. market for couple of decades.
The reliability of U.S. market showed relatively slow growth patterns for Starbucks in recent
years due to expected declining rate of coffee in future. The category of gourmet is also expected
to observe increasing returns and especially the increasing demand of at-home gourmet coffee
brewing. The trend of in-store consumption in United States is expected to face decline, due to
various factors like rapid immigration and change in sociocultural patterns. The growth of sales
in markets of Middle east and European regions are staggering, but the opposite patterns has
been observed in China Asia pacific region. The growth of sales in China and pacific region has
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been in record double digits during recent years. The significance of international revenues and
compensating for the United States, European and Middle Eastern markets, Starbucks decided to
explore growth opportunities around the globe which includes the second most populous country
of the world, India. The trends of urbanization, demographic statistics with majority chunk of
young population, and rapidly transforming economy has been source of attraction for Starbucks.

Key Issues
The Tata-Starbucks have been facing several issues regarding its success in increasing
overall sales and profitability margins. Following are some of the key issues:

Economy of India
Despite the rapid economic growth of India at a pace of 8% per annum, the inflation and
purchasing power remained a key factor in increasing sales revenue and profit margins for Tata-
Starbucks. The recent stability of inflation around 5% can not be taken for granted because at
some point in time over the past couple of years, the inflation rate has been in double digits.
Additionally, the 8% annual growth is not evenly distributed and hence a special segment of
upper-class is taking more advantage as compared to the middle. The overall economic situation
of the country with poor infrastructure and power shortage have resulted in increasing the cost of
production for some manufacturers, hence making it difficult for investors to decide on their
respective decision. Tata-Starbucks’ target market consists of young adults and belonging to
salaried middle-class.

Culture & Habits

The assessment of culture, personal habits, and social practices of target consumer market
is vital for devising a business strategy, especially in case of Starbucks which faces a difficulty to
survive in the current market condition. It is hard to change the old traditions of the society and
specially when they are a routine habit. Over the past more than two and a half decades, the
economic liberalization policies have resulted in changing some of the social patterns within the
society. This is in the context of technological and outsourcing sector growth within India which
resulted in a middle-class culture of salaried class. The socialization trends between co-workers
and aspirational spending resulted in changing consumption patterns. Most of the Indian society
is still rural and does not follow the life-style of working middle-class with age bracket of youth.
Overall, the consumers in India are tradition-bound, picky, and extremely price sensitive.
Different brands have tried changing the habits of tough customers, but they were faced with
partial or complete defeat.

Coffee, not a Brewage of Choice

The big challenge for Starbucks happens to be the ‘taste’ of Indian consumers.
Consumers in India does like hot beverages, but that includes tea. The division between south
and north of India also exists, that is, 70% of the coffee consumers exist in south of India.
Penetrating in south of India happens to be a key challenge for the Tata-Starbucks due to obstacle
of difference in taste. Drinking from a Starbucks Mugs will also be a big change because the
consumers of coffee and tea are embedded in a cultural tradition of ‘drink at home,’ which is a
personal consumption pattern. The coffee from ‘kapi kadais’ and ‘chaiwallas’ is a common trend
in India whose prices are the lowest possible price points at an economic activity.
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Pricing and Capturing Market

Due to the low-price entry of Tata-Starbucks in Indian market, the business is hardly
managing to touch break-even points. In fact, no statistics from Tata-Starbucks are available
showing achievement in terms of break-even point. The primary reason for this strategy is to
sustain in the market and position itself as a brand of choice for consumers. The profit-draining
price war of Tata-Starbucks with its rivals is difficult to maintain in medium to long-run. The
pricing of its products varies between the low and high points of its competitor. Generally, the
prices are lower in comparison to Costa Coffee and higher in comparison to Café Coffee Day.
The prices of Starbucks’ in India are almost 50% lower as compared to its pricing in other parts
of world and even half as compared to its pricing elsewhere in Asia. Unlike its competitors, the
pricing of Tata-Starbucks is uniform across India.

Competition
The competition for Starbucks in India are both local and international. Some familiar
international brands include McDonald’s, Costa Coffee, and Dunkin Donuts. In local brands, the
lead position is with Café Coffee Day (CCD) with its presence in Indian market for over more
than two decades. The Indian market is saturated in terms of competition and it is difficult to
maintain presence with significant profit margins with their respective international niche.
Hence, the retail formats of different brand vary. For example, Coffee Day Xpress focuses on
beverages, Coffee Day Square emphasizes on single-origin coffees with are sold as high-end, and
Coffee Day Lounge is targeting families and their respective patterns of consumption style. The
international and local brands that experimented by entering into the market either had to
shutdown or lower their prices and in some cases were looking for partners to sustain. This is
primarily due to saturation of market and consumer trends which are difficult to manage in short
to medium run.

Positionality and Location Strategies

The expansion beyond major cities. venture’s launch in Mumbai and initial store
openings in other major cities had been met with excitement by customers. But these locations
were in high-demand areas and may simply have been lowhanging fruit. Future growth would
not be that easy. Avani would have to expand into less predictable areas and build a loyal
customer base. Competitors would step up their efforts and investors their demands. Avani knew
the time had come to double down on positioning and location strategies. What she had to decide
soon was “how.”
At first glance, it seemed that only major metropolitan areas might have consumers with
the means and disposition to buy Tata-Starbucks’ products. Geographic limitations were
indicated by past data showing that coffee drinkers were mostly found in the South and tea
drinkers in the North. However, other ventures had shown that such assumptions could be turned
upside down by product positioning and an appropriate pricing strategy. For instance, Domino’s
had successfully positioned itself as an affordable special dining choice for the family, rather
than its U.S. positioning as a fast and convenient food delivery business. Similarly, an innovative
strategy could open smaller urban areas and new groups of customers for Tata-Starbucks.
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Solution options
The discussion of suggested solutions provided in the case (along with merit & demerits
of each).

Rapid Expansion
The initial strategy would be one of rapid expansion, not necessarily tied to profit goals.
Aggressive expansion in areas identified as “emerging markets” was a tactic straight out of
Starbucks’ standard playbook; it had deployed a similar strategy in China (Vijayaraghavan,
2015). Tata Consulting Services would provide support in the venture’s use of technology.
The first Tata-Starbucks store opened in Mumbai. Reportedly, a seed amount of $80
million had been set aside for rolling out new stores (Bailey, 2014). Within two years of
launching, there were more than 50 stores spread across six cities. The locations were all in
major metropolitan areas, mostly in Southern India. These areas included: the city of Mumbai,
the commercial hub of India; New Delhi, the capital city; Hyderabad and Pune, both mid-sized
cities in the middle of the country, each of which boasted a strong presence of high-tech
companies; Bangaluru, the iconic high-tech city mentioned in the book “The World is Flat;” and
Chennai, a Southern city with very high per capita coffee consumption. Each of those cities had
some combination of three factors: substantial numbers of coffee drinkers, groups with high
levels of disposable income, and a significant number of “Westernized” consumers.

Consumption Patterns
Consumption patterns had changed in some segments of society, and these changes related to
social changes resulting from the advent of outsourcing by international companies into India.
Most employees of such firms, typically working in the field of technology, were young, willing
to spend money and comfortable in a different, especially Western, culture. They were amenable
to drinking coffee and tea outside the home and paying more than the absolute minimum for it.
This marked the beginnings of “café habits,” if not quite a “café culture,” and thus offered hope
and promise for businesses like Tata-Starbucks.
Outsourcing and technology-related sectors had contributed significantly to employment and
growth of a middle class. There had been an increase in the number of young adults with
disposable income and aspirations.

Entering with a Lower-Priced Bang

Recommended Solution(s)
Wat could be the better option(s) to address the challenges and issues company is facing
in your opinion within the given scenario and why.
The
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Discussion (700 words)

The short-term & long-term impact of the recommended solution(s).
Main components of impact analysis: cost, scope, time, and the goals and objectives.
The
Conclusion (300 words)
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Bibliography