India and China are the world‘s two fastest growing economies.

Starbucks had already ventured

into the Chinese market and not surprisingly, their Chinese venture turned out to be much
profitable than that of their US business. Thus, they want to replicate their success in Chinese
mainland in India.
Also, the Indian market is heavily driven by the upcoming youth culture which is totally driven by
the western trends. With the growing disposable income of Indians, people tend to spend more
towards apparels and fast foods. With the success of Indian owned Café Coffee Day and Barista
Coffee, it is a widely proven fact that there is lot of scope for the development of coffee café culture
in India. Thus, Starbucks want to capitalize on this particular opportunity.
They are planning to start with targeting the niche upper class segment by opening their outlets in
Taj Hotels and Resorts. Their primary target market is the younger generation of age 16-40 years.
They will also target the tourists who will be visiting India. Since, most of the tourists coming to
India are from the countries of U.S., England, Germany, and Japan who are well aware of
Starbucks brand name. Thus, there will not be the problem of brand name recognition among them

Coffee Industry: In a Nut Shell

PORTER’s FIVE FORCES

The Threat of New Entry
The entry barriers in the coffee retail industry are relatively low in India, particularly for the foreign
players. This is possible owing to the fact that 51 % FDI2 is allowed in India in retail sector. Any
large or well-funded company having the thorough understanding of the market can enter into
retail sector in India.
Economies of Scale: given the fact that Starbucks is a global, it is having its own advantages when
it comes to achieving the economies of scale. Though, for a start, they will open few stores in
India, they have plans to open new stores in most of the major Indian cities.
Capital Requirement: Starbucks being the global coffee retail chain, they are going to have any
particular capital related problems. Also, they are having MoU being signed with TATA‘s for
opening their outlets in their Taj group of hotels and resorts. Thus, their entry can assured to be
pretty smooth
Access to supply:
India, being the sixth largest producer of coffee in the world is having the largest home-grown
supply of coffee beans. Thus, sourcing coffee for any new entrant in this industry is not going to
be much of the problem
Customer or supplier loyalty:
Indian market is already being captured by the long-established brands like Café coffee day,
Barista, Barista Lavazza and Costa Coffee. Thus, it is going to be pretty much difficult for any of
the new entrant to establish its brand name in the Indian market. However, Starbucks being the
international brand will definitely help in attracting the educated Indian crowd
Market Experience:
The existing players in the Indian coffee retail industry have been here in the market from last 10
years. Thus, their management must be having greater understanding of the Indian markets and
Pallets. Therefore, for Starbucks, it is going to be important to first understand the Indian
preferences, before making any major move.
Legislation or government action:
In India FDI regulation for single branded retail stores is 51%. Thus, any foreign player will need
to have an Indian partner, compulsorily. Therefore, Starbucks is also planning to enter in Indian
markets with collaboration with TATA coffee.
Differentiation:
Coffee is not the product where there is a great scope for product differentiation. However, it
depends on most of the cases on the store ambience, which can act as the point of differentiation.

Threat of substitutes:
Products for Product substitution
Product substitutes, here, will include other beverages, apart from the Starbucks coffee, for
example, soda, fruit juices, water, beer or other liquid beverages. This will also include other fast
food beverages like burgers etc.
Substitution of a need
This will include the lower end local coffee houses or other snack shops which are less luxurious.
These are places which provide people with the place to sit, chat and relax.

The Bargaining Power of Suppliers

In this case of coffee retail, the suppliers, supplying the retailer with the coffee beans are not having
much of the bargaining power. This is particularly because of the fact that coffee retailers like that
of Starbucks tend to be very big buyers for any of the supplier to lose as a whole. This also gives
the Starbucks to dictate terms to the supplier.
Similarly, suppliers of other resources like that of paper products etc., will not be having much of
the bargaining power as there are many sources from which the company can source them.
However, this is not valid in the case of the suppliers supplying the technological machinery as
there are not many suppliers here.

The Bargaining Power of Buyers

In the past, buyers in India were not having much of the bargaining power as there were not many
food retail giants which were present in the country. However, with the advent of multinational
food retail giants in India, like that of Mc Donalds, Barista Lavazza, Café Coffee

Day and Costa Coffee, consumer is faced with lots of choices. Thus, it will be difficult for
Starbucks to influence the Indian buyers to pay premium for their products.

Competitive rivalry
Major competition for Starbucks in India comes from that of Café coffee day. The abbreviation
CCD is known to most of the people in urban parts of India. Their positioning is same as what
Starbucks have in US. The other competitors include Barista Lavazza, Barista and Costa Coffee,
which are also the multinational brands, widely recognized.
Apart from them, secondary competitors include the Georgia Coffee served in fast food joints like
that of Mc Donalds and KFC

PESTEL3
Political

The Government of India has communicated the sanction for the implementation of the
 Coffee Debt Relief Package – 2010 for the debt ridden small coffee growers with a total

 implication of Rs. 241.33 crores vide order No 4/3/2008-Plant (B) dated 14th June, 2010.
The copy of the order made available to the SLBCs, Banks, and Growers‘ Associations for

information and initiate necessary action for speedy implementation of the Package.


It is estimated that this relief package would benefit more than 95% of the small growers 
 (74929 small growers out of the total of 78,665 coffee growers) having accumulated bank
 
loans covering all the coffee growing regions of the country.
 
Implementation modalities-XI Plan Support Schemes-including Mechanization

1. Modalities for implementation of coffee development programs – NER

2. Modalities for implementation of coffee development programs – NTA

3. Support for Grower Collectives in Coffee Sector – Modalities

4. Support for coffee replantation, water augmentation & quality up gradation for coffee in
 Karnataka, TN & Kerala

3
Source: http://www.indiacoffee.org/indiacoffee.php?page=ModalitiesImplementationDevelopment

8|Page
 5. Modalities for implementation of scheme for setting up of Quality Evaluation/Cup Tasting
Lab

6. Modalities for implementation of subsidy schemes for Coffee Processing

7. Modalities for Implementation of Development Support Scheme

Economic
In que with Global price increase in coffee, Indian coffee manufacturers are also getting hit by the
price increase. Coffee manufacturers have to compromise on their margins since their input costs
are raising. Coffee growers on the other hand are sorting to practices like Hoarding with the hope
of further price increase in global markets so that they can cash in on exports. This is again creating
supply side pressures and further escalating the prices.

Ecological:
A major factor affecting coffee prices is weather. Weather is an uncontrollable force that can
seriously damage the crop yield in any given year. So, if weather does not cooperate, farmers are
not able to produce as much as demanded and once again, there is a supply/demand imbalance that
leads to rising prices.

Sociocultural

Coffee stores hangout places, a place for young people, average age of Indians around 30,
therefore a big scope for this industry to blossom in India.

Weather
A major factor affecting coffee prices is weather. Weather is an uncontrollable force that can
seriously damage the crop yield in any given year. So, if weather does not cooperate, farmers are
not able to produce as much as demanded and once again, there is a supply/demand imbalance that
leads to rising prices. In 2004, demand for coffee significantly overcame the available supply of
coffee partially due to the fact that Brazilian coffee fields had experienced extremely poor weather
and could not produce enough coffee to meet worldwide demand. Since Brazil accounts for 29%
of coffee production, a decrease in production in Brazil leads to a significant lack of supply.

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PORTER’s Diamond

1) Demand condition for porters diamond

Restaurant chain Cafe Coffee Day said it plans to almost double the number of outlets it operates
in India by the end of 2014 as it embarks on an expansion spree.

A division of the Amalgamated Bean Coffee Trading Company Ltd (ABCTCL), Cafe Coffee Day
currently operates 1,185 outlets across India across three formats -- lounges, cafes and kiosks. It
is looking to add about 815 new outlets in the next three-and-a-half years.

"The company has a plan to aggressively expand the number of outlets it operates to 2,000 cafes
by the end of 2014," Cafe Coffee Day president (marketing) K Ramakrishnan said.This tells us
that demand for Specialty coffee is rising every year.

Also, Tea consumption in India has declined ever since the subcontinent's population discovered
the lure of the bean and the roast. As demand rises, traditional suppliers in Brazil and Columbia
will struggle to match it - and the price to the coffee shops will rise and rise.

Supply and Demand Fundamentals4

Coffee prices are largely determined by supply/demand fundamentals, and to a slight degree,
speculative actions. So, coffee prices generally increase when demand exceeds supply and they
generally decrease when supply exceeds demand. For example, if the world-wide coffee crop yield
decreased for any given year to an amount less than the demand from world-wide coffee retailers
then coffee prices would likely to increase as the availability of coffee would be less and people
would be willing to pay a higher price if there was a strong lush enough demand for coffee.