Background

Starbucks is an international coffee chain, headquartered in Seattle USA. The company

started its operation in 1971, with its first store at Pike Place at Seattle. While initially it
started as a company selling coffee beans, in early 1980s it moved to selling espresso based
drinks. The company has since then grown into a global entity with presence in over 81
countries. The product portfolio has now expanded to brewed coffee, Frappuccino, tea and
variety of high quality food items. Starbucks also sells whole bean coffees, instant whole
bean coffee VIA, Starbucks branded merchandise and gift cards.

Starbucks operates 31,000 stores around the world with around half of them still in US.
Canada, Japan, China, and South Korea are other key Starbucks markets. Based on last
reported financial results of Sep’19 , the revenue of the company is U$ 26 billion and net
earnings of around U$ 3.5 billion.

Globally, Starbucks stores are popular for the “third place’ experience which the stores offer,
where customers can socialise and connect in a warm and welcoming environment. Stores are
comfortable, ambience is warm and appealing, barista and other store partners have a strong
customer connect.

In India, Starbucks operates through a JV with Tata – Tata Starbucks. Tata Starbucks is a JV
between Starbucks and Tata Consumer Products. The JV started its operations in October
2012 with the opening of the first store in Mumbai at Fort. Since then the business has grown
rapidly. Current Tata Starbucks operates 194 stores in India. It has presence in 12 cities
namely – Mumbai, Pune, Delhi, Gurgaon, Noida, Bangalore, Hyderabad, Ahmedabad, Surat,
Baroda, Kolkata and Lucknow.

Below are few business KPIs of the company as at Mar’20:

• 185 stores operating at year end, with top line of Rs 536 crores.

• Mumbai and Delhi contribute around 70% to the total top line
 • High Street, Malls, Airport, Office, Highways are the different store formats which
the business operates. Around 50% of top line comes from High Street format and
35% from malls.

• Delivery contributes 6% to the top line. The business has city wise exclusivity with
Swiggy and Zomato.

• Loyal customers (customers registered on “My Starbucks Reward (MSR)” program

contribute 30% to top line.

Challenges in COVID times

• The F&B industry with an annual turnover of Rs 4 lakh crores and provides direct
employment to over 7 million Indians. The lockdown has severely impacted the
whole sector with many industry bodies estimate that over 40% of restaurants will
close down post lockdown.
• Starbucks suffered the blow as well. As of June 2020, only 60% of the total stores
have reopened and are currently functioning. The revenue has gone down by 70% in
comparison to that of the previous year. And only 1 new store has opened in the
quarter where 7 were predicted and planned. There were many issues such as:

• Store closed, and no top line in the initial couple of months

• Employee safety was primary concern and then asset safety

• Business continued to incur cost – occupancy, utilities, and other store operating
expenses. Inventory obsolescence was a huge risk to the business, especially for the
seasonal beverages.
 • As businesses opened for limited operations, we sailed through the below challenges:

▪ Employee safety and availability

▪ Supply chain and product availability

▪ Fixed costs and other expenses and limited cash flow

• However, keeping with the with changing times, the business moved and adopted the
below solutions:

• SOPs defined around employee safety, store sanitization, warehouse sanitization.

Leveraged Starbucks learnings in other markets.

• Continued employee engagement. Connects with employees continued on virtual

platforms, ensuring regular team connects and immediate resolution to concerns /
queries. WFM environment set seamlessly through active IT engagement. COVID
helpline set up to assist employees.

• Engagement with suppliers to ensure extended payment terms to address cash flow
issues. The average payment terms of the business is around 30 days. Post
negotiation his period has extended to around 60-90 days.

• Actively engage with landlords on rent concessions, and offering lease discounting
solutions through bank tie-ups to address immediate cash needs of landlord. Since
occupancy is one of the highest cost line, forming around 20-25% of sales, it is key
to re-negotiate this cost line.

• Jointly working with various industry bodies (Retail Association of India, National
Restaurant Association of India, Tata Group retail entities) to make representations to
Government on common areas of concern.

• Reach out to customers through:

• Partnering with Swiggy and Zomato for delivery

• Contactless ordering and payment through Whats app and Paytm

• Enrich the current “My Starbucks” mobile app with Mobile Order and pay
(MO&P) feature
 • Product Innovation to cater to new needs – 1 litre freshly brewed Coffee for in home
consumption, Food bowls, Turmeric Latte etc

• Engagement with customers through “in-home” coffee brewing sessions, Starbucks

Dance challenge, etc.

Challenges we face in post COVID times

• With new norms around social distancing, and safety being key, how do we ensure that we
continue to offer a “third place experience to customers”.

• What changes do we make – in our product, our store layout, our store processes

• What emerging customer trends do we see, and how do we remain relevant on those
tends

• Malls, offices and airport, three of the formats in which we operate, will continue to operate
at sub-optimal level, with estimates showing footfalls returning to pre-COVID levels only
in next 18-24 months. How do we manage this portfolio?

GOOD LUCK!