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,


.5 . Macro and micro Analysis 4. .. . .12 .10 . .7 ...1 Country profile 4..3 Suggested position and location 5..7 . ...13 14 3.9 .4 . ..7 ...2 Segmentation and target market 5.4 . Intr ducti n 2.4Suggested Value chain 6.. ...Li 1. Recommendation 5.11 . Pr bl C .. .. .1 Entry mode 5...3 . Methodology and Li itation 4. 3 .3 . . Appendix ¦ ¡ ¥ £ ¡ £¢ ¡ ¤     r ul ti n 2 . ..3 Final Decision 5. Reference 8..2Company profile 4. . Conclusion 7.

Limitation and Methodology: The limitations of the project are the page limit and the restriction in contacting the company. the limitation is in focusing on the entire product range of Starbucks. coffee is becoming more and more popular. no exception for the coffee market. Nowadays. the recession is effecting the economy of the entire world badly. in India. The company has focused on creating a network of stores in US while opening new locations around the world. Problem formulation: Starbucks is considering going to India. Regarding the company data. Starbucks. The research method was the desk research. We have used the theories to create an overview of the subject field and apply it for solving the project problem formulation. the SWOT analysis. target market and value chain. so as a consequence we have choose to focus only on the two main products: coffee and tea. So is India a possible future market for Starbucks? 2. the entry mode analysis. Meanwhile. the fifth largest coffee consumption country in the world. How can Starbucks enter the Indian market? y y Is India an attractive market for Starbucks? What could be the best entry mode for Starbucks in India? 3. the total volume of coffee in the Indian market was 44. Introduction: Starbucks Corporation has been the most successful coffee chain in the past years.1. is seeking for a new market in order to keep the leader position in the industry. We have applied secondary data sources/quantitative data sources. According to Euromonitor International. segmentation and positioning. The theories used in the project are: the micro and macro analysis. as the coffee chain giant. in 2009. at the other side of the world. a country known for the tea consumption.8 tones.209. 3 .

1 Country profile Economy In 1991. but an industrial slowdown early in 2008. Income The income per capita of Indians increased by 14. Per capita income at current prices was estimated at Rs29. loosened approval requirements and allowed majority foreign equity ownership1.5% 5.1% in 2009 (Appendix 1). the mean annual disposable income also increased by almost 150% from 1995-2007. The economy had a growth rate of 5-7% in average since 1991 till 2007. Government and laws The introduction of VAT in India has been a key development. the Indian economy experienced a dramatically growth after the government liberalized number of industries open to foreign investment. followed by the global financial crisis.642 in 2006-2007 3. As a result of the increase in total income. Macro and micro analysis 4. compared to Rs25. In April 2005. led annual GDP growth to slow to 6. Domestic players such as Tata Coffee or Barista Caffee are active in fresh ground Fact book CIA Data monitor/ Database/ bon online 3 Euromonitor/ Database/ bon online 4 Euromonitor/ Datebase/ bon online 5 Euromonitor/ Database / bon online 2 1 § ¨ § 4 .956 4 for the previous year. This new system Businesses will consequently have to raise prices to compensate for higher production costs and this will affect consumer spending. Competitive landscape Inte national companies s ch as Nestle India and Hindustan Unileve are the leaders in the coffee industry in India.2% in 2006-2007 2. but it is still second highest growth in the world among major economies. it was the vat was implemented in at a standard rate of 12.4.

03 billion people. India is located in South Asia in the Eastern Hemisphere.500 units worldwide. cold blended 6 7 Wikipedia The CEO of Starbucks 5 .389/female 165. India has 18 official languages primarily associated with the different states 6.592) 15-64 years: 64.5% (male 187. 4. while licensees and franchisees operate more than 6. Expansion Starbucks has grown at incredible rate since the opening of its first coffee bar.2 Company profile Starbucks was established in 1971. primarily in shopping centers and airports. No other domestic player was able to become established as an <Indian brand with their presence restricted to the southern states in India.285. Italian-style espresso beverages.835) 65 years and over: 5.2% (male 28.131. Howard Schultz 7 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 . The national language is Hindi and about 83% of the population speaks it.841) (2009 est. Geographics and Demographics India is the second most populated country in the world with a population of about 1. Other than that. There are 25 states and New Delhi is the capital.670.115/female 31.994/female 359. Starbucks owns more than 8.) Geographically speaking.000 retail outlets in more than 50 countries.816.795.500 of its outlets. Starbucks specializes in quality coffee and other related beverages.197. They sell quality coffee. The age structure of India looks like this: 0-14 years: 30.3% (male 384. Now Starbucks has more than 16. Inspired by coffee bars in Milan.

8% 9. both internal and external.000 315.259 2005 6. Starbucks s business is highly sensitive to changes in customer traffic. However. the company reported its revenues by product type in 2008.5% 11. Therefore we need to analyze the company s performance.1 percent over 2007 9.beverages and complementary food items.300 494. Although the sale was increased in the last 4 years.369. An excellent tool for that is SWOT.467 Starbucks operates in three segments: the US.942 564. and the current economic downturn would put downward pressure on the company s margins.2 % 14.500 2007 9. Year Sales Net Income 2008 6 .786. The Four Categories are: 9  8 © Beverage Food Coffee-making equipment other and Whole coffees bean 64. (Appendix 2) Current financial situation The general financial performance for Starbucks in 2008 was declining from previous years. However. The company recorded revenues of $10.5 Business description of Starbucks Datamonitor Starbucks annual report/ starbucks.383.411.383 million. a selection of premium teas and coffee related accessories and equipment 8 S ot analysis The Starbucks brand gives the company a distinct competitive advantage over lesser known coffee brands.497 672. international and global consumer products group. the net profit income has decreased with 53.638 2006 7.

suppliers. shareholders.4% over 2007. In order to enter 10 Data montior/ database 7 . an increase of 8. The whole bean coffees division recorded revenues of $987. As a result. including employees. 5.7 million in 2008. community members and others.2% over 2007. an increase of 10. customers. The coffee-making equipment and other division recorded revenues of $1.During the year 2008.8 million in 2008. the beverage division recorded revenues of $6. an increase of 13. Global Responsibility Starbucks is committed to being a deeply responsible company in the communities where it does business around the world. 4. Starbucks Global Responsibility strategy and commitments are integral to the Company s overall business strategy. Starbucks believes it delivers benefits to the Company and its stakeholders. reducing its environmental impacts and contributing positively to communities. The Company s focus is on ethically sourcing high-quality coffee.3 million.5% over 2007.511. business partners.663. The food division recorded revenues of $1.2 million in 2008 an increase of 7. Recommendation 5.3 Final Decision Considering India a very attractive and growing market and the analysis of the country and company profile.220.4% over 2007 10. we have decided that Starbucks should enter the Indian market.1 Entry mode Starbucks international strategy adapts to different markets to satisfy needs and requirements from every market. respecting its cultures and traditions. We will analyze furthermore the strategies Starbucks should apply in order to enter the Indian market.

Under the four groups there are 16 factors.. price is not the most important thing which they might concern. intensity of competition and Market potential. which is an existing coffee shop branch in India. Due to massive outsourcing on the part of foreign companies especially from the United States. excellent pay. desired mode characteristics and transaction. which are international experience. and because of that. Starbucks uses three entry modes that are joint venture. Starbucks also invests in extensive research and development efforts to develop new flavors. licensing and wholly owned subsidiaries.5 billion in cash to burn. We have decided to only look at most relevant factors for Starbucks.Indian market. product differentiation advantage.specific behavior. so the competition in the market is quite intense. y Product differentiation advantage: Starbuck should keep focusing on high-quality. y International experience: Starbucks is operating in more than 16000 locations in over 50 countries. a cup of fantastic coffee and a relaxing environment will impress them much more than a low-price. external factors. Time magazine reports that these new consumers command $10. y Mar et 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. because for our target group. blends or even roast fusions. educated Indians are now presented with exciting career opportunities. There could not be a more suitable time for the Starbucks to enter the Indian market. and the confidence to spend more money. The major competition for Starbucks in India at the moment is the Barista Coffee Co. it attracts lot of companies to enter. y Intensity of competition: India coffee market is a growing market with large potentials. but Starbucks is expected to gain its market share for several 8  . The model is divided in four groups: Internal. we are going to use the Root entry mode (Appendix 4).

25-35. 35-45. 5. health-oriented. unwaged y Behavioral Benefits sought: low-cost. 16-25. hot and cold sandwiches.2 Segmentation and target group y Profile: Age: under 16. First. taste-oriented. coffee beans. country Target group: Since Starbucks has a wide product range. pastry and snacks. skilled worker. Lastly. for instance. which includes hot drinks like coffee. Suggestion: Based on the analysis we made. loyal. Therefore. we suggest Starbucks should apply joint venture. during tour y Psychographic: Geograohic: urban. low-calories. The international popularity of the Starbucks brand will help the company step into the country. cold drinks like they need an international strategy that enabled its internationalization in a short period of time.reasons. middle. tea is mainly consumed by the health-focused people while Frappuccino is trying to catch the young people who value the 9 . so the company needs a partner who provides it country specific knowledge. and the target group varies between different products. Besides. There are three main reasons. Starbucks lacked knowledge of the Indian market. environment oriented Purchase frequency: occasionally. Starbucks should chose joint venture as entry mode. the wholly-owned subsidiary strategy was unsuitable. tea. 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. Starbucks should have a fast expansion in India after the first test coffee house s success .over 50 Social class: upper.

Suggest location: New Delhi as the capital city and the centre of economy. 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. we will just focus on Starbucks main product coffee. so the target group can get Starbucks easily. 5. The secondary target markets are the tourists in the areas. Germany.taste most. culture and polity of India. England. This market is well educated and gourmet. But high-quality should be ensured to maintain Starbucks brand name. Tourists will recognize Starbucks. technology companies. The Starbucks in New Delhi should be located in Connaught Place. as it is a multinational company. where are near the population centre. near to center locations. This market will also fall in the middle to upper middle class population and will find the Starbucks India prices relatively cheap. and shopping centers. 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. major tourist hot spots. However. and Japan.4 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. would be the first choice for Starbucks to launch. New Delhi is the nearest big city to the world famous Taj Mahal. Most of the call centers and big companies are also in the Connaught Circle.. These goods will then be 10 . because of the words limits. as most tourists in India come from the countries of U. a large commercial shopping area in New Delhi.3 Suggested Position and location Starbucks coffee shops should be located in centre urban. therefore also being the popular place for tourists from all over the world. colleges and universities. 5.S. save money in transportation and avoid tariffs.

Starbucks can sells their product in major restaurants. which include everything from newspaper advertising to television ads. One of India¶s favorite fruit flavors in mango. Operation: Starbucks can use a local partner to help it recruit talented employees. Indians will feel that they are being cheated out of their money if skim milk is put in their beverages. Direct mail advertising with promotional coupons will be used to reach the homes of the target market. For example. 3. Outbound logistic: There are 3 ways the Starbucks products can be reached by the customer: 1. There are some common tastes preferences of the Indians known already. The customer can get the fresh and high quality coffee at their retails stores. Sales brochures offering delivery services will be sent to the local call centers and big companies. United Airlines and other specialty accounts that do not fall under the retail business customer. and in fact the mango is India¶s national fruit. 11 . Customers can order from the internet or the mails. set up supplier relationships. locate suitable store sites. 2.(see appendix 3) Equipment and other necessary supplies will be shipped from the United State. Starbucks should also hire regional marketing specialist who will handle the laws and customs for Starbucks. Marketing and sales: Types of available media for marketing purposes are in India are very similar to those of the United States. especially ginger and black clove. Service: Starbucks must customize their menu to fit the tastes of the Indians. Indians tend to take more cream in their coffee. A new menu will be formulated after several months of research and development. Also. the skim milk option will not be offered in India because dieting is not a commonly accepted practice in the country. The promotion for the store has to be very focused on our target markets.transported to the Starbucks roasting plant located near the New Deli via India vast and efficient railway system. Indians also like spices in their tea and coffee. Billboard advertising on the roads leading to the store locations is a good way to increase awareness of the locations.

a suitable entry mode (joint venture) and a suggested location (New Delhi) for the first test coffee house. 6. 12 . 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. because of the raising coffee consumption and the growing market. potential market for Starbucks.based on relevant theories and analysis tools. On the other side.. an efficient value chain. From the country profile and company profile we made..Administration: Starbucks India will be a privately incorporated business with horizontal organization. it shows that India is a very attractive. we made a marking plan for Starbucks which includes a target group (age between 16-35) in Indian market. Conclusion The main purpose of our project is to find out if Indian market is attractive for starbucks and how could Starbucks enter it.. Starbucks has plenty international experience and their current capability is perfectly suitable to expend business to India.

mdh.starbucks.html 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 13 .gov/library/publications/the-world-factbook/geos/in.aspx https://www.7.euromonitor.diva-portal. Reference www.portal.

Appendix Appendix 1: Year GDP real 2009 growth 6.4 2007 9 rate in % Year GDPper 2009 capita 3.5 2008 7.100 2008 2.8.800 (ppp) in dollars Source: CIA world fact book 14 .900 2007 2.

g. which is considered to be one of the highest coffee beans in the world good reputation of quality(company name. and coffee is the most popular drink in Germany Weakness: y y y y y High product price No commercial advertising promotion Lack of internal focus(too much focus on expansion) Self cannibalization Cross functional management Opportunities: y y y y Expansion into retail operations Develop more healthy product Become more of a socially responsible brand Also sell music CD¶s and linked with clubs (e.) Largest and best known of coffee house chains Product diversification Established logo. book clubs) etc in German market Threats: y y y y y 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 15 . trademarks Company operated retail store. no franchise. developed brand.. good work environment Good relationships with suppliers Industry market leader Strong financial foundation Big market Germany is the second largest coffee consumption country. quality guaranteed High visibility locations to attract customers Valued and motivated employee. copy right.Appendix 2: SWOT analysis Strength y y y y y y y y y y y y they have sole ownership of the Narino Supremo beans.

Appendi 3 Supplier (Indian famer) Roasting plant (near New Deli) Starbuck coffee house in New Deli Costumers Appendi 16 .

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