Project 3 The growth strategy of the

company
Starbucks in India

We arent 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,

List of Contents
1. Introduction
... 3
2. Problem
formulation
...3
3. Methodology and
Limitation..3
4. Macro and micro
Analysis..
..4
-

4.1 Country profile..

....4

4.2Company
profile
.....5

4.3

Final

Decision
..7
5. Recommendation
..7

5.1 Entry mode.

...7

5.2 Segmentation and target

market..9

5.3 Suggested position and

location..10

5.4Suggested Value
chain..
..11

6. Conclusion
...12
7. Reference
..13
8. Appendix

..14

1. Introduction:
3

Starbucks Corporation has been the most successful coffee chain in the past
years. The company has focused on creating a network of stores in US while
opening new locations around the world.
Nowadays, the recession is effecting the economy of the entire world badly, no
exception for the coffee market.

Starbucks, as the coffee chain giant, is

seeking for a new market in order to keep the leader position in the industry.
Meanwhile, at the other side of the world, in India, a country known for the tea
consumption, coffee is becoming more and more popular. According to
Euromonitor International, in 2009, the total volume of coffee in the Indian
market was 44,209.8 tones, the fifth largest coffee consumption country in the
world. So is India a possible future market for Starbucks?

2. Problem formulation:
Starbucks is considering going to India. How can Starbucks enter the Indian
market?

Is India an attractive market for Starbucks?

What could be the best entry mode for Starbucks in India?

3. Limitation and Methodology:

The limitations of the project are the page limit and the restriction in contacting
the company. Regarding the company data, the limitation is in focusing on the
entire product range of Starbucks, so as a consequence we have choose to
focus only on the two main products: coffee and tea.
We have applied secondary data sources/quantitative data sources. The
research method was the desk research. The theories used in the project are:
the micro and macro analysis, the SWOT analysis, the entry mode analysis,
segmentation and positioning, target market and value chain. We have used
the theories to create an overview of the subject field and apply it for solving
the project problem formulation.
4

4. Macro and micro analysis

4.1 Country profile

Economy
In 1991, the Indian economy experienced a dramatically growth after the
government liberalized number of industries open to foreign investment,
loosened

approval

requirements

and

allowed

majority

foreign

equity

ownership1. The economy had a growth rate of 5-7% in average since 1991 till
2007, but an industrial slowdown early in 2008, followed by the global financial
crisis, led annual GDP growth to slow to 6.1% in 2009 (Appendix 1), but it is still
second highest growth in the world among major economies.
Income
The income per capita of Indians increased by 14.2% in 2006-2007 2. Per capita income at current
prices was estimated at Rs29,642 in 2006-20073, compared to Rs25,9564 for the previous year. As a
result of the increase in total income, the mean annual disposable income also increased by almost
150% from 1995-2007.

1 Fact book CIA

2 Data monitor/ Database/ bon online
3 Euromonitor/ Database/ bon online
4 Euromonitor/ Datebase/ bon online
5

Government and laws

The introduction of VAT in India has been a key development. In April 2005, it
was the vat was implemented in at a standard rate of 12.5% 5. This new system
Businesses will consequently have to raise prices to compensate for higher
production costs and this will affect consumer spending.
Competitive landscape
International companies such as Nestle India and Hindustan Unilever are the
leaders in the coffee industry in India. Domestic players such as Tata Coffee or
Barista Caffee are active in fresh ground coffee. No other domestic player was
able to become established as an <Indian brand with their presence restricted
to the southern states in India.

Geographics and Demographics

India is the second most populated country in the world with a population of
about 1.03 billion people.
The age structure of India looks like this:
0-14 years: 30.5% (male 187,197,389/female 165,285,592)
15-64 years: 64.3% (male 384,131,994/female 359,795,835)
65 years and over: 5.2% (male 28,816,115/female 31,670,841) (2009 est.)
Geographically speaking, India is located in South Asia in the Eastern
Hemisphere. There are 25 states and New Delhi is the capital. The national
language is Hindi and about 83% of the population speaks it. Other than that,
India has 18 official languages primarily associated with the different states6.
4.2 Company profile
Starbucks was established in 1971, Inspired by coffee bars in Milan, Italy,
Howard Schultz7 wanted to introduce the coffee bar culture to America.
Starbucks mission statement is to establish Starbucks as the premier purveyor
5 Euromonitor/ Database / bon online
6 Wikipedia
7 The CEO of Starbucks
6

of the finest coffee in the world while maintaining our uncompromising

principles while we grow.
Expansion
Starbucks has grown at incredible rate since the opening of its first coffee bar.
Now Starbucks has more than 16,000 retail outlets in more than 50 countries.
Starbucks owns more than 8,500 of its outlets, while licensees and franchisees
operate more than 6,500 units worldwide, primarily in shopping centers and
airports. Starbucks specializes in quality coffee and other related beverages.
They sell quality coffee, Italian-style espresso beverages, cold blended
beverages and complementary food items, a selection of premium teas and
coffee related accessories and equipment8
Swot analysis
The Starbucks brand gives the company a distinct competitive advantage over
lesser known coffee brands. However, Starbuckss business is highly sensitive
to changes in customer traffic, and the current economic downturn would put
downward pressure on the companys margins. Therefore we need to analyze
the companys performance, both internal and external. An excellent tool for
that is SWOT. (Appendix 2)

Current financial situation

The general financial performance for Starbucks in 2008 was declining from
previous years. The company recorded revenues of $10,383 million.
Although the sale was increased in the last 4 years, the net profit income has
decreased with 53.1 percent over 20079.
Year
Sales
Net Income

2008
10,383,000
315,500

2007
9,411,497
672,638

2006
7,786,942
564,259

2005
6,369,300
494,467

8 Business description of Starbucks: Datamonitor

9 Starbucks annual report/ starbucks.com
7

Starbucks operates in three segments: the US, international and global

consumer products group.

However, the company reported its revenues by

product type in 2008. The Four Categories are:

During the year 2008, the beverage division recorded revenues of $6,663.3
million, an increase of 10.5% over 2007. The food division recorded revenues of
Beverage

64.2 %

Food

14.5%

Coffee-making

Whole

equipment

coffees

and other
11.8%

9.5

bean

$1,511.7 million in 2008, an increase of 13.4% over 2007. The coffee-making

equipment and other division recorded revenues of $1,220.2 million in 2008 an
increase of 7.4% over 200710.

The whole bean coffees division recorded

revenues of $987.8 million in 2008, an increase of 8.2% over 2007.

Global Responsibility
Starbucks is committed to being a deeply responsible company in the
communities where it does business around the world. The Companys focus is
on ethically sourcing high-quality coffee, reducing its environmental impacts
and contributing positively to communities. Starbucks Global Responsibility
strategy and commitments are integral to the Companys overall business
strategy. As a result, Starbucks believes it delivers benefits to the Company
and its stakeholders, including employees, business partners, customers,
suppliers, shareholders, community members and others.

10 Data montior/ database

8

4.3 Final Decision

Considering India a very attractive and growing market and the analysis of the
country and company profile, we have decided that Starbucks should enter the
Indian market. We will analyze furthermore the strategies Starbucks should
apply in order to enter the Indian market.

5. Recommendation
5.1 Entry mode
Starbucks international strategy adapts to different markets to satisfy needs
and requirements from every market, respecting its cultures and traditions. In
order to enter Indian market, we are going to use the Root entry mode
(Appendix 4). The model is divided in four groups: Internal, external factors,
desired mode characteristics and transaction- specific behavior. Under the four
groups there are 16 factors. We have decided to only look at most relevant
factors

for

Starbucks,

which

are

international

experience,

product

differentiation advantage, intensity of competition and Market potential.

Market 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. Due to massive outsourcing on the part of foreign companies
especially from the United States, educated Indians are now presented with
exciting career opportunities, excellent pay, and the confidence to spend
more money. Time magazine reports that these new consumers command
$10.5 billion in cash to burn. There could not be a more suitable time for the
Starbucks to enter the Indian market.

International experience:
9

Starbucks is operating in more than 16000 locations in over 50 countries.

Starbucks uses three entry modes that are joint venture, licensing and
wholly owned subsidiaries.

Product differentiation advantage:

Starbuck should keep focusing on high-quality, because for our target group,
price is not the most important thing which they might concern, a cup of
fantastic coffee and a relaxing environment will impress them much more than
a low-price. Starbucks also invests in extensive research and development
efforts to develop new flavors, blends or even roast fusions.

Intensity of competition:

India coffee market is a growing market with large potentials, and because of
that, it attracts lot of companies to enter, so the competition in the market is
quite intense. The major competition for Starbucks in India at the moment is
the Barista Coffee Co., which is an existing coffee shop branch in India, but
Starbucks is expected to gain its market share for several reasons. The
international popularity of the Starbucks brand will help the company step into
the country.
Suggestion:
Based on the analysis we made, we suggest Starbucks should apply joint
venture. There are three main reasons. First, Starbucks lacked knowledge of
the Indian market, so the company needs a partner who provides it country
specific knowledge. Besides, Starbucks should have a fast expansion in India
after the first test coffee houses success ,so they need an international
strategy that enabled its internationalization in a short period of time, the
wholly-owned subsidiary strategy was unsuitable. Lastly, 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.
Therefore, Starbucks should chose joint venture as entry mode.
10

5.2 Segmentation and target group

Profile:
Age: under 16, 16-25, 25-35, 35-45,over 50
Social class: upper, middle, skilled worker, unwaged

Behavioral
Benefits sought: low-cost, low-calories, health-oriented, taste-oriented,
environment oriented
Purchase frequency: occasionally, loyal, during tour

Psychographic:
Geograohic: urban, country

Target group:
Since Starbucks has a wide product range, which includes hot drinks like
coffee, tea, cold drinks like Frappuccino, coffee beans, hot and cold
sandwiches, pastry and snacks, and the target group varies between different
products, for instance, tea is mainly consumed by the health-focused people
while Frappuccino is trying to catch the young people who value the taste
most. However, because of the words limits, we will just focus on Starbucks
main productcoffee.
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.
This market is well educated and gourmet. 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.

The secondary target markets are the tourists in the areas. Tourists will
recognize Starbucks, as it is a multinational company, as most tourists in India
come from the countries of U.S., England, Germany, and Japan. This market will
11

also fall in the middle to upper middle class population and will find the
Starbucks India prices relatively cheap.

5.3 Suggested Position and location

Starbucks coffee shops should be located in centre urban, near to center
locations, technology companies, major tourist hot spots, colleges and
universities, and shopping centers, where are near the population centre, so
the target group can get Starbucks easily.
Suggest location: New Delhi as the capital city and the centre of economy,
culture and polity of India, would be the first choice for Starbucks to launch.
The Starbucks in New Delhi should be located in Connaught Place, a large
commercial shopping area in New Delhi. Most of the call centers and big
companies are also in the Connaught Circle. New Delhi is the nearest big city to
the world famous Taj Mahal, therefore also being the popular place for tourists
from all over the world.

5.4 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, save money in
transportation and avoid tariffs. But high-quality should be ensured to maintain
Starbucks brand name. These goods will then be transported to the Starbucks
roasting plant located near the New Deli via India vast and efficient railway
system.(see appendix 3) Equipment and other necessary supplies will be
shipped from the United State.
Operation: Starbucks can use a local partner to help it recruit talented employees, set up supplier
relationships, locate suitable store sites. Starbucks should also hire regional marketing
specialist who will handle the laws and customs for Starbucks.

12

Outbound logistic: There are 3 ways the Starbucks products can be reached by the customer:
1. The customer can get the fresh and high quality coffee at their retails stores.
2. Starbucks can sells their product in major restaurants, United Airlines and other specialty
accounts that do not fall under the retail business customer.
3. Customers can order from the internet or the mails.

Marketing and sales: Types of available media for marketing purposes are in India
are very similar to those of the United States, which include everything from
newspaper advertising to television ads. The promotion for the store has to be
very focused on our target markets. Billboard advertising on the roads leading
to the store locations is a good way to increase awareness of the locations.
Direct mail advertising with promotional coupons will be used to reach the
homes of the target market. Sales brochures offering delivery services will be
sent to the local call centers and big companies.

Service: Starbucks must customize their menu to fit the tastes of the Indians. A new menu will be
formulated after several months of research and development. There are some common tastes
preferences of the Indians known already.
For example, Indians tend to take more cream in their coffee. Also, the skim milk option
will not be offered in India because dieting is not a commonly accepted practice in the
country. Indians will feel that they are being cheated out of their money if skim milk is
put in their beverages. Indians also like spices in their tea and coffee, especially ginger
and black clove. One of Indias favorite fruit flavors in mango, and in fact the mango is
Indias national fruit.

Administration: Starbucks India will be a privately incorporated business with

horizontal organization. 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.

13

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

7. Reference
http://www.portal.euromonitor.com/Portal/Magazines/Topic.aspx
www.starbucks.com
www.mdh.diva-portal.org/smash/get/diva2:121498/FULLTEXT01
14

https://www.cia.gov/library/publications/the-world-factbook/geos/in.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

8. Appendix
Appendix 1:
Year

2009

2008

2007
15

GDP real growth 6.5

7.4

rate in %
Year

2009

2008

2007

GDP- per capita 3.100

2.900

2.800

(ppp) in dollars
Source: CIA world fact book

Appendix 2:

SWOT analysis
Strength

16

they have sole ownership of the Narino Supremo beans, which is considered to be one of the
highest coffee beans in the world
good reputation of quality(company name..)
Largest and best known of coffee house chains
Product diversification
Established logo, developed brand, copy right, trademarks
Company operated retail store, no franchise, quality guaranteed
High visibility locations to attract customers
Valued and motivated employee, good work environment
Good relationships with suppliers
Industry market leader
Strong financial foundation
Big marketGermany is the second largest coffee consumption country, and coffee is the
most popular drink in Germany

Weakness:

High product price

No commercial advertising promotion
Lack of internal focus(too much focus on expansion)
Self cannibalization
Cross functional management

Opportunities:

Expansion into retail operations

Develop more healthy product
Become more of a socially responsible brand
Also sell music CDs and linked with clubs (e.g. book clubs) etc in German market

Threats:

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

Appendix 3:
Supplier
(Indian famer)

Roasting plant Starbuck coffee house in New Deli Costumers

(near New Deli)

17

Appendix 4:

18