Market Scan

World Coffee consumption

142 million bags (2012)

Coffee consumption in exporting nations

43.5 million bags

Coffee consumption in India (4.4%)

1.9 million bags/96.65 million kgs

$1261 million

At home consumption 95%

$826 million

Out of home consumption 5%

$434 million

Coffee consumption in Importing

nations

98.5 million bags

Source: International Coffee OrganizationInternational Coffee Council112th Session3 – 7 March 2014London, United Kingdom

Market Understanding:

Starbucks: Revenue and Stores Stores Revenues

Starbucks Worldwide

$14.9 billion

$11.4 billion in United States

$3.4 billion in Other

Countries

$917 million in CAP countries

Starbucks Stores

19,767 worldwide

10,194 Company Operated Stores

worldwide

9,573 Licenced Stores

worldwide

2,976 in China and Asia Pacific

59 in India

Source: Starbucks corporation fiscal 2013 Annual Report

Journey of Starbucks

1971: Starbucks opens first store in Seattle, Pike Place

Market

1982: Howard Schultz joins Starbucks as director

of retail operations and marketing

1983: To begin a coffee culture back in Seattle

1987: II Giornale acquires Starbuck assets with the backing of local investors

1991: Opens first licensed airport store at Seattle’s

Sea-Tac International Airport. Total stores: 116

1992: Completes InitialPublic Offerings on

NASDAQ. Total Stores: 165

1995: Begins serving Frappuccino blended beverages. Introduces Starbucks ice cream.

1996: Opens first store outside US, In Japan and

China

1998: Acquires Tazo, a tea company and incorporates

the same to its menu

1999: Opens stores in China, Kuwait, Lebanon

and South Korea

2000: Schultz transitions from chairman and chief executive officer to chairman and chief

global strategist. Further expansions

2002: Starbucks enters into licensing agreements with

national Fair Trade organizations to sell Fair

Trade Certified coffee

Name changes to

Starbucks Corporation

2002: Establishes Starbucks Coffee Trading Company in

Lausanne, Switzerland. Total stores: 5,886

2004: Releases Ray Charles, Genius Loves Company CD

through a collaboration between Concord Records and Starbucks

Hear Music.

2005: Opens stores in: Bahamas, Ireland and

Jordan. Total stores: 10,241

2008: Howard Schultz announces a renewed focus on

customer experience and innovation. Opens stores in: Argentina, Bulgaria, Czech

Republic and Portugal. Total stores: 16,680

2009: Starbucks is voted the most engaged brand in

social media.

2011: The company has 17,009 stores across the

globe

Source: Forty years young, a history of Starbucks, Telegraph

Starbucks and its expansions• Starbucks has a strong network of 21,000 stores in over 65

countries

Asia-22 countries

Europe- 24 Countries

Middle East and Africa- 2 countries

North America- 10 countries

South America- 6 countriesOceania- 2 countries

Source: Starbucks Website

• International Market- success and failures of Starbucks

• Success in England

– Starbucks was quick to respond to the growing competition

– It was able to build a point of difference and emerge as a successful brand in the UK

– Introduction of drive-through stores which are considered exciting in UK

– Starbucks has revamped its business models to suit the UK market needs

• Success in China

– Adapted to the local tastes and preferences

– Promoted the concept of dine-in services in contradiction to the culture in the US

– Better ambience and comfortable outlets to consider Starbucks the right option for executive meetings and other gatherings

– Improved and highlighted customer service

Failure in US

– Increase in the cost of production of real estate

– Sharp fall in consumer demand

– Emergence of substitutes like; Coffee Beans, Burger Kings

– In 2008, 12,000 workers lost their jobs with 600 stores shut down*

Decline in Australia

– Concept of ‘coffee’ was not new to the market

– Weak customer service as compared to various new brands

– Lack of advertising; no brand communication

– Re-enforced the US style of coffee drinking

Failure in Israel

– Opened stores in partnership with Delek group with 80.5% shares with Starbucks and the rest with the later

– One of the major reasons highlighted was that the two brands did not mesh with each others

– The strategies adopted by Starbucks in Israel were not in compliance with the ones that could drive sales in the area

*Starbucks closing 5% of Starbucks stores, Seattle Times

Starbucks in India

2012: Starbucks comes to India with a 50-50 TATA

alliance with its first store in Mumbai

2013: Expanded the stores in Delhi- 2 outlets

2014: Expanded within India and reached to Chennai,

Hyderabad, Bangalore

Mumbai- 23

Pune- 6

Delhi- 14

Delhi/NCR- 4

Bangalore- 10

Chennai- 1

Hyderabad-1

• The company announced to open 50 cafes in the country in 2012, entailing investment of 400crores,which further got delayed

• Presently 59 outlets in 6 cities

• India is the fastest growing new market in the history of Starbucks

• According to John Culver, group president ,Starbucks China & Asia Pacific, India being a strategic market will be among top 5 markets in near future worldwide

• Tata Starbucks has begun exporting locally sourced &roasted Starbucks India Estates Blend to selected stores in Asia & in US through online channel

• It is innovating in beverages & food menu to add localized tastes in product offering

Starbucks- TATA alliance• The brand is in a 50:50 joint venture

with Tata and the alliance is named Tata Starbucks

• Coffee beans are sourced and roasted locally from Tata fields in Coorg, Karnataka

• It is spread over Delhi, Maharashtra, Karnataka, Tamil Nadu and Telangana

• Starbucks had previously tried to enter the Indian market in 2007 with the Future Group for its India foray because of the latter's known credentials as India's biggest retailer by far owing to FDI regulations.*

TATA STARBUCKS

Type Joint Venture

Traded As Starbucks “A TATA Alliance”

Industry/ Genre

Coffee Shops/ Coffee House

Headquarters Mumbai, Maharashtra

Number of Locations

59 stores (October 2014)

Key People Avani Saglani Davada, CEO

Products Coffee, tea, pastries, frappuccino beverages, smoothies

Owners Starbucks Corporation(50%)Tata Global Beverages (50%)

Employees 1000+ (September 2014)

**Jordan Melendrez, Go off the menu with these 8 secret Starbucks drink ideas, today.com, October 2014

Starbucks- Product Price Mapping

Item Price

FRAPPUCCINO® BLENDED BEVERAGES

Coffee Tall Rs.145 |Grande Rs.165| Venti Rs. 185

Caramel Tall Rs.185 |Grande Rs.205| Venti Rs. 225

Espresso Tall Rs.185 |Grande Rs.205| Venti Rs. 225

Mocha Tall Rs.165 |Grande Rs.185| Venti Rs. 205

White Chocolate Mocha Tall Rs.170 |Grande Rs.190| Venti Rs. 210

Java Chip Tall Rs.170 |Grande Rs.190| Venti Rs. 210

Cold Coffee Grande Rs.185

Vanilla Cream (Coffee Free) Tall Rs.170 |Grande Rs.190| Venti Rs. 210

Green Tea Cream (Coffee Free) Tall Rs.170 |Grande Rs.190| Venti Rs. 210

Double Chocolate Chip Frappuccino Tall Rs.190 |Grande Rs.210| Venti Rs. 230

TATA®TAZO® TEA

Full-Leaf Brewed Tea Short Rs.105| Tall Rs.125 |Grande Rs.145| Venti Rs. 165

Green Tea Latte Short Rs.110| Tall Rs.130 |Grande Rs.150| Venti Rs. 170

Chai Tea Latte Short Rs.110| Tall Rs.130 |Grande Rs.150| Venti Rs. 170

Iced Shaken Tea Tall Rs.130 |Grande Rs.150| Venti Rs. 170

Item Price

CHOCOLATE

Signature Hot Chocolate Short Rs.115| Tall Rs.135 |Grande Rs.155| Venti Rs. 180

Kid’s Hot Chocolate Short Rs.115

FRESHLY BREWED COFFEE

Brewed Coffee Short Rs.105| Tall Rs.115 |Grande Rs.125| Venti Rs. 135

Pour Over Cone Brewed Coffee Short Rs.105| Tall Rs.115 |Grande Rs.125| Venti Rs. 135

French Press Brewed Coffee 4 Cup Rs. 140| 8 Cup Rs. 190

CREATE YOUR PERFECT DRINK

CHOOSE YOUR SIZE Short 237ml| Tall 354ml |Grande 473ml| Venti 591ml

DO YOU WANT IT HOT OR ICED?

CHOOSE YOUR MILK- Regular, Non Fat, Soy

WANT DECAF OR HALF DECAF?

ADD- INSFlavour (Vanilla, Hazelnut, Caramel, Chocolate, Lemonade)Espresso Shot| Tea BagChocolate Chips | Extra Whipped Cream

Rs. 35Rs. 45Rs. 20

Item Price

ESPRESSO BEVERAGES (HOT OR ICED)

Espresso Solo Rs.100 | Doppio Rs. 110

Espresso Macchiato Solo Rs.100 | Doppio Rs. 110

Espresso Con Panna Solo Rs.100 | Doppio Rs. 110

Cappuccino Short Rs.125| Tall Rs.145 |Grande Rs.165| Venti Rs. 185

Caffè Latte Short Rs.125| Tall Rs.145 |Grande Rs.165| Venti Rs. 185

Vanilla Latte Short Rs.160| Tall Rs.180 |Grande Rs.200| Venti Rs. 220

Hazelnut Latte Short Rs.160| Tall Rs.180 |Grande Rs.200| Venti Rs. 220

Caramel Macchiato Short Rs.140| Tall Rs.160 |Grande Rs.180| Venti Rs. 200

Caffè Mocha Short Rs.145| Tall Rs.165 |Grande Rs.185| Venti Rs. 205

White Chocolate Mocha Short Rs.150| Tall Rs.170 |Grande Rs.190| Venti Rs. 210

Caffè Americano Short Rs.110| Tall Rs.130 |Grande Rs.150| Venti Rs. 170

V/NV Item Price

PASTRY/CAKES

Chocolate Raspberry Crunch Cake Rs.180

Blueberry Delight Cake Rs.160

Chocolate Truffle Gateau Rs.165

Red Velvet and Orange Cheese Cake Rs.185

Lemon Loaf Cake Rs.130

Lemon Jazz Cheesecake Rs.185

Banana Chocolate Cake Rs.140

Chocolate Brownie Cream & Chocolate Chips optional Rs.160/40

Pain de Chocolate Rs.170

COOKIES

Butterscotch and Almond Cookies Rs.125

Oatmeal & Raisin Cookie Rs.130

Java Chocolate Chip Cookie Rs.125

MUFFINS

Blueberry Muffin Rs.130

Java Chip Chocolate Muffin Rs.135

V/NV Item Price

Basil Tomato & Mozzarella Cheese Sandwich Rs.170

Chatpata Paratha Wrap Rs.145

Mediterranean Focaccia with Roast Vegetables Rs.165

Tandoori Paneer Roll Rs.165

Wild Mushroom Pocket Rs.165

Greek Salad Wrap Rs.155

Char Grilled Potato Sandwich Rs.145

Smoked Pepper Sandwich Rs.185

Mediterranean Cheese Roulade Rs.160

Hummus & Pita Platter Rs.195

Egg & Cheese on English Muffin Rs.165

French Butter Croissant Rs.120

Murg Kathi Wrap Rs.130

Murg Tandoori Kebab Sandwich Rs.165

V/NV Item Price

Chicken & Mushroom Pie Rs.135

Chicken Mozzarella Turnover Rs.130

Star Club Sandwich Rs.185

Double Meat Club Sandwich Rs.185

Grilled Chicken Salad Sandwich Rs.170

Chicken & Veg Lattice Rs.170

Chicken & Mushroom Frittata Rs.165

Reshmi Kebab Roll Rs.160

Salmon & Cheese Croissant Rs.185

Starbucks Culture

As per Howard Schultz, CEO Starbucks, brand’s vision is based on employee happiness and given their customers an experience that will make them

come time and again to Starbucks

• Fanatical standards about coffee and service

• Empowered employee culture through generous benefits program

• Employee training to brew the perfect cup of coffee

• Employee happiness-key to competitiveness and growth

• Benefits package to both part-time and full-time employees

• The experience one gets from the stores is to be overwhelming and different

Source: Starbucks’ quest for healthy growth: An interview with Howard Schultz, Mckinsey.com

Target Audience• Parameters:

1. willingness to pay

2. Ability to excite others

3. Likeability for social image

4. Appreciate good quality coffee

• Coffee Experts- 35-49 years of age, these people are quality conscious. They enjoys lattes and have long built choices in coffee

• Trendy Lot- These people are 25-35 years of age and enjoy the ambience of a place more than anything else. Teen parties, Kitty parties may all fall within this criteria

• Status Opportunists- 25-40 years of age, these people fall under the secondary target market. They are looking out for good crowd to be with and wish to establish their place in the high end society

Source- Starbucks Market Entry and Expansion Strategy into India, A case study by IIMB

Product Adoption Cycle

AGE GROUP DESCRIPTION/PRIORITIES ADOPTION

15-25Years Income:<50,000 per annumStudents, new couples seeking a status symbol, primarily occasional visitorsPeople looking for value for money, maybe a good crowdSingle Income no kidsLow priority , Low adoption

26-35 Years Income: >6 Lakhs per annumMarried(Early nesters)/UnmarriedDouble income no kidsPeople looking for the best ambience, the corporates, the kitty party ladies, the fashion/health conscious socialites, the trendy lot ,the snobs who are educated abroad, the expatriates, international tourists, the matrimony seekersHigh priority , High adoption

Source- Primary research by the group

AGE GROUP DESCRIPTION/PRIORITIES ADOPTION

35-49 Years Income > 15 Lakh per annumThe coffee experts, meeting with friends ,the westernized and knowledgeable ,they know what they want

50+ years Constant MHICompletely developed taste ,they exactly know what coffee they want if at all they do, retired personnel (including grandparents)

Contd.

Source- Primary research by the group

Starbucks- SWOT

• Strengths

Good relations with coffee suppliers

Located in high traffic areas and big cities

Strategic relationships with suppliers

Spread across 65 countries with 21,000 stores

• Weaknesses

Occasional lack of workforce on the floor

Lack of experience in India

High pricing- not affordable by all

Starbucks refused to guarantee that all milk, beverages, chocolates, ice creams and baked goods are free from genetically modified ingredients*

* Tell Starbucks to sell only organic milk from cows and not fed GMOs, gmoinside.org,

Contd.

• Opportunities

Innovate products and services

Increasing product ranges, establish a thorough Indian coffee market

Selling the experience rather than the product

Fair trade products can be offered

• Threats

Frequent change in market trends

Better value offered by local cafes

Non acceptability in international markets

Recurring global financial crisis

Increasing health concerns over negative impact of coffee

Influence of substitutes like tea in India

Starbucks Positioning

Frame of Reference Comparative Brand Points of Parity Points of Difference

International Status Lavazza and Costa-early entry in the

market

High quality, premium brand status

Brand Equity of Starbucks, larger outlets, customer service, product

ranges

Local Players in India CCD- Market Leader-understanding the

market is easy, value for money, wide

channel

Awareness, Quality to some extent

Better ambience, speciality coffee

Quick Service Restaurants

McD, KFC- customised products, fast delivery

systems

Stylish stores giving a valuable experience

Brand Image and Quality Standards

Other Restaurants Free home deliveries, easily accessible and

convenient

Availability of both tea and coffee (specific to

India)

Larger space in the outlets, ambience and

experience

“It is the premium coffee drinking experience for the premium customer”

Value Chain for StarbucksProduct Development>>>>>>>>>>>>>>> International Development

>>>>>>>>>> Bean and Ingredient Selection>>>>>>>>>Product Distribution>>>>>>>>>>>>>> Online Storefront

Customization>>>>>>>Storefront>>>>>>>>>>>>>>>>>>>>>> Mobile Apps>>>>>>>>>>>>>>>>>>>>>>Take-home Products

a) International development- To allow for international markets to develop new products that better suit their cultures that could add value to the US market as well such as the Green Tea Latte developed in Japan’s Starbucks.

b) Online Storefront customization- Allow you to create a profile online, order online, create new drinks etc.

c) Mobile app- Could locate starbucks locations, put in drink orders etc.

Kathleen Lee, Case Study: Starbucks Coffee

Frame of Reference

Starbucks Barista Costa Coffee CCD

Store Format Single Format Multi-Format Multi-Format Multi-Format

Ambience/Experience

Great ambienceBrand plays on

the overwhelming

experience

Made keeping in mind a particular

theme. Same for all

Almost same for all

Made on one theme only

Brand Status US based, Premium

Aspirational

India based,Lost the classy

status

UK based,Aspirational

India Based,Functional

Price In India, Highly Priced

At parity with most of the competitors

A bit over priced Affordable pricing structure

Coffee Quality At parity At Parity At parity At parity

Service Quality At parity At Parity At parity At parity

Competitors

Situational Analysis• Starbucks launched in India in 2012 and its further growth is now stagnant

whereas in other parts of the world it has reached the maturity stage*

• The taste that savors the Indian palette is very different from the West and other foreign countries and hence still maximum population of India drinks tea**

* Kathleen Lee, Case Study- Starbucks Coffee** Joshua Berlinger, Starbucks faces one enormous problem in India, Business Insider, October 2012

*** Prakash Murali, Tea Report, Care Research, a division of the CARE Ratings, June 2013

Contd.

• Starbucks faces one serious problem – they have to prepare a menu that suits the Indian taste buds and is also economical*

• Most of the people find the brand not to be affordable and consider it as a big hole in the pocket**

• The brand needs to maintain its international standard since it is positioned around the amazing experience one gains at a Starbucks store

• The brand needs to attain an aspirational yet a functional status

* Joshua Berlinger, Starbucks faces one enormous problem in India, Business Insider, October 2012** Primary Research done by Group

Future Aspects

• As per the CEO, Howard Schultz, the growth model is introducing new products and new brands inside our stores.

• We introduced VIA instant coffee in our stores.

• Instant coffee is a $24 billion global category that has not had any innovation in over 50 years.

• Build upon the emotional connect that Starbucks has with its loyal customers

• Draft off of our stores into ubiquitous channels of distribution and then integrate that into the capability and the discipline we have around social and digital media.

• Introduce better reward systems via Starbucks Reward Card that could further instill the customers to go to Starbucks

• Biggest growth constraint for Starbucks is ‘Human Capital’ as the brand is looking out for only the world-class who have values similar to that of the brand

Source: Starbucks’ quest for healthy growth: An interview with Howard Schultz, Mckinsey.com