Starbucks Entry Strategy in India

Presented by : Team STAR

Agenda

• The Starbucks Story• The India Story• Can Their Marriage Work?• The Proposal Story

The Starbucks Story

Starbucks History

Starbucks was born in Seattle civilian traditional market

Entered 32 global markets, at a rate of 3-4 shops daily

Entered great China market by Joint Venture

40,000 outlets!!!!!!

1971 1996 1998 Future

Starbucks History

Starbucks Success

• http://www.youtube.com/user/starbucks?blend=1&ob=4#p/u/0/KEodK38cmvE

Starbucks Success

• Starbucks Culture:– Product & Service 5 senses: taste-smell-visual-audition-touch– Brand: position-identity-word of mouth

• Management – Diversified entry modes – Employee training

Starbucks Success

“We aren’t in the coffee business, serving people. We are in the people business, serving coffee”

--- Howard Schultz (Serwer, 2004)

You & StarbucksIt’s bigger than coffee !

The India Story

India - The Re-Emerging Economy

• GDP – $ 1.73 trillion US dollars– Estimated growth of 7.5% YoY

• FDI– $ 197,935 million US dollars, from April 2000 to April 2011

• Political Situation– Relatively stable congress has been in power consecutively for 2 sessions– Corruption level is high, but measures are being taken to make the system as

transparent as possible• Employability

– Good command of English– Flexible about working hours– Good grasping power

Indian Consumer Market

The Indian Consumer

Characteristics• Indians are touch and feel

consumers• They get lost in super markets• Highly dependent on word of mouth• Love celebrity endorsement

Needs•They need assistance and importance•They need to be looked after•Product pricing and quality•Indian consumers need freebies

Western Influence - Experience America/Europe• Urban middle and upper class Indian consumer has a positive attitude towards

western trends.• The Indian consumer has become much more open-minded and experimental • Exponential growth of western trend reaching the Indian consumer by way of

the Media and Indians working abroad

Coffee chains growing in India

Market’s Estimated Potential• Revenues: $800-900 USD by 2015• Café : 5000 by 2015• Consumption: Compounded Annual Rate of 25%

Café Market Over the Years• Total 1500 units, 1000 have opened in last 5 Years• Coffee Consumption: 85gm Per Capita • 3rd largest Coffee Bean Producer of the World

Major Players• Café Coffee Day • Barista Lavazza• Costa Coffee

Can Their Marriage Work?

Cultural Distance Administrative Distance

English is widely spoken in both the countries.

India and the U.S have close political, economic and military relations.

Improving ethnic ties between India and the U.S. Asian Indians constitute 1% of the U.S population.

India is the world’s largest democracy and has a politically stable environment.

Similar to the U.S, India is a secular country with high religious tolerance.

India is a member of WTO and has an open policy for foreign investment in retail industry.

Different social norms in the two countries, but this divide is closing fast.

India has a strong legal system, which makes it a safe business destination.

CAGE Analysis - I

CAGE Analysis - II

Geographic Distance Economic Distance

The two countries are about 7500 miles apart and don’t share a common border.

India is the fastest growing consumer market in the world.

Excellent transport connectivity between India and the U.S .

Per capita income has doubled in India since last seven years because of economic growth.

India has a long coastline and has good shipping connectivity.

Average household disposable income is expected to grow by 5.3% each year.

Existing internet and telecom connectivity between the two countries.

The U.S is one of India’s largest trading partner and is also the largest foreign investor in India.

The Proposal Story

Global Strategy Transnational Strategy

Home Replication

Multidomestic Strategy

Global Strategy Transnational Strategy

Home Replication

Multidomestic Strategy

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Pressures for Local Responsiveness and FlexibilityLOW HIGH

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Entry Strategy

Potential Mode of EntryMode of entry Advantages Disadvantages

Licensing Lower cost and risk No tight controlRisk for losing know-how

Franchising Lower cost and riskFast growth

Quality controlHard monitoring

Joint Venture Benefit from local partnerShare cost and riskPolitical considerations

Loss control of technologyNo tight control of partnerConflicts and battles

Wholly -owned subsidiaries

Technology controlTight overall control100% share of profitsLocation and experienceCurve economy

Full cost and riskCulture problems

Mode of entry Advantages Disadvantages

Licensing Lower cost and risk No tight controlRisk for losing know-how

Franchising Lower cost and riskFast growth

Quality controlHard monitoring

Joint Venture Benefit from local partnerShare cost and riskPolitical considerations

Loss control of technologyNo tight control of partnerConflicts and battles

Wholly -owned subsidiaries

Technology controlTight overall control100% share of profitsLocation and experienceCurve economy

Full cost and riskCulture problems

Mode of Entry in Other Markets

58%29%

4%8%

Starbuck's previous choice for mode of entry

Joint VentureLicenseWholly OwnedMajority Owned

Choice of the partner

Offer- 19 Coffee Estates- 6 Tea Estates- Coffee Curing- Instant Coffee

Vision- Preferred choice in the premium markets- Customer centricity, quality, sustainability and an engaged workforce- Respected organization

Mission- Enhance value to stakeholders- Improving the quality of life of our people.

Values - Integrity- Understanding- Excellence- Unity- Responsibility

Terms of the JV

• Stakes– 51% for Starbucks / 49% for Tata Coffee

• Lock-in period– 5 years

• Buy-out strategy– If the 51% rule disappear, then they can reconsider the stakes

proportion

• Organization within Starbucks– International Division Structure

Q&AFrom the board

Our Competitors

Café Coffee Day

• Pioneers of Café culture in India• Retail division of India’s largest coffee

conglomerate• Coffee is priced above 50 INR (~US$1) onwards• Awarded India’s most admired F&B Retailer last

year• Operates 1,134 outlets across India

and plans to add another 815 outlets by 2014

Barista Lavazza

• Owned by Lavazza, Italy’s largest Coffee company

• Targets the top 20% of the consumers• Plans to open about 300 outlets by 2012• First coffee retailer in India to start a loyalty

program• Adjusted as the Most Admired Retail Leisure

Chain in 2011

Costa Coffee

• First international coffee chain in India• Owned by Costa Coffee, the second

largest coffee chain in the world• Adopted the master franchisee model to

enter the market• Targets only the metropolitan cities ruling out

the option of expanding in Tier II and III cities• Plans to have 300 outlets in the next four

years

CSR in India

Starbucks CSR in India

• India is the world’s third largest coffee exporter• Raise the coffee farmers to C.A.F.E. and Fair Trade standards• Increase volume of export quality coffee in India• Starbucks will gain reduction in costs by securing local supply

of coffee

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Thank you!